Is the Google-YouTube deal a match made in heaven, or a marriage made in copyright-litigation purgatory?
In the second of three installments, The Motley Fool's Mac Greer talks law and order with Pulitzer Prize-winning Breakingviews.com senior commentator David Vise, author of The Google Story.
Question: One of the potential challenges for YouTube involves copyright issues. To what extent do you think those concerns will continue to be an issue for Google (NASDAQ:GOOG), now that it owns YouTube?
David Vise: I think they are a continuing issue for anybody who owns YouTube, but I think Google is comfortable fighting those battles, because Google is fighting those battles, too. Google has been sued by the [Association of American Publishers] and a number of the major publishers in the U.S., and Google has been sued by the Author's Guild, because Google is digitizing and copyrighting millions and millions of library books [that] it is going to make available, freely searchable on the Internet. Many of them are already there, and that case, I think, will end up in the Supreme Court. Google is being accused of copyright infringement. So Google is fighting these legal battles itself.
Now, in the realm of books, Google has been sued and won. And Google has been sued and lost in the realm of Google News and the use of its service. That has happened to Google in France. Google also has won trademark suits in the U.S. and lost them in Europe, where the laws are different in France and Belgium. If you are the Louis Vuitton brand, and somebody else bids on the words "Louis Vuitton" and pays up to Google, so that when somebody types "Louis Vuitton" in the search engine, The Motley Fool ad pops up instead of the Louis Vuitton ad at the top -- that is legal in the U.S. That is not legal in France, according to the courts. Google can't do that, because what the court in France is saying is [that] it is not fair business practice to make Louis Vuitton have to pay Google to secure top billing for its own name, something that is already trademarked, licensed, and invested heavily in.
Google has a lot of experience and expertise and an army of lawyers working on trademark and copyright issues. Google has more lawyers working on those things than YouTube has employees. (Laughs.)
Question: And speaking of which, prior to this deal being consummated, YouTube didn't really have any real assets, they didn't know how to monetize the site, and now they are swimming in a $1.6 billion stock deal. Do you expect these lawsuits to increase, now that Google has got these deep pockets?
David Vise: I think Google is going to try to head those off by entering into friendly deals with content providers.
Question: Is that going to work?
David Vise: Partially only. In fact, I think they had the Google-YouTube deal all but signed last week, but they waited to announce it until today, because they wanted to be able to simultaneously have news out there that YouTube and Google independently each had inked a series of licensing deals with various providers of audio and video. And if you saw that Universal and some of the others announced that they have these deals with YouTube and Google, that was a tactical move on Google's part.
I think you have to say that Wall Street fell in love with this deal the minute it heard about it, because they thought about YouTube being the video site of choice and Google having the best ability of anyone to turn eyeballs into money, and so Google has added billions and billions and billions of market value to its stock since news first surfaced of these talks. But by the end of the day today, people were starting to think about the risk.
I think if anyone other than Google paid $1.6 billion for YouTube, people would be scratching their heads, and much more skeptical about the transaction. But because Google has done no wrong to date, they are given the benefit of the doubt on virtually everything they do. And as good as they have been at branding and delivering and exceeding expectations, it is easy to understand why they are given the benefit of the doubt. They deserve it.
Question: And one more question about the risk, and then we will move on, David. One of the biggest critics of YouTube has been Broadcast.com founder and Dallas Mavericks owner Mark Cuban. I was reading Mark Cuban's blog today, and he was writing about the legal and copyright concerns. He said, "I still think Google lawyers will be a busy, busy bunch. I don't think you can sue Google into oblivion, but as others have mentioned, if Google gets nailed one single time for copyright violation, there are going to be more shareholder lawsuits than Doan's has pills to go with the pile-on copyright suits that follow."
David Vise: I think Mark Cuban is shooting from the hip there. The whole copyright issue is not about whether or not Google can do what it is doing. It is about whether it needs to pay royalties for doing so.
Question: Is the Napster (NASDAQ:NAPS) comparison fair?
David Vise: No, not at all. . If someone who has copyright protection does not want Google to digitize, let's say, a book -- if they tell Google, Google will not digitize it. Google has got a technology they are going to be using with YouTube that will enable people who have videos, if they don't want them to be on YouTube, they won't be. If they do want them up there, they can be. Depending on your interpretation of Internet law, this opt-out may be all that is required.
Remember, the issue here is not whether or not Google can digitize all these books, whether or not Google will be highly profitable, whether or not Google will continue to be the leader in defining the Internet age -- really, the icon of the Internet age. The question is just whether, as it relates to copyright issues, whether Google can make snippets from these books and other things available, whether YouTube can make these kinds of videos available, or whether they have to pay something to do so.
If they have to pay something to do so, they will enter into revenue-sharing arrangements and pay something to do so. It doesn't mean the business will go away. It doesn't mean there will be shareholder suits. I think Mark Cuban is shooting from the hip there, and I think he has not thought it through carefully.
Google has partnerships with almost every major publisher, including some they are suing over the book digitization project. Others are in partnership with Google in connection with [the] book search that Google is doing. It is not anywhere near as simple as some have portrayed it.
Question: And I want to talk about some of the behind-the-scenes color with the Google-YouTube deal. I read in The New York Times where the deal with YouTube was actually consummated in a Denny's. You have spent a lot of time writing about and talking with the founders of Google. Now, are these guys ultimately more comfortable in a Denny's than a boardroom? Did that surprise you when you heard that?
David Vise: It didn't surprise me at all. It is a classic way to do it -- on the back of a napkin at Denny's. When Sergey Brin and Larry Page got their first investor to write them a check for $100,000, you know what they did? They went to Burger King to celebrate. These are young, single entrepreneurs who are living a certain kind of lifestyle. These are not corporate types. These are entrepreneurs pursuing a passion, and they are lucky, usually, in part, when their invention turns into a business and takes off and gains traction.
In our next installment, David Vise talks about some of the deal's implications for Yahoo! (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), and other competitors.
Yahoo! is a Motley Fool Stock Advisor pick, while Microsoft is a Motley Fool Inside Value selection. Try any of our Foolish newsletters free for 30 days.
Fool contributor Mac Greer holds no shares in any stocks mentioned in this story. The Fool has a disclosure policy.
