When Google bought YouTube, the deal was mostly panned. (but I liked it — the increase in G’s value paid for the deal almost instantly) )

Now, their CEO is admitting they overpaid:

“Schmidt had his reasons for asking his board to OK an offer of $1 billion more than what he thought the site was worth. The CEO made the comments during a deposition he gave in May as part of the copyright lawsuit Viacom filed against Google and YouTube in 2007. In short, he believed that Google had to offer that much, or competitors, presumably Microsoft or Yahoo, would walk away with the increasingly popular video site.

“This is a company with very little revenue,” Schmidt said while being questioned by Stuart Jay Baskin, a Viacom attorney. “(YouTube was) growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer–because of who Google was–paying much more than they were worth…We ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.”

Source:
Schmidt: We paid $1 billion premium for YouTube
Greg Sandoval
C/Net, October 6, 2009

http://news.cnet.com/8301-31001_3-10360384-261.html

Category: Markets

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12 Responses to “Google: We Overpaid $1B for YouTube”

  1. On balance, the Vidmeter analysis supports the following theses:

    Traditional media videos make up only a small percentage of YouTube views.
    NBCFoxTube, the hypothetical consortium, even if successful, won’t dent YouTube’s growth.
    Online video viewers usually watch short clips, not full shows.
    http://www.internetoutsider.com/2007/04/vidmeter_viacom.html?cid=65272456
    YouTube Not Built on Big Media’s Back?
    So maybe YouTube really is about the long tail, the little guy, and the lonely girl. Videos removed at the request of copyright owners accounted for just 5.93 percent of the site’s 6,725 most-viewed videos over the last three months, according to a study by video-tracking site Vidmeter (see summary, full report).
    http://newteevee.com/2007/04/03/youtube-not-built-on-big-medias-back/

    GOOG acquired a popular platform for a disruptive technology. I can understand what Schmidt is saying, but YouTube is still a going concern, no?

    If GOOG plays their cards right, w/ YouTube, they might revisit this idea, in the Future, and find they ‘overpaid’ by a whole lot less, if at all..

    They should light up more of their Dark-fibre, and get more serious about Wi-Max..

  2. dss says:

    and we should care, why?

  3. jeffshattuck says:

    Google… smart guys. They keep telling the world they “overpaid” for You Tube because You Tube doesn’t generate much in the way of revenue. Whatever.

    Google claims poverty because it doesn’t want to have to pay any sort of standard royalty rate on You Tube content. Here’s the truth, though: Google bought You Tube to gain access to the search pool and use the data to tweak the Google algorithms behind Adwords. And the better Adwords performs, the more money Google makes.

    In other words, Google is making a boatload of money from You Tube, just indirectly.

  4. impermanence says:

    Barry writes:
    “When Google bought YouTube, the deal was mostly panned. (but I liked it — the increase in G’s value paid for the deal almost instantly) )”

    Barry, regardless of what happened to the price of the stock (temporary), over-paying for an asset, purposely, is pretty stupid. (We can assume here that “overpaying” means he could have offered $1B less and still had the deal.)

    Overpaying is how business people become poor quickly.

  5. Steve Barry says:

    A study once concluded that companies with over-inflated stocks make more stupid decisions than other companies.

  6. rmasand says:

    I was just as skeptical of this acquisition when it happened as anyone. Since then however, YouTube has evolved into the quintessential provider of video on the web. As synonymous with video as Google itself is with search and Wikipedia with knowledge. Its a little harder to monetize but Google will figure it out. And a few years from now the few hundred million that Google could have saved will prove inconsequential and the acquisition will prove to have been visionary.

  7. DM RTA says:

    I agree with Mark and will raise him. YouTube will pay off big over a longer horizon, especially as mobile expands to meet its potential. Jeffshattucks’s point seems right, but to me the long term horizon (ten years+) will test this incessant ‘pay me royalties’ for derivative uses that would benefit sales if the creative product was priced right in the first place. The kids will fix what the Boomers refused to see.

  8. some_guy_in_a_cube says:

    You Tube is wonderful today but the problem for the rocket scientists at GOOG is that You Tube will be hopelessly co-opted by the next Big Thing 10 years from now if not sooner. Better to place lots of little bets with all that cash and try to land the next Big Thing or two or three. But it’s their genius ass, so who cares? They overpaid by $1.65 billion.

  9. Bobby2 says:

    Agreed that the next Big Thing will make Google’s investment appear foolhardy. MySpace anyone?

  10. Fredex says:

    Then there is Bing, an acronym that reads Bing Is Not Google.

  11. http://phones.verizonwireless.com/motorola/droid/?cmp=OTC-Droid-redirect1

    Another major wireless carrier will offer Google’s open-source Android mobile platform as Verizon Wireless agreed to collaborate on “leading-edge mobile applications, services and devices.” With this agreement, Android will now be offered by three of the four major U.S. carriers.

    AT&T is the only carrier not yet on the Android train. T-Mobile was first, and Sprint Nextel has also climbed aboard.

    Android Devices Soon

    The joint announcement doesn’t detail specific devices, services or applications, but talks broadly of the collaboration. The companies said they will co-develop “several” Android-based devices to be manufactured by leading handset makers with applications from both companies and third-party developers. Verizon said Android-based handsets will be unveiled “within the next few weeks.”

    Avi Greengart, an analyst with industry research firm Current Analysis, said the collaboration is “not a surprise.” Up to this point, he noted, Verizon hasn’t been an official member of the Open Handset Alliance which promotes Android as a platform, but “they are now.”

    Verizon, he said, “clearly needed to offer better devices to compete with Apple and AT&T,” which exclusively distributes the iPhone in the U.S., “and to reduce its overall reliance on Research in Motion,” the maker of BlackBerry smartphones.
    http://news.yahoo.com/s/nf/20091006/bs_nf/69343
    LSS: AAPL y RIMM

  12. manhattanguy says:

    and they still haven’t figured out a revenue model to make money out of it. On top of what they overpaid for the asset, they continue to pay in Operational cost.