It won’t, but content is real messy. The line I use is “content is king but monarchies tend to get messy,” and if Google lets its sky-high share price get to its head, it might end up falling on its sword.
Indeed, unlike many former high flying dot com stocks, Google generates a lot of money. Google is on pace to earn $1 of every $4 spent in the US this year on advertising. And unlike previous years, the money is not coming from VCs funding and coffers but rather established corporate advertisers, small and medium sized businesses and individuals using its Ad Sense. On this note, it’s fundamental to note that while yes, Google gets 99.9% (it literally does, the 0.1% comes from licensing of its search technology to corporate clients), the client base is spread out amongst practically the entire economy and the entire world. I never bought Google stock because I listened to the institutional imperative and since then, it seemed too risky. I do however think that Google is worth every penny and could be worth much more; so I certainly do not want to ring any unnecessary alarm bells.
However, it’s important to state that Google’s rumored interest in paying upfront fees to content owners might be very dangerous (for our earlier take on RIAA and Hollywood not learning from history, click here):
According to the Financial Times:
“The fact is that in three to six months every media company’s going to decide that their stuff gets taken down or that they get paid for it,” a media executive said, likening the negotiations to “a big chessboard”.
So far Warner Music, Universal Music and Sony BMG have signed agreements with YouTube to supply some of their content in exchange for licensing fees and a share of associated advertising revenue.
In lieu of upfront payments the music companies received equity stakes in YouTube worth tens of millions of dollars.
Google, having averted that threat, has turned its attention to the film and television companies, offering one $100m to license its content over a two-year period, according to a person familiar with the matter.
ZDNet adds/speculates:
If Google has to provide similar guarantees, in the $300 million range for each of the major networks and $100 million to the smaller nets, such as A&E, to avoid suits when YouTube users upload content from these companies, its content costs would rise precipitously.
Indeed, indeed it might. Between the major film studios, smaller shops and every other content producer whose content is being pirated and played on YouTube, Google might find itself in the red to the tune of $1 billion. That’s $1 billion in initial outlays (and probably for a limited time, say 1 year, tops) on top of its $1.65 billion in stock that Google would be gambling on video content… a red hot but still unproven field.
Video on the web was a $235 million market in the US in 2005, grew to $480M in 2006 and is set to hit $1 billion in 2010 and $2.3 billion in 2011… but let’s face it, these numbers are all abstract numbers based on a wild array of variables of which each single factor can change on any day.
No one has any clue what TV will represent on the Web in 2007, let alone 2010. But, since TV advertising is a $75 billion industry, obviously it’s tempting to tempt fate, as is Google.
Google’s got $10 billion in cash and other securities. Paying $1 billion is not a large hit if it can secure rights to film studios’ and music labels’ content… but once a financial model is in place, the RIAA and Hollywood will immediately diplicate that and offer its content to other digital distributors so Google’s video content will not be as valuable as they might think right now.
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