Google buys YouTube for $1.65 billion in shares

Google has bought internet video site YouTube in a $1.65 billion all shares deal. The video site will continue to operate as a separate unit within Google, the companies said.

The deal is Google's largest in its eight year history and marks a high water mark in what is fast becoming known as a second dotcom boom. YouTube has been funded by two rounds of venture capital funding totalling $11.5million and has yet to turn a profit. The company is 18 months old.

YouTube is at the centre of the user-created content phenomenon known as web 2.0. It was created so that people could host and view their own video clips for free and took off as widespread broadband use made video clip viewing possible.

The company says that it is the source of 100 million video viewings a day and that 65,000 videos a day are uploaded to the site.

The major issue facing the site, though, is the fact that though it may have been designed for sharing personal videos it is widely used for sharing television and film material which belongs to copyright holders. That use without permission could cause Google major problems.

As it stands YouTube takes down videos when requested by a copyright holder, but this eliminates only one version of a video; there may be tens more lurking within the site featuring the same clip.

While the asset-poor YouTube was not a viable target for major law suits, Google, whose market capitalisation is $130 billion, is a much more attractive proposition. “I still think Google lawyers will be a busy, busy bunch," said Mark Cuban in a statement. Cuban founded video and audio site Broadcast.com, which was sold to Yahoo. Cuban recently said that only "a moron" would buy YouTube.

"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,” he said.

YouTube founders Chad Hurley and Steve Chen, who will now be worth hundreds of millions of dollars on paper, said that the clincher on the deal for them was that the company was able to retain its independence.

"What really helped accelerate discussions was the opportunity to operate independently," Hurley told Reuters. "It will allow me and Steve to sharpen our focus for our community and for our partners and to have the resources and experience of Google with us."

“Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience," said Eric Schmidt, chief executive of Google. "Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers.”

"We're going to stay committed to developing the best service for you, the most innovative service and tools and technologies so that you can keep having fun on our site," said Hurley in a message to users on YouTube.

YouTube and its 67 employees will maintain the brand name and will continue to work out of separate offices, the companies said.