Google Acquires YouTube for $1.65 Billion

Oct 9, 2006  •  Post A Comment

Google gobbled up its biggest online video competitor with its $1.65 billion acquisition of YouTube, announced Monday at the close of the financial markets.

The deal is a stock-for-stock transaction based on the 30-day average closing price two days prior to the close of the transaction. The deal should close in the fourth quarter. YouTube will operate independently after the deal closes.

With this deal, Google leapfrogs other video-sharing sites and jumps to the head of the pack. In less than a year, YouTube has come to dominate online video business, rising from 5 million unique visitors in January to 34 million in August. That same month, Google Video drew 13.5 million unique visitors, according to Nielsen//NetRatings. Competing audience measurement service comScore put YouTube at 19.1 million unique visitors in August, compared with 11.9 million for Google Video. Either way, YouTube is far ahead of Google Video.

The Google-YouTube union also marks a new era in online video, one that enters a more professional phase. The marketplace has existed with a Wild West mentality for the past year, but YouTube has begun striking deals this month with content rights holders that protect holders’ content. Deals like the ones crafted with CBS, Universal Music Group and Sony BMG represented a step forward for YouTube, which had struggled to generate sales and had been mired in copyright disputes with media companies.

Its new corporate parent, Google, however has been adamant about protecting copyright and working with content owners. Google built a $6.1 billion-per-year Internet business by creating an efficient, automated way of selling ads that target consumers with the spots they most want to see. The company will likely find ways to quickly monetize the user base on YouTube.

Google beat out News Corp., Yahoo, Microsoft and Viacom, all of which were said to be exploring a possible purchase of YouTube. Google was rumored to be in talks with the closely held video-sharing site in early October. YouTube has been a magnet for acquisition speculation lately, following Viacom’s $200 million purchase of Atom Entertainment and Sony’s $65 million acquisition of Grouper this summer. In September, CBS was rumored to be interested in the site.

According to Internet tracking firm Hitwise, YouTube’s average session time is double that of Google Video’s, at 18 minutes 33 seconds in September versus nine minutes nine seconds for Google Video.

ComScore reported that about 30.5 million unique visitors streamed video on YouTube in July, and those visitors initiated 649 million streams total. By contrast, Google drew 7.5 million unique visitors who streamed about 60 million videos total.