[Ecommerce] NYT story on youtube

[Manon Ress]

YouTube=92s Video Poker
http://www.nytimes.com/2006/09/30/business/30tube.html?
_r=3D1&ref=3Dtechnology&oref=3Dslogin
By SAUL HANSELL
Published: September 30, 2006

Chad Hurley effects a calm, almost detached demeanor, even as the Web
site he runs, YouTube.com, has provoked a frenzy of consternation
among executives of record labels, TV networks and movie studios. For
millions of Internet users, the site that opened to the public less
than a year ago provides a daily fix of odd and interesting video
clips, from White House speeches to frat house pranks.

YouTube has also become a vast repository of video taken without
permission from television shows and movies, not to mention home
movies constructed =97 with nary a cent paid in royalties =97 from
commercial music and imagery.

Mr. Hurley was surrounded by curious media executives at Allen &
Company=92s annual Sun Valley mogulfest in July. They wondered: friend
or foe? Is he earnestly working to make YouTube and its exuberant
users conform to the existing standards of copyright law and
contractual obligations? Or is he cynically flouting the law to
enable YouTube to grow rapidly, calculating that he will be able to
cut a more advantageous deal later, or perhaps sell the company to
someone else who will be able to sort through the mess of liabilities?

In an interview this week, Mr. Hurley, not surprisingly, portrayed
himself as mainly trying to improve the site for its users while
working to find arrangements that will satisfy Hollywood.

=93There=92s going to be bumps along the way, but we=92re trying to make an
effort to make the new model work for everyone,=94 he said. =93We=92ve been
developing features and working on the problem. I don=92t think we have
been just sitting back and just buying fancy furniture.=94

YouTube has started to attract mainstream advertisers and the site
has become financially stable, Mr. Hurley said, despite the huge cost
of showing more than 100 million video clips a day. Potentially most
significant, Mr. Hurley pointed to a deal signed recently with Warner
Music that he hopes will be a model for dealing with Hollywood and
record companies from now on. YouTube is developing technology that
will identify Warner music used in a video that is uploaded. When the
site plays those videos, it will share some of its advertising
revenue with Warner and others with copyrighted material that is used.

Moreover, Mr. Hurley says, there is much more to YouTube than piracy.
And professionals are creating programs specifically for YouTube: the
recent series of clips posted under the name Lonelygirl15, for
example, showed an actress pretending to be a disaffected teenager.

Others are not so sure. Doug Morris, the chief executive of the
Universal Music Group, said at an investor conference recently that
YouTube and MySpace, the social networking site, =93are copyright
infringers and owe us tens of millions of dollars.=94

And Mark Cuban, who founded Broadcast.com, an early Internet video
site that was bought by Yahoo, argued on his blog that YouTube did
not have a viable business other than piracy.

=93It is absolutely reminiscent of Napster,=94 Mr. Cuban said in an
interview. =93It=92s nice that they say =91it=92s different this time,=92 b=
ut
it=92s not.=94

Mr. Cuban argues that the deal with Warner is unworkable because it
is too complex, with so many parties with potential claims on videos.

Alex Zubillaga, Warner=92s executive vice president for digital
strategy, said in an interview that these problems could be solved.
=93This is a framework that allows us to monetize our assets while we
unleash the creativity of the user,=94 he said.

Warner, he said, is reaching out to other major media companies to
negotiate how royalties from YouTube will be split in cases where
more than one song or video program is included on one clip.

Still, Mr. Zubillaga said, dealing with YouTube =93is not the typical
situation we run into every day=94 because the company has not thought
through many of the issues raised by its business. =93Part of what we
are doing is working with them to figure out what their business
model can be,=94 he said.

Now 29, Mr. Hurley was a graphic designer at PayPal, the money
transfer system. After it was acquired by eBay, he and Steve Chen, a
former PayPal engineer, were looking for a new company to start. They
decided to make a site that would help users exchange video files,
much as many sites had been created to hold photographs.

Mr. Hurley found a backer in Roelof Botha, the former chief financial
officer of PayPal and now a partner with Sequoia Capital, the
powerful Silicon Valley venture capital firm that had backed Yahoo,
Google and others. Sequoia is betting so heavily on YouTube that it
has provided all of the company=92s financing so far, rather than
bringing in other firms, as is common.

This was hardly a unique idea. There are several hundred video
sharing sites. But YouTube took off quickly. Its technology was
simple and easy to use. In addition, it tapped into the rapid growth
of MySpace. YouTube developed a system that would allow anyone to
insert a video directly onto a Web page. MySpace users leapt on this
technology to show videos to their friends, and in turn they spread
the YouTube logo throughout MySpace.

************************************************
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

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