Google buys YouTube

SAN FRANCISCO - Web search leader Google today said it has agreed to acquire top video entertainment site YouTube for US$1.65 billion, putting a lofty new value on consumer-generated media sites.

The deal, the first to value one of the new crop of user-participation websites at more than $1 billion, combines two of the most popular internet brands: Google, synonymous with Web search and rapid innovation, and YouTube, a Silicon Valley upstart that has spearheaded the video-sharing craze.

In anticipation of the acquisition, investors pushed shares of Google up $8.50, or 2 per cent, on Nasdaq on Monday to a closing price of $429.00 -- a level not seen since late April. In extended-hours trade following the announcement of the deal, Google stock dipped to $427.63.

The stock had already gained about 2 per cent on Friday, when reports emerged that a Google-YouTube deal was in the works. In the last two trading days, Google has added nearly $4 billion in market capitalization -- or more than twice what the company has agreed to pay YouTube.

For Google, the acquisition of YouTube would thrust the Web search leader quickly into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo Inc. and various Web start-ups, analysts said.

YouTube's explosive growth -- it now serves 100 million videos per day -- has been buoyed by the uploading and viewing of untold amounts of pirated video clips.

It has grown rapidly to dwarf Google's own Google Video.

Earlier this morning (NZ time), the Universal Music Group said it will offer thousands of its music videos to the millions of users of YouTube, ending a public feud over the protection of artists' rights.

YouTube's deal with Universal was similar to an earlier deal with the Warner Music Group , in which the label will offer thousands of its videos to YouTube users as well as make songs available to be used in the site's homemade videos.

Media companies that have signed deals with YouTube have also cited a new filtering technology the company is developing that lets rights owners eliminate pirated videos found on YouTube, or have the service begin selling targeted advertising around the clip.

Within 30 minutes, other deals came pouring in: Google announced separate music video deals with Warner Music and Sony BMG. YouTube announced another music video deal, this time with Sony BMG, and a separate short-form video deal with US television network CBS Corp. .

A top Google executive said the acquisition was part of a broader strategy to invest in the emerging online video market.

Google Chief Executive Eric Schmidt told investors and news reporters on a conference call following news of the deal that YouTube will be "one of many investments" Google plans to make in the video field.

Schmidt said that Google will run YouTube as an independent company but also preserve its own Google Video as a separate operation. He described YouTube as the "clear winner in networking and the social side of video" for the way the site encourages its users to share videos with their friends.

"We were very impressed and that's what led us to begin conversations with YouTube," Schmidt said.

- REUTERS