Google to buy YouTube in $1.65B stock deal

YouTube operates a wildly popular Web site showing original videos in a range of quality from amateurish to professional. It will continue to operate independently after the Google acquisition "to preserve its successful brand and passionate community," Google said Monday when it announced the deal, which is expected to close in the fourth quarter. The number of Google shares to be issued will be based on the 30-day average closing price two trading days before the deal is completed, Google said.

Although YouTube Chief Executive Officer and co-founder Chad Hurley had previously insisted that YouTube wasn't for sale, that view changed because Google will allow YouTube to operate independently, he said during the conference call.

Bringing YouTube into the ever-growing Google empire will mean that users have a "better, more comprehensive experience" when they upload, watch and share videos, Google said. It will also provide more opportunities for professional content owners to get their work out to a wider audience, Google and YouTube executives said in a conference call Monday afternoon..

The two have similar corporate values in that they are both committed to users first and also to innovation, Google Chief Executive Officer (CEO) Eric Schmidt said. "Together, we are natural partners to offer a compelling media entertainment service," he said.

The deal is "an exciting next step" for Google, he said, adding that the company expects other deals that are related to providing video over the Internet. YouTube has "built a remarkable team" that is "a perfect example of the kind of people we like to work with," he said in the conference call. YouTube's business is "extraordinary," not just in terms of its business success, but also in its vision of serving users, Schmidt said.

YouTube will benefit from Google's global reach and technology know-how, Hurley said. "We're excited by this announcement and thrilled to join forces with the Google team," he said. The acquisition will boost YouTube's new video content platform, which is expected to launch in the next month, he said. The deal is also expected to help advertisers by allowing both more video ads on the sites operates by the merged company, executives said in a comment echoed by analysts after the conference call.

Perhaps a more obvious fit is that the companies will merge Google's search expertise with YouTube's video expertise, pushing what executives believe is a hot emerging market of video being offered over the Internet. Google Video will continue to operate, executives said, calling that service "a very valuable aspect of the Google experience." The aim is that it will be improved as a result of the acquisition, Google executives said.

YouTube, founded in February of last year, has more than 70 million videos viewed daily on the site, according to the company. Besides allowing video viewing, the site has become a social networking phenomenon. Among other things, it has contests where viewers choose their favorite videos, including those submitted by musicians.

Separately on Monday, both Google and YouTube announced deals with recording companies for displaying music videos online, in what is seen as a means to avoid copyright infringement lawsuits. Sony BMG Music Entertainment and Warner Music Group Corp. both signed deals with Google for their music videos to be on the Google Video Web site while Sony and Universal Music Group signed deals with YouTube to make their video content available on that site.

The deal is a good move for Google, said analyst Aram Sinnreich, founder and managing partner with Radar Research LLC, a Los Angeles technology and media research firm.

"$1.65 billion is certainly a lot, but for a company like Google who will be using it as part of an integrated cross-media advertising strategy it may actually pay off," said Sinnreich. "There aren't a whole lot of companies left to acquire with this kind of reach online," he added.

Analysts also noted the similarities between the corporate cultures and how the companies developed and have grown. "Google has become a huge brand without advertising -- same with YouTube," said David Hallerman, a senior analyst at Emarketer in New York.

Because YouTube has registered users, Google over time will know more about user behavior, which will enable the company to target advertising, he said.

Although Google executives adamantly said otherwise, Hallerman doesn't think there is a future in the YouTube brand name. "YouTube is a silly name," he said. "Google will get rid of it over time."