Last weekend's $1.6 billion deal between Google and YouTube left some people scratching their heads over the enormity of the price-tag. New media consultant Rishad Tobaccowala tells Bob why the online video site is worth that much., despite the giant obsticles Google will face in making YouTube a money-maker.
BROOKE GLADSTONE: This is On the Media. I'm Brooke Gladstone.
BOB GARFIELD: And I'm Bob Garfield. Every day 70,000 new videos are posted and a hundred million videos are streamed via the vast global video repository called YouTube. Whether those videos are personal diaries, musical mash-ups or bits ripped from The Daily Show, YouTube is all about harnessing the creative energies of everyman for the benefit of every other man around the world. That's why many users feel a sense of ownership about YouTube. It's pure. It doesn't pitch. And that's why when Google bought it this week for 1.65 billion dollars, it worried some of the faithful.
MAN: What happens if Google decides to just turn YouTube into something like Google Video? There goes the whole community aspect of it, and I think that'd be terrible. Who do we turn to now?
BOB GARFIELD: Offending the sensibilities of the YouTubisphere is but one of the many obstacles facing Google as it attempts to transform a media phenomenon into an ongoing business. Another is the basic question of who owns what in the videos that are posted there? Rishad Tobaccowala is CEO of Denuo, the new media consultancy. He says lawsuits over unauthorized use of copyrighted material are the next shoe to drop. Rishad, welcome back to the show.
RISHAD TOBACCOWALA: Thank you.
BOB GARFIELD: Well, let's talk about this copyright infringement issue, because it continues to come up around YouTube. Not only can you find large portions of television shows and movies on YouTube, many of the personal user-generated videos have music underneath them that, you know, they simply don't have [LAUGHS] the rights to use, but there it is on YouTube anyway. How big a potential problem is that?
RISHAD TOBACCOWALA: It's potentially a very big problem right now, because, a) obviously Google has money. YouTube did not have money. Second is for Google to justify the 1.65 billion dollars, they're going to have to try to start monetizing those videos. And what tends to happen is you don't sue somebody if they don't make any money. But the moment they start making money on your content, you sue them. And that's one of the reasons why you're seeing Google trying to make relationships with various copyright owners. But they need to get all the major copyright owners. Otherwise, if anyone is left out, they'll sue.
BOB GARFIELD: It's hard to see at first glance where exactly YouTube will put any advertising that it has on its site. It has said that the idea of running commercials before a video rolls, so-called "pre-roll" advertising, is absolutely out of the question. What exactly are they going to sell to advertisers?
RISHAD TOBACCOWALA: They are going to try to figure it out. The way they think long-term may have nothing to do with selling advertising in their very [LAUGHING] near future. The first thing is they have prevented YouTube from becoming a part of Microsoft, Yahoo or anybody else. And when you have as much money as they do, it basically keeps the momentum going for them, which is they're an unstoppable force. The second is they are a company that likes iterating their way to success. The reason that their search works so well is because more people search on them, so there are more and more ways to iterate and more cycles. Their Google Video was not a very good place, because not too many people used Google Video, so they couldn't have their engineers and their software and their programmers learn how to scale and learn better about how video search works. Now, with the kind of traffic that our friends at YouTube have, they have a way to experiment. Think of this as a large R&D place for them to figure out how video search goes.
BOB GARFIELD: As I understand it, you don't think that they ultimately can fail. What is it about YouTube that is so promising in the end?
RISHAD TOBACCOWALA: We are moving into a generation of people who basically like creating content as much as they like consuming content. We're living in this generation where everybody expects to be famous, and the way they become famous is by saying, here is my riff on the world. And YouTube happens to be one of the places which is the canvas on which they paint their lives. As a marketer, eventually you are marketing to people. If this is how people spend their time, you have to align with them or you're no longer a marketer.
BOB GARFIELD: Rishad, you, for many years, have been in the media buying and media planning and the media future thinking-about business. You know Madison Avenue. You know how advertisers think, and you know what a bunch of scaredy-cats they are. Are they prepared for whatever this YouTube and Google deal seems to presage? Are they ready?
RISHAD TOBACCOWALA: My sense is at the current time, most people are not ready, and, so to a certain extent, they're sort of dazed and confused as to what is basically happening. Three years ago, if you were planning things, you would not have thought about iTunes, YouTube, MySpace, Google. Right? Now, I said, let's start looking at three weeks ago. In the last three weeks, give or take one week, you basically have had the Google/YouTube relationship, you've had Freston getting thrown out -
BOB GARFIELD: Of Viacom.
RISHAD TOBACCOWALA: Right. You've got Jobs talking about iTV. You've got Amazon basically talking about Unbox. And so forget about three years. In a month, you've got a new world, and this whole idea of planning is becoming very, very difficult. In fact, what we basically say is we now have classical structures in a jazz age.
BOB GARFIELD: Well, Rishad, once again, thank you so much for joining us.
RISHAD TOBACCOWALA: Thank you, Bob.
BOB GARFIELD: Rishad Tobaccowala is CEO of Denou, the global new media consultancy based in Chicago.