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Google Inc. deal with YouTube? Maybe they’ll make a movie about it?

Now, as rumours go, this is a good ‘en. And if you’re a frequenter of Ars Technica like myself, then you’re inclined to take this with a catering sack of salt.

Rather than deal with the nuts & bolts financial aspect (which I have neither the head nor the stomach for), I’ll deal instead with the stories behind the story.

“If, like us, you expected the new and improved Google Video service to rival something like Apple’s iTunes store, then do yourself a favor and don’t visit the Google shop for a few months. Google has done nothing to celebrate its unique access to shows such as CSI, Survivor and Star Trek. Instead, the company has buried CBS’s shows beneath a dismal interface wrapped in a shambles of a delivery mechanism.”

Couldn’t have said it better myself .. well, that’s probably not entirely true. But I’m feeling indolent today, so I’ll leave the honours to Ashlee Vance reporting for The Register to be all scathing.

The problem for Google is that they tend to approach everything with the same minimalist eye. For some things, this is a boon. For other things, not so. And their video service is just one good example of the latter.

If anything, Google listen to feedback. However, since Google Video launched, things haven’t noticeably improved. So from a consumer perspective, YouTube have the upper hand there.

“Some people marvel at YouTube’s amazing collection of videos, including hundreds of obscure music videos. Others marvel at the company’s bandwidth bill, given that it serves up to 200Tb of traffic on a daily basis. Still others ask hard questions about YouTube’s business model and long-term prospects for survival.

YouTube has received a hefty amount of press scrutiny in recent days, with cofounder Chad Hurley appearing on the cover of the October 16 issue of Forbes magazine. The questions on the lips of most people fall into three categories: how long the company will last, whether it will be sued out of existence, and whether someone is going to swoop in and buy it.”

The heady heights of fame and notoriety and the abyssal of failure beckoning below your feet as you walk that fine line tightrope of sustainability into the future. But for YouTube, what future is there for them?

Success appears to be secured in the short-term, but in this industry, timing is everything:

“In fact, Universal Music CEO Doug Morris has as much as painted a target on YouTube’s back, saying that they “owe us millions of dollars” for infringement.”

So the question is:

“Why would Google want to dilute its earnings and get drawn into a whole new set of copyright battles, when the stock already looks expensive on a price-to-earnings basis and it has a few controversies of its own to deal with today?”

And as questions go, it’s a damn good question, too. However, there’s the possibility of a third man. And understanding his agenda might just be the angry thump that straightens this picture.

“CUPERTINO, California – August 29, 2006 – Apple® today announced that Dr. Eric Schmidt, chief executive officer of Google, was elected to Apple’s board of directors at their meeting today. Eric also sits on Google’s board of directors and Princeton University’s board of trustees.”

Did you really think I was going to let that one pass?

Now, when this news broke, enough was said for me to keep quiet, the reason for that being that anything could have been true. But with these recent rumours coming to the fore, even if a deal between Google and YouTube isn’t in the offing, then where did the rumour come from?

I see it like this: Apple begin to talk up the roll-out of a beefed-up video service. Meanwhile, a senior Googler joins the Apple board. Fast forward 30-odd days and a rumour surfaces detailing a possible buy-out of a nascent player in the on-line video market.

So let’s go crazy, eh? Let’s do a Robert X. Cringley.

As far as we know, Apple like to operate on a small scale and control both the horizontal and the vertical. Their history is one of small-scale purchases, with the obvious exception of NeXT, but for a damn good reason. In many ways, Google operates in the same way, but because of the scale of their operations they get to service a much larger audience.

As we know, for Apple to buy someone like YouTube would be a political firestorm. Currently, their iTunes Store has a limited selection of major studios offering their content. But this is to be expected, really. Over time, this will change. But if Apple bought YouTube, they could well be effectively kissing goodbye to any such future deals, or at the very least, have a much harder sell on their hands.

“YouTube may be shielded somewhat by the oft-reviled Digital Millennium Copyright Act, which has a Safe Harbor provision giving web sites a measure of protection against liability for posts made by their users. However, when a site’s business model is built on infringement, then the issue of liability takes on a different look.”

But what to do with YouTube? Are they a threat? Have they the potential to be a threat? And what happens if someone like Microsoft buys them? With their massive weight and not inconsiderable standing army of legal attorneys at their disposal, they could easily weather such a storm.

Now, given that Google has had somewhat of a fuzzy picture with regards to their video service, might they be a more logical candidate? Well, sort of. But there’s no getting around the copyright issues and it could be argued that Google has enough problems right now.

However, what we’ve seen recently from Google has me thinking. They’re not just about video as the content, they’re also about video as the delivery mechanism for advertising.

Assuming that YouTube has a pretty open-ended platform for their video — which is ostensibly Flash-based — then Google has the potential of a good fit for their video services as a whole.

“Does YouTube have much of a future in front of it? Like it or not, its large audience and immense amount of traffic demonstrate that there’s a huge audience for a searchable, eclectic mishmash of video content on the Internet.

Some analysts see a bleak future for the company. Josh Bernof of Forrester Research believes its only a matter of time before YouTube goes the way of the original Napster. Either it’s going to be sued and will lose, or the company will be forced to take down much of the content that users like…”

So what if both Google and Apple are working on a some kind of repatriation program for YouTube content? Using the know-how of Google to embed their video adverts into the content and hopefully placate the big studios and stay off an impending attack of the legal eagles?

And, in one fell swoop taking out their biggest competitor, maintaining the cool factor between their combined brands and keeping Microsofts media ambitions in check.

But much of this assumes that YouTube is just standing still:

“Chad Hurley [co-founder of YouTube] describes the site as being “financially stable” and says that its recently signed deal with Warner Music will hopefully be a model for its future dealings with the record industry.”

Right now, YouTube gets some mean traffic for its content, and enjoys a good following. But for them to go all legal and legit would most probably see off a great swathe of their target audience.

But, if what remains is legal and you’ve still get an audience in the millions, then are things all that bad? Probably not. For now, Chad Hurley has said that YouTube isn’t for sale.

My feeling is, YouTube is going to have their hand forced and be pushed into rather than politely led towards legitimacy of content, despite their current dealings. Why? Timing and the tide of change. But any big player would need to tread carefully if they wish to avoid being cast in the same light as the RIAA.

But who’s going to buy? Google and the third man Apple? Microsoft? Or maybe some conglomerate of Venture Capitalists and private investors?

I’d like to think that Google would be in there, maybe even just for the fun of it rather than just for hard-nosed business reasons. But then again, I could be wrong.

So what’s it going to be? Hard drama, fly-on-the-wall documentary of situation comedy?

Chances are, you’ll see the final cut on YouTube…

By Wayne Smallman

Wayne is the man behind the Blah, Blah! Technology website, and the creator of the Under Cloud, a digital research assistant for journalists and academics.