The Copyright Wars

First on the agenda was dealing with YouTube's copyright problems, and the two companies weren't wasting any time. On the same day the acquisition announcement was made, YouTube announced it had signed content deals with Sony BMG, CBS, and Universal Music Group (the last remains its most outspoken critic to date). About two weeks after the acquisition, the culling of videos started. The first was an unprecedented removal of 30,000 videos from the service after complaints from a Japanese rights-holders group.

Most importantly, at least a month before the acquisition, Google was already hard at work on a silver bullet for YouTube's copyright problems. It was building "Content ID," an automated copyright cop for video and audio. Google's plan was to build a massive database of all the copyrighted content in the world. It had rights-holders upload media they owned to this database, and Content ID used those files to identify copies of the media that were on YouTube. Using humans to vet copyrighted work would be impossible due to the sheer volume of both copyrighted works and YouTube videos, but Content ID could scale with YouTube.

Trials for Content ID wouldn't fully launch until October 2007, and in the meantime, Big Copyright saw dollar signs. Suing YouTube as a standalone company wouldn't have gotten anyone much in damages because YouTube didn't really have any money. Google's $10 billion in cash suddenly gave YouTube very deep pockets.

Viacom began the saber-rattling in February 2007. The owner of MTV and Comedy Central demanded that Google remove 100,000 videos from YouTube. Clips of Viacom's The Daily Show and Chappelle's Show were audience favorites on YouTube, but none of the clips were licensed.

A statement from Google said the company would comply and remove the clips, but in March 2007, the relationship between Viacom and Google broke down. Viacom ultimately sued Google for $1 billion. YouTube had a "brazen disregard of the intellectual property laws," according to Viacom. "YouTube has deliberately chosen this approach because it allows YouTube to profit from infringement while leaving copyright owners insufficient means to prevent it." It was a long, messy, endless lawsuit.

To further complicate things, Google claimed that "Viacom continuously and secretly uploaded its content to YouTube, even while publicly complaining about its presence there." According to Google, Viacom understood the value of YouTube for promotional purposes, but it still wanted to sue the site for copyright infringement. Google says the company "hired no fewer than 18 different marketing agencies to upload its content to the site. It deliberately 'roughed up' the videos to make them look stolen or leaked. It opened YouTube accounts using phony e-mail addresses. It even sent employees to Kinko's to upload clips from computers that couldn't be traced to Viacom."

The legal battle went on for seven years. The most important verdict came in 2010, when The United States District Court for the Southern District of New York ruled that YouTube was protected by the safe-harbor provisions of the DMCA. The case dragged on in appeals for a few more years, with Google winning more legal battles than Viacom. The two companies finally settled the lawsuit in 2014.

While Content ID would keep the copyright sharks at bay, it opened up a whole new Pandora's Box for YouTube. The company constantly has to walk the line between copyright enforcement and fair use. For several years, copyright enforcers served as judge, jury, and executioner for videos. Google didn't add a copyright appeals process until late 2012. Content ID isn't infallible, and it tends to enforce things with a heavy hand, frustrating many of YouTube's prized content creators. Groups have also abused the DMCA takedown system to censor videos they don't like.

Even today debate rages on about who owns "remixed" content like "Let's Play" and speed-run videos, where YouTube personalities play a copyrighted video game. Does the video then belong to the game creators, or do the YouTubers' control inputs and commentary count as fair use? Should the game creators leave the video alone and be thankful for the free advertising or take control of the video through Content ID and remove or monetize it?

Data centers and advertising systems

While YouTube's legal battles continued, the other major problem Google needed to tackle was turning YouTube into a profitable business. Any company could have bought YouTube, paid for bandwidth, and waged legal battles, but Google was singularly important for YouTube because of the cash flow problems it could solve.

YouTube was burning through $2 million a month in bandwidth costs before the acquisition. What few knew at the time was that Google was a pioneer in data center technology, which allowed it to dramatically lower the costs of running YouTube.

Steven Levy's book In the Plex details Google's numerous data center innovations. Since the early 2000s, Google had been buying up cheap fiber lines from companies that overestimated demand in the 1980s and '90s. The book quotes Chris Sacca, Google's head of Special Initiatives: “We would want to pick up pieces that would connect our data center, so we’d identify the owner, negotiate, and take it over. Then we’d put optical networking equipment on one end in our data center, the same equipment on the data center at the other end, and now we’re running that stretch of fiber.” Sacca said the cost savings were immense, “We were paying 10 cents on the dollar.” At the end of Google's fiber shopping spree, Sacca said Google owned more fiber "than anyone else on the planet.” When it did have to use someone else's network, Google owned enough fiber that it could get a good deal from other broadband companies in exchange for cheap passage over its own network.

Besides a killer network, Google had data centers all over the world. Lowering the distance data has to travel not only speeds up service, but it costs less when you are running on someone else's network. By 2003, Google was planning to build its own data centers from scratch, including selecting the site the data center was built on. With sole control of a facility, Google was able to completely rethink the way data centers were built.

At the time, the conventional data center pumped the hot server exhaust air into the same room as the servers, and the entire room was air-conditioned. In its own data centers, Google placed servers back-to-back, creating alternating cool aisles, where the servers were, and hot aisles, where the exhaust poured into. This saved a significant amount of money on cooling, the primary cost of a data center. Google also realized that the standard 68-degree data center temperature was too low. Servers worked just fine in an 80-degree room.

Higher room temperatures put more stress on the servers, but Google built all of its own servers, another innovation at the time, and used cheap, rejected parts from other manufacturers. If a part broke, it didn't matter—Google's data centers worked as a single giant computer with tons of redundancies. A server could go down, and the software would detect it, put the machine offline, and keep humming along at slightly reduced capacity. An engineer was then dispatched to fix the busted machine with no downtime.

Google's exact data center costs are a closely guarded secret, but Levy estimates that "by perfecting its software, owning its own fiber, and innovating in conservation techniques, Google was able to run its computers spending only a third of what its competitors paid." Remember YouTube's $2 million-a-month bandwidth bill before the Google acquisition? While it wasn't an overnight transition, apply Google's data center expertise, and this cost drops to about $666,000 a month.

Data centers weren't the only costs Google could save YouTube. Google had the largest advertising platform on the Web, and since Google owned both YouTube and the ad platform, it could cut out the middle man. All the profits went to YouTube without having to share it with a partner.

In January 2007, Google and YouTube announced a new advertising plan. The video site would finally start showing video ads, instead of the standard text and banner ads that normal sites used. Video ads pull in much more money than banners, and everyone visiting YouTube is there to watch the videos. The company also launched overlay ads that showed up on top of the video while it was playing, right where the eyeballs were. Both of these ads would run not only on YouTube.com, but they functioned over embedded videos on other sites, too.

This money wouldn't just go to YouTube. Google also announced a revenue share plan with (formerly) amateur content creators. Make a popular video, slap some ads on it, and you get some of the ad money. YouTube became not only a destination for users to view videos, but content creators had a shot of building a whole career on YouTube's platform.

Ultimately, Google has more work to do. According to The Wall Street Journal, YouTube still isn't profitable: it's currently running as a break-even business. Susan Wojcicki—Googler #16, former senior vice president of advertising & commerce and a driving force behind AdSense—was put in charge of YouTube in 2014. Ads and profitability are still an ongoing project for the platform. But owning the #3 site on the Internet (behind Google.com and Facebook, respectively) has a lot of perks for Google.

YouTube pushes the Web, and Google, forward

With legal and money problems being taken care of, it was up to Google and YouTube to evolve the service for users. In March 2008, it added support for 480p videos. HD came in 2009. The quest to save data led to tons of innovation.

Originally, the site was heavily dependent on Flash, but it started experimenting with HTML5 videos back in early 2010. Earlier this year, it made HTML5 the default for most browsers. Because of all the video Google pushed with YouTube, it led to the company's purchase of video codec company On2 and the creation of the WebM project. The goal was to develop a high-quality, open source, royalty-free video format for the Web. After buying On2 in August 2009, Google open sourced On2's video codec, VP8, and cleared up patent disagreements with MPEG LA, the owners of the patent encumbered H.264 codec.

VP8's successor, VP9, is in wide adoption at YouTube. Last year users watched "more than 25 billion hours of VP9 video." Google says the bandwidth savings over H.264 allows it to bump everyone up a full quality level on the same bandwidth. The company also credits the technology with enabling YouTube to display 4K, 60 FPS videos.

YouTube was also a pioneering adopter of WebP, Google's image codec offshoot from the VP8 video codec. YouTube says it is one of the world's largest image repositories, thanks to all the thumbnails it uses for video previews. YouTube found that WebP gave it a 20 percent bandwidth reduction on average for thumbnails, improving load times by 10 percent. The past decade shows Google can roll out improvements like this pretty much whenever it wants thanks to end-to-end ownership of the software stack. Google can develop a video codec, roll it out to YouTube, and support it in Chrome and Android.

Today, YouTube is poised to lead the video charge into the future. It supports 4K video, 3D, and 360 degree virtual reality videos for devices like Google Cardboard and the Gear VR. It's tackling new markets with things like YouTube Kids and will soon take aim at Amazon's Twitch with a new gaming-focused live streaming service. Monetization plans are still underway with subscription-based programs like YouTube Music Key, and Google is reportedly working on an ad-free, site-wide subscription program. With YouTube's legal and bandwidth problems behind it, and limitless Google resources backing it, today the future looks much brighter for the Web's favorite video site.