No matter how you spun it, a lawsuit was waiting to pounce on YouTube. And when the lawsuit came, it would be from multi-billion dollar media conglomerates. Worst of all, people feared it would trigger a landslide of more lawsuits. Even still, Google bought YouTube. And now the billion dollar war has begun.

I wondered: Maybe Google actually wanted to be sued.

Backroom Discussions

First of all, in a perfect world, no, Google wouldn’t want this. And Google, hoping that the world is close enough to perfect, did buy YouTube. But somewhere during discussions, someone must have asked, “How is this different from Morpheus and Kazaa? Won’t we be sued into oblivion?”

The smart lawyers at Google probably mentioned something about the DMCA, but honestly, would you want to buy a company that would be hated, constantly, by the very people who own the content that keeps you afloat? Or better, how will such a site remain #1 if there is a (Edit: added link) unified effort by content owners to either displace or destroy you? Most of all, media companies, who have significant clout and money, wouldn’t let YouTube host their content for free without a fight. There was more to this purchase than meets the eye.

No matter how you look at it, the purchase came with a lot of legal risk. I believe nobody at Google is surprised that Viacom is suing and wants $1 billion, A.K.A. most of the sum Google paid for YouTube. This is all part of the expected road map in owning YouTube.

So plan A was to hope people would be nice and look the other way. That worked for a year so far, and Google hoped it would continue. Plan B was to get sued.

This isn’t any ordinary “get sued and win” plan. Waiting to get sued so you can win in court is a defensive move for most companies. But for Google, this is preemptive. This is about Google defending YouTube, instead of YouTube defending YouTube.

Why Getting Sued is a Preemptive Strategy

Let’s pretend that YouTube was not bought out because talks got delayed. Then realize that it would have probably been sued a lot sooner by a lot more people. Investors would flee and nobody would want the company now. If YouTube goes broke, that would have likely pushed Myspace Video to #1, giving News Corp a huge edge since it happens to own Fox Entertainment. Myspace Video would become whatever was in the best interest of Big Media. Probably a DRM infested piece of crap that sued its users for uploading copyrighted material.

(Edit:) If you don’t think Myspace would have hopped into the throne, you may want to see this recent report that shows how Myspace video is #2 in the video market. And as the trend goes, Myspace is actually losing share in the video market (3% between December 2006 and January 2007). Seeing as how 16% of all YouTube traffic comes from Myspace, you can’t say YouTube isn’t causing serious harm to Myspace videos, keeping it from becoming #1.

On the other hand, if YouTube didn’t go broke and fought the lawsuits, imagine if they had lost. Myspace Video gets to keep whatever edge it has, but virtually every other video site on the Internet becomes illegal overnight. Thousands of user records and IP addresses would get subpoenaed, and video sharing dies in one fell swoop.

Why Does Video Sharing Matter to Google?

What’s the next big thing on the net? Video. Google cares what happens in video sharing because it wants a slice of the video ad market. It doesn’t want to just be in the market, it wants to own it like it owns text ads. But that’s not the whole answer.

Google bought YouTube because it wanted to make sure of three things:

Google has first dibs for video ads on the biggest video site on the Internet YouTube remains legal Expand and protect current fair use related provisions involving copying intellectual property

The first point is obvious, and the second point feeds into point #1.

But the third point is the most important for Google. If YouTube were to lose a lawsuit for hosting intellectual property, it would severely weaken Google’s position in a variety of current and future endeavors. Any aspirations Google has of someday crawling and indexing video content (nope, they don’t have this technology yet) would now be in legal limbo. It would also potentially re-introduce new arguments against their Google Image Search. And their book search program might suffer a similar fate once the YouTube precedent settles in. Google, being a company that spiders and indexes (stores) massive amounts of copyrighted information, would now be in serious legal jeopardy.

YouTube is Google’s Future

Thus, Google not only threw money at YouTube: it threw its lawyers at YouTube too. Google’s lawyers are some of the most well-versed copyright lawyers in the world since so many of their lawsuits deal with that issue.

The goal here is simple. Google wants to own the #1 video sharing site (completely legal), own 100% of the ads on that site, and clarify many currently-ambiguous copyright issues in their favor. If all of that goes as planned, the $1.5 billion paid to YouTube was a small price to pay. But if they had never gotten involved, the potential losses were far greater than a billion or two. Since Google has a market capitalization of over $130 billion, even a dip of 1% means losses of over $1 billion. But if entire sections of their business model became legally uncertain, you can bet they’d lose a lot more than 1%, especially with their insanely high P/E ratio (the ratio between what their stock is worth and how much they make).

By fighting a lawsuit, Google gets to prove the legitimacy of Internet video distribution – something that will probably never flourish under the “old media” regime. Unfortunately for them, the DMCA protects site owners from liability of what its users do — or at least that’s the general interpretation. Letting YouTube fight this battle alone with their own lawyers might have resulted in a very public and unnecessary loss that would have crippled Google’s video ambitions and possibly caused collateral damage to a bunch of related industries (especially search). This would have forced everybody to play by the conglomerates’ rules, and taken anyway any guarantee of Google getting any cut of the video ad pie. Video sharing needs this clarification before it can move forward. And if Google legitimizes it, they will have the biggest video site on the web for their video ads to play.

So let’s ask ourselves again: would Google pay $1.5 billion so it can fight the lawsuit on behalf of YouTube? Now that I think about it, it seems like a wise long term move.

Update

9:01AM 3/22/2007: I’m on Slashdot. I think I survived the Slashdot Effect!