As Viacom-Google Appeal Begins, Question Remains Why Can't They Make a Deal?

As Viacom-Google Appeal Begins, Question Remains Why Can't They Make a Deal?

Tuesday, October 18, 2011, 10:23 AM ET

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Posted by Will Richmond

Remember Viacom's $1 billion copyright infringement suit against YouTube initiated 4 1/2 years ago, which was decided in Google's favor last June? Well, it's alive and well, and this morning the parties will appear for short oral arguments in the U.S. Court of Appeals for the Second Circuit in New York, as Viacom begins its appeal of the decision. Of course Viacom has every right to keep pursuing the matter, but what I've wondered about from the beginning of this case is why haven't the parties been able to make a mutually beneficial business deal so that they can put the litigation aside. As the online video market has matured over the past 4 1/2 years, with the potential dollars up for grabs growing, it's become an even bigger mystery to me.

Several things have happened to both parties that should motivate them to find a negotiated solution. YouTube has evolved a long way from its user-generated (and yes wild-west attitude toward copyright infringement) roots. Today it is more eager than ever to obtain high-quality content, as it battles new competitors like Netflix, Hulu, Amazon and others. Importantly, with Content ID, YouTube has taken serious measures to not only protect copyright holders, but also to offer them tools to leverage YouTube's massive audience for promotional value when they deem appropriate.

Moreover, YouTube has made great strides in monetizing its partners' content by building out its sales capabilities and through a major emphasis on pay-for-performance video advertising. Not to be overlooked is Google's even-stronger financial situation than 4 1/2 years ago. It is clearly in a position to pay up for content it desires.

For Viacom things have changed in 4 1/2 years too. First, online video usage has exploded, as have the devices on which to consume it (to put this in context, the first iPhone wasn't available until several months after Viacom filed its lawsuit). The landscape has changed dramatically, and content providers now recognize they need to be available in as many places as possible so their target audience can view and interact with their content as easily as possible. Viacom brands like MTV have been among the leaders in leveraging social media to their benefit. Ignoring by far the largest video site in the world - with approximately 40% of all views each month - short-changes Viacom's potential to fully leverage its brands' reach.

Google apparently offered Viacom almost $600 million in guaranteed revenue back when the litigation began, which never went anywhere. Truth be told, we don't know the details of what content rights were sought in that offer, or how they aligned with other distribution deals Viacom has with pay-TV operators. What is true though is that over-the-top distributors are paying more now than ever for quality content, evidenced again by last week's deal by Netflix for CW re-runs valued by some at $1 billion. Other major content providers like CBS have been citing online distribution as meaningful new contributors to their net income. Viacom itself knows how lucrative online distribution is from both its $1 billion Epix deal with Netflix and its Jon Stewart/Stephen Colbert deal with Hulu, said to be worth at least $40 million.

Bottom line - Viacom and Google can endure years of ongoing litigation, or they could choose to re-open negotiations for a big, mutually beneficial content licensing deal. To me the latter route seems like a better path for both to pursue.

Categories: Aggregators, Cable Networks

Topics: Google, Viacom, YouTube

Also see:

As Viacom-Google Appeal Begins, Question Remains Why Can't They Make a Deal?

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