YouTube Struggles Despite Dominance
Some Big Media Firms Take Videos Elsewhere — In the few months since Google paid $1.65 billion to acquire YouTube, both companies have tried to come up with a formula to turn the hugely popular online video site into a moneymaking venture.
Context & Ripple Effects
Google closed its $1.65 billion YouTube acquisition in late 2006 on traffic rather than revenue, and by March 2007 the deal's core problem is exposed: the site's audience is dominant but its economics are not, with both companies still searching for a formula to convert popularity into profit.
The immediate friction is with the content owners. Confirmed reporting shows several large media firms have begun pulling their videos off YouTube and placing them elsewhere, meaning the professional clips that sit atop the user-generated long tail are negotiable — and currently walking.
First-order effects
- Big media firms relocating their catalogs to other platforms directly shrinks the premium content layer Google paid for, forcing YouTube to defend its inventory before its ad model exists.
Second-order effects
- Rights holders' demonstrated willingness to leave gives every media company leverage over Google, pushing YouTube toward revenue-sharing or licensing deals it did not plan for when the acquisition was priced.
Third-order effects
- If content owners keep exercising exit options, online video settles into a structure where platform scale alone cannot hold premium content — distribution wins audiences, but licensing terms decide margins, a gap that will shape how future media-tech acquisitions are judged.
The trend: Online video is entering the phase where user-generated scale collides with professionally owned content, and whoever solves paid distribution first sets the industry's economics.