Viacom's High-Stakes Duel with Google

Many see Viacom's public demand that YouTube remove copyrighted content as a negotiating gambit. But it does raise the ante on video sharing

by Catherine Holahan

How much does Stephen Colbert matter to YouTube? Viacom (VIA) just touched off a battle with YouTube's parent, Google (GOOG), aimed at finding out.

YouTube agreed Feb. 2 to remove more than 100,000 videos owned by Viacom, owner of studios and cable networks including MTV. Among the clips are thousands featuring Colbert, the star of Comedy Central's satirical show The Colbert Report. The moves were in response to a public demand by Viacom, which earlier said talks over licensing the material to YouTube had broken down. "YouTube and Google retain all of the revenue generated from this practice, without extending fair compensation to the people who have expended all of the effort and cost to create it," Viacom said in the statement. The media company added that YouTube wasn't doing enough to filter out unauthorized content.

Bargaining Chip

The back-and-forth underscores the escalating tension between entertainment companies eager to stop illegal distribution of their shows and movies and the video-sharing Web sites like YouTube that have become a conduit for millions of video clips—some of them copyrighted material—zipping freely over the Internet.

The demand boils down to a negotiating tactic by Viacom. It raises the stakes for Google of failing to reach a licensing agreement by making clear that YouTube does not have any right to Viacom's content. Google would now have more difficulty claiming Viacom wanted the clips on YouTube to promote its shows, says Annette Hurst, an attorney specializing in copyright and trademark issues at Heller Ehrman. In the past, some content owners have uploaded their copyrighted content to sites such as YouTube to publicize their shows to the site's audience.

A lawsuit could prove costly for both companies. Google and Viacom are both experienced with copyright law and have the financial and legal resources to fight lengthy court battles, said William Heller, an intellectual property lawyer and partner at McCarter & English. However, it could prove more costly for Google, which, under current copyright law, could have to pay Viacom damages for each instance of copyright infringement if a court rules in Viacom's favor, says Heller. "Given the number of works here, that could be substantial," he says.

Nervous Advertisers

There are other costs for Google, too. Since purchasing YouTube for $1.65 billion in October, the company has tried to allay concerns that the acquisition would expose it to a barrage of copyright suits that could, collectively, impact its bottom line (see BusinessWeek.com, 10/10/06, "YouTube's New Deep Pockets"). Viacom's action indicates that some copyright owners may be growing frustrated with Google, reviving the specter of lawsuits. Google also doesn't want to lose advertisers who are loath to be associated with video content that infringes copyright, or threatens to. Google shares initially dropped several dollars after Viacom's demand, later recovering to close at $481.50, down only 25 cents.

But the tactic carries risk for Viacom, too. If the absence of its content starts to cost traffic or ad dollars, Google will be more willing to negotiate. In effect, Viacom is saying, "We are going to demonstrate to you exactly how valuable we are to your business," says Hurst. But what if, say, YouTube users don't care that Colbert is gone? If losing Viacom content doesn't inflict much damage, Viacom's negotiating position is undermined—assuming both sides are even talking.

There's always the prospect that Viacom is done negotiating, and simply doesn't want its clips on the site. It can show clips through its own online video properties, such as MTV's video network (see BusinessWeek.com, 8/8/06, "Google's Duet with MTV").