By Kenneth Li
and Michele Gershberg
Media conglomerate Viacom Inc. sued Google Inc. and its Internet
video-sharing site YouTube for more than $1 billion on Tuesday in the
biggest challenge yet to the Web search leader's strategy to dominate
the online video market.
The lawsuit accuses Google and its popular online video unit of
"massive intentional copyright infringement" for allowing users to
upload popular shows, threatening ambitions to make YouTube a major
entertainment and advertising outlet.
The legal challenge from Viacom, home to the MTV and Comedy Central
channels, also suggested a wider battle between traditional and Internet
media companies that now compete for audiences and advertising dollars.
"This is a seminal event in Media-Internet relations ... and how the
value of content will be clarified in the online medium," wrote UBS
analyst Aryeh Bourkoff in a client note.
Shares in Viacom slipped 9 cents to close at $39.48 on the New York
Stock Exchange and Google shares fell $11.72, or 2.6 percent, to
$443.03 on Nasdaq.
Viacom has been the most vocal critic of YouTube during months of
negotiating over payment for use of its programming. The Sumner
Redstone-controlled company last month demanded YouTube pull over
100,000 video clips uploaded by users.
"YouTube's strategy has been to avoid taking proactive steps to
curtail the infringement on its site, thus generating significant
traffic and revenues for itself while shifting the entire burden --
and high cost -- of monitoring YouTube on to the victims of its
infringement," Viacom said.
YouTube does not prevent copyrighted content from being uploaded onto
its site, but will take material down at the request of copyright
owners.
Google said it was confident that YouTube respects the copyrights at
issue in the Viacom case.
"We will certainly not let this suit become a distraction to the
continuing growth and strong performance of YouTube," Google said in a
statement.
General Electric Co.'s majority-owned NBC Universal and News
Corp. have also criticized YouTube's policies on copyright protection
but stopped short of legal action, testimony to the dilemma of media
companies forced to choose between embracing a fast-growing outlet for
younger audiences and trying to build competing Web vehicles
themselves.
"We've dealt with YouTube on a case by case basis to have content
taken down," a News Corp. spokesman said, adding that the company
supported Viacom's right "to protect its own content in whatever way
it needs to."
Viacom found another ally in Time Warner Inc.
"It is clear from this lawsuit that it is time for YouTube to remove
unauthorized material from its site," a Time Warner spokesman
said. "We are in talks and hopeful we can work together toward a
solution that would effectively identify and filter out unauthorized
material and license copyrighted works for an appropriate revenue
share."
160,000 CLIPS
Viacom contends that almost 160,000 unauthorized clips -- from
excerpts of comedy talk show "The Daily Show with Jon Stewart" to
pieces of children's programs like "SpongeBob SquarePants" -- have
been uploaded on to YouTube's site and viewed more than 1.5 billion
times.
The decision to sue Google followed "a great deal of unproductive
negotiation," the company said.
Viacom filed the suit in the U.S. District Court for the Southern
District of New York, seeking an injunction against further violations
and damages.
Google bought YouTube last November for $1.65 billion, aiming to
capitalize on its explosive audience growth built from sharing both
homemade and professionally produced videos.
YouTube has reached licensing deals with major record labels, but
still faces the ire of major media companies. Google has promised new
technology to help identify pirated videos, but has not given a
timetable for its introduction.
Any progress Viacom makes in its lawsuit could spur other companies to
consider legal action against YouTube and raise new questions about
the laws governing digital distribution.
"If there's anything central to Google's business model, it is being
at the center of everything," said Forrester Research analyst James
McQuivey. "This has the potential to put them on the periphery."
Viacom and peers like NBC Universal, in which France's Vivendi owns a
minority interest, are also investing heavily in their own Internet
video sites to benefit from the migration of television audiences to
the Web.
"There is certainly an opportunity for YouTube to do a deal with
Viacom, but Viacom does not have to have a YouTube deal," said analyst
Richard Greenfield of Pali Capital.
Google's dominance in Web search has made it a magnet for lawsuits by
copyright and trademark holders.
The Silicon Valley company faces outstanding lawsuits in the United
States and Europe by major book, magazine and online news publishers
as well as small-time Web site operators.
Google has prevailed in high-profile suits against it by auto insurer
GEICO -- owned by billionaire investor Warren Buffett's holding
company Berkshire Hathaway Inc. -- over trademark infringement, and in
a demand by the U.S. Justice Department for consumer Web search data.
(Additional reporting by Eric Auchard)
Copyright 2007 Reuters Limited.
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Ken Li/Michele Gershberg (reuters@telecom-digest.org)