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Analysis When we said that Google overpaid for the YouTube acquisition we were loudly pilloried and reminded that it paid, after all, only in shares. But the increasing alarm that has emerged over whether or not YouTube is a genuine phenomena and whether in fact it is simply a replacement for the piracy once led by Kazaa, threatens to undermine the value of YouTube radically.

Leaving the management of YouTube in the hands of the founders is looking an increasingly bad idea. They have stumbled over promises to bring in copyright protection and it is beginning to crystallize that major content companies are not being afforded any copyright protection unless they sign a deal to distribute their content over YouTube, a deal which is being described as "blackmail," this week in the US press.

Now Reuters is citing Eric Schmidt, CEO of Google, as saying that YouTube is definitely committed to offering copyright protection technologies, promising it will shortly roll out and that it won't only be for those copyright holders that have a deal with YouTube, despite the fact that this has been part and parcel of YouTube policy to date.

The San Jose Mercury claimed this week that Google will use the same technology that MySpace has used, from Audible Magic, to filter out copyrighted videos.

But we’d raise the concern that without popular US shows, mostly attracting audiences from outside the US that cannot yet see these shows any other way, does YouTube actually have a viable business? From the inside there will be plenty of statistics that let management know if people are watching copyrighted content, or user generated content and what kind of holes in future viewing figures they are going to find if copyright content is completely removed.

It has not been in the nature of Google to "compel" businesses to work with it in the past, and this accusation of blackmail and the dragging of its heels over a relatively simple task of filtering copyrighted materials suggests that without these steps, YouTube has either no future or a far smaller future than was thought when Google bought the company. We know it set aside $200 million as a legal fighting fund, a step that has not had to be copied by MySpace, which dealt with its copyright issues at breakneck speed. But the loss will need to be measured in how low the Google share price falls if Schmidt doesn’t take a personal hand and fix the piracy issues at YouTube.

Right now Google is not giving a date of when anti-piracy operations will begin, only saying that it will take time. The fact that it appears to be willing will hold the content majors at bay, but not for long.

Copyright © 2007, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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