Sorry Mark, but Prospective YouTube-Buyers aren’t Morons

Authored by Jay Baage on September 29, 2006 - 9:11am.

Billionaire investor and dot-com veteran Mark Cuban said on Thursday that only a “moron” would buy video-sharing website YouTube, because the company would eventually be "sued into oblivion" because of copyright violations. Well, not necessarily.

This summer YouTube was the hottest new media company at “Camp Allen”, the annual high-roller conference where investors get to meet the crème de la crème of media, which generated speculation that a BIG price tag is in the works for YouTube.

It is healthy that these bullish speculators don’t go unchallenged. To every action, there should be an equal and opposite reaction, right? Therefore, it is good to see that Mark Cuban categorically negates the future potential of YouTube.

He points to the fact that the users of the popular site often post copyrighted material, including music videos produced by well-established artists and clips from TV shows.

"There is a reason they haven't yet gone public, they haven't sold. It's because they are going to be toasted," said Cuban according to Reuters. "They are just breaking the law. The only reason it hasn't been sued yet is because there is nobody with big money to sue."

Cuban also attacked the quality of the content that is not copyright-protected. He told advertisers in New York that the reach of YouTube is limited, particularly when it comes to user-generated videos.

"User-generated content is not going away," he said. "But do you want your advertising dollars spent on a video of Aunt Jenny watching her niece tap dance?"

This past week, we also saw a much publicised research report from RBC Capital analyst Jordan Rohan. He stated that he had come away from a meeting with Fox Interactive, the managers of MySpace, believing that "media investors may not fully appreciate what has already been done with MySpace or what may lie ahead."

So far so good, but what really got the blood boiling on Wall Street, as well as in the blogosphere, was the following:

"$15 billion in a few years? It is possible," Rohan wrote in a research note to clients.

Marc Glaser, blogger and new media commentator, was quick to reply with a funny spoof of the Reuters Wire Story about Rohan’s report:

“Worth absolutely zero dollars in a few years? It is possible,” Glaser wrote in a note to himself.

Glaser said MySpace could demonstrate a value of between 0 dollars and a buck fifty within a few years, give or take a wooden nickel. Acknowledging he was making an “audacious claim” he justified the forecast on the basis of a Wall Street analyst’s “raw, unprecedented hubris that requires some type of counter-analysis.”

My Take: Everything is not black-and-white and the truth usually lies somewhere in the gray middle.

With YouTube, we are clearly dealing with a Web 2.0 phenomenon. As you can read in my story regarding the Wallace-Clinton interview being taken down from YouTube by Fox and then restored, copyright issues are somewhat flexible. For all the fuss that has been made from major media companies in the last few years about copyright infringement, the big media and entertainment companies have slowly come to realize that YouTube might benefit them more than hurt them.

News Corp chairman Rupert Murdoch has been very clear about his view that the consumer and viewer are in the driver’s seat and that Fox will have to adjust to remain relevant. That is why News Corp bought MySpace for almost $600 million last year. Many said that they grossly overpaid back then, but it did not take long for MySpace to show the money, when News Corp recently inked a $900 million online advertising deal with Google. Social networks are not easy to build and right now, YouTube has become synonymous with Internet video, with over 100 million viewings per day. You would be a moron if you were one of the big media companies and did NOT at least consider buying YouTube.

When it comes to Jordan Rohan’s $15 billion valuation of MySpace, it is certainly a quote that brings back memories of the dot.com bubble days. However, I agree with former Internet-analyst turned blogger, Henry Blodget, that Rohan’s valuation raises an interesting question worth exploring: Could MySpace be worth $15 billion one day (1/3 of Yahoo and 1/10 of Google)? What would it take and what is the true value of an online network of more than a 100 million users?

Like Blodget points out:

”Back in September 2004, I, for one, would have appreciated an analyst with the balls to suggest that Google could be worth not $150, $180, or $220 after a few years, but $500 in one year. Even if I decided that the analyst was an imbecile, I'd have been grateful to him or her for helping me think through the extremes (And, in so doing, perhaps avoid missing one of the biggest growth stories of 2005). I would have the same admiration for an analyst who made a compelling argument that, say, GE, Microsoft, the DOW, or some other sacred cow was about to drop 90%. So, here's a toast to Jordan Rohan, whether prophet or moron. And here's a toast to any analyst with the guts to stick his or her neck out and say something interesting.”

Just remember - anyone who says anything even slightly controversial might have alterior motives.

Related Links:
http://tinyurl.com/mdnf6 (CNET)
http://go.reuters.com/newsArticle.jhtml?type=technologyNews&storyID=13624210
http://www.pbs.org/mediashift/2006/09/hold_the_pressesmyspace_may_be.html
Fox News: Internet Division Used “Poor Judgment” Removing Clips from YouTube

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Comments

Mr. Cuban may see Napster

Submitted by Gilbert (not verified) on October 1, 2006 - 6:23pm.

Mr. Cuban may see Napster v1.0 as example for his prediction of YouTube’s demise however, there are differences. Big media has embraced the use of on-line distribution for their video content in addition to encouraging user-generated versions of their brands. HBO would be very happy if you were to download Bill Maher from i-Tunes (which of course did not exist when Napster was voted off the planet) and Pop-Secret would love to see your V-Cam version of their ad created for CurrentTV, and will even pay that lucky person 1/10th of what a professional DP would get.
I am much more interested in the approach that Yahoo! is taking of late with the recent acquisition of jumpcut, enable your users to create content by giving them on-line editing tools to facilitate community, hum perhaps they’ve remembered they own Yahoo! Groups…
In his Blog, Mr. Cuban said “If it stops being easy, and the hassles go up. The value and breadth of content declines as do the number of users”. Then perhaps you wind up with CurrentTV and not YouTube? The former, which has less traffic but higher quality content with a revenue share model for content creators, verses the latter, which has more traffic and lower quality content overall but reached more eyeballs. Even if you cut, the 100-mil downloads per day in half that is too attractive a number for the media giants to ignore and figure out a way so we can all get along.