• Blog Maverick, Tuesday, October 31, 2006 11:45 AM

Mark Cuban has posted an anonymous post on this Weblog containing intimate details of the Google-YouTube deal that haven't published. The original post comes from the Pho List, a media-related email list received by Cuban and other highbrow media buffs, from a guy Cuban says "I respect and trust." The following can't be substantiated, but is interesting, even if it's just theory.

One reason YouTube's price tag was so big is that nearly one-third of the $1.65 billion has been set aside to deal with potential legal issues, with the rest being distributed to shareholders, including VC firm Sequoia Capital.

Google realized that $500 hundred million may not be enough (there could be hundreds of thousands of copyright suits here), so they decided to let certain media companies in on the sale. Once major labels got wind, they used the "most favored nation" clause to ensure their piece of the action--about $50 million per major media company from the Google buyout.

Instead of receiving cash, the media companies received an equity position in YouTube, which means they won't have to pay their artists any royalty fees (most record label contracts call for artists to get 50 percent of license deals). Since it's an investment, they're no longer required to share the spoils.

Google basically bought a six-month exclusive on widespread copyright infringement. It figures that deal will ensure that their competitors will slowly fall by the wayside. As a result, expect a legal claim of collusion between Google and big media companies as other video companies begin to spiral downward.

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