YouTube Faces Legal Troubles

Anybody who's ever bought a used car only to discover a few extra nicks, dents and mechanical hiccups after the fact knows what buyer's remorse is all about. So spare a moment's pity for Sergey Brin and Larry Page, the boy geniuses who head Google. Last month, they shelled out US$1.

This article was originally published in Maclean's Magazine on November 20, 2006

YouTube Faces Legal Troubles

Last week, Comedy Central, a unit of entertainment giant Viacom, sent YouTube a demand to remove from the site copyrighted clips of shows like The Daily Show with Jon Stewart, The Colbert Report and South Park, depriving YouTube of some of its most popular content. By week's end, some of those clips had been restored and the two companies were working on a deal to provide limited access to Comedy Central shows, but the legal wrangling may just be starting.

The Comedy Central spat came about a week after authorities in Japan notified the company it was in massive violation of national copyright laws, forcing YouTube to pull about 30,000 unauthorized Japanese video clips. In Britain, the English Premier League is taking steps to try to keep unauthorized videos of its matches off the site, a move that could seriously dampen YouTube's appeal among millions of soccer fanatics around the world.

So far, all those disputes have been confined to stern letters and veiled threats. One company, however, did step forward to sue YouTube last week - not an entertainment juggernaut, but rather little-known Ohio manufacturer of tube- and pipe-making gear, Universal Tube & Rollform Equipment Corp. (UTube for short), which claims that its website (www.utube.com) has been plagued by misdirected traffic and its costs have skyrocketed as a result.

But YouTube's problems may go much deeper than potential court challenges. Last week, Nielsen//NetRatings released its most recent monthly report, showing that traffic to YouTube's site plunged by 19 per cent between August and September - and that was before the company was hit with the latest barrage of demands to pull down copyrighted material. According to Neilsen, about 27.6 million people visited the site in September.

That number will come as quite a shock to many who, in the wake of the Google acquisition, heard that YouTube routinely attracts close to 50 million users a month. Whether it's because of waning novelty, increased competition from similar sites, or a slow erosion of high-quality clips, it's now clear that YouTube is falling far short of its peak popularity. And a sustained campaign to purge copyrighted material from its servers threatens to make things worse. For a company that is already believed to be losing more than US$1 million a month (Google refuses to release financial data on YouTube), profitability seems a distant dream.

Ironically, analysts say, it may have been the Google takeover that sealed YouTube's fate. It was one thing to tolerate the existence of a plucky, money-losing start-up, but once it was subsumed into the massive and powerful Google empire, all of YouTube's enemies decided to start playing hardball.

It's not like there weren't warnings. Shortly before Google bought the site, Josh Bernoff, an analyst with Forrester Research in Cambridge, Mass., said YouTube could be in deep trouble. He likened the site to Napster, the company that shot to prominence by allowing users to illegally swap music files, but was ultimately swamped by lawsuits and a plague of upstart competitors. And in September, Mark Cuban, the Internet entrepreneur and billionaire investor, told an audience of professional financiers that only a "moron" would buy the company, given its myriad legal liabilities. He said he expects the company to be "sued into oblivion."

That hasn't happened yet. But it's looking more and more like Google's much-hyped coup might've been YouTube's coup de grâce.