Chowrangi

As reported on the WSJ, Web-search giant Google is in talks to acquire YouTube for roughly $1.6 billion.

Other technology, media and entertainment companies have expressed interest in taking stakes in YouTube this year, according to people familiar with the matter. Google rival Yahoo Inc. earlier this week expressed interest in holding acquisition talks with the video start-up, these people say. YouTube also turned down a lower proposed value from Google earlier this week, before commencing discussions about the possible $1.6 billion deal.

Yahoo and other companies have recently held discussions about buying social-networking site Facebook Inc. for around $1 billion or higher, say people familiar with the matter. The Yahoo talks with Facebook are continuing, says one of those people. Sony Corp.’s Sony Pictures Entertainment in August said it paid about $65 million to purchase closely held video-sharing site Grouper Networks Inc. Rupert Murdoch’s News Corp. bought social-networking site MySpace last year for $650 million in a landmark transaction.

YouTube’s 29-year-old CEO, Chad Hurley, and its 28-year-old chief technology officer, Steve Chen, started the company in Mr. Hurley’s Menlo Park, Calif., garage last year, along with another former colleague from eBay Inc.’s PayPal electronic-payment unit. Early videos on the site prominently featured the cat of Mr. Chen.

A deal between YouTube and Google would combine Google’s massive online ad system, which handles ads from hundreds of thousands of advertisers, with the top online-video site, according to several research firms. YouTube, San Mateo, Calif., says consumers view videos — which range from short home videos of household pets to clips recorded from TV shows — more than 100 million times daily through its service.

A purchase by Google, Mountain View, Calif., would also bring YouTube into a company that doesn’t compete with other media concerns by producing or broadcasting its own video. That likely would make it easier for YouTube to continuing cutting deals with media and entertainment companies to carry their videos. General Electric Co.’s NBC Universal signed an advertising and content deal with YouTube in June, and Warner Music Group Corp. last month said it is working with YouTube to make its music videos and other content available through the site.

A purchase by Google could further incite some content owners who are already concerned that their copyright video and music is available without their permission through YouTube. Potential copyright issues have concerned Yahoo amid its continuing interest in acquiring YouTube, says a person familiar with the matter.

YouTube, which says it removes any videos with infringing content when notified, already faces one lawsuit related to this issue. Robert Tur, the owner of Los Angeles News Service, named YouTube in a complaint filed in July in U.S. District Court in Los Angeles. He alleged copyright infringement in connection with several videos available through YouTube. YouTube has said Mr. Tur’s suit is “without merit.”

A connection with a deeper-pocketed Google could lead other content owners to take copyright action. The Internet-search company is no stranger to copyright disputes: It is currently facing off in court with book publishers, authors and a news agency over Google’s use of their content.

Founded in February 2005, YouTube is the poster child for the boom under way in online video. By the time of the Web site’s official public release in December 2005, consumers were viewing YouTube videos more than three million times daily. That month, someone posted to YouTube a skit from NBC’s “Saturday Night Live” dubbed “Lazy Sunday,” featuring two grown men rapping about cupcakes, red licorice candy and the movie “The Chronicles of Narnia.” Consumers viewed “Lazy Sunday” six million times before NBC on Feb. 3 contacted YouTube to request that it be removed, along with hundreds of other clips.

The start-up, which has 67 employees and is located in an office above a pizza restaurant, has been racing to build new systems for generating ad revenue. At the same time, it is negotiating with media and entertainment companies about online use of their content, some of which is available without the video owners’ permission on YouTube’s site.

A purchase of YouTube would give a big boost to the online-video efforts of Google. YouTube commanded 46% of visits to U.S. online-video sites in September, according to market-research firm Hitwise. That compared with a 21% share for the video activities of News Corp.’s MySpace site and 11% for Google Video. Microsoft Corp., which recently launched a test version of its Soapbox service for users to submit and view videos, had a 7% share of such visits, according to Hitwise. News Corp. in the past expressed interest in discussing a possible acquisition with YouTube, say people familiar with the matter. News Corp. declined to comment.

Leading closely held online-video sites include Heavy.com, Break Media and Metacafe Inc., which each had around three million U.S. visitors in August, according to research firm NetRatings Inc.

Google launched its online-video service in January 2005. But its early efforts included only still images of TV shows, and it alienated some companies whose programming it had recorded without their permission.

Google co-founder Sergey Brin told reporters Thursday that the company plans to increase the prominence of videos on its site, by displaying some relevant clips alongside the results provided by its market-leading Web-search engine. Google is in discussions to license music videos and other content for its own video service with Universal Music, EMI Group PLC, Warner Music and Sony BMG, a joint venture of Sony and Bertelsmann AG, people familiar with the matter say.

Google and YouTube share a common backer in venture-capital firm Sequoia Capital, which helped finance Google during its early days and has provided funding to YouTube.

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