Mountain View, Calif.-based Google launched a competing service, Google Video, with much fanfare in January. But it could never catch up to YouTube, which broke out of the pack of online video sites by making it easy to upload clips, post them on blogs and communicate with video watchers who had similar tastes.
"YouTube is certainly one of the biggest prizes of the year because it's the perfect combination of video and social community," said Mark Kingdon, chief executive of Organic Inc., an online ad agency owned by Omnicom Group.
The service's simplicity, however, also made it easy for users to upload unauthorized copies of TV shows and other copyrighted material. The site's first smash hit was NBC Universal's "Lazy Sunday," a "Saturday Night Live" rap parody that attracted 6 million views before YouTube removed it at NBC's request.
The flood of pirated videos in YouTube's early days earned it comparisons to Napster, the file-sharing service that allowed widespread music piracy before lawsuits shut it down.
Mark Cuban, a dot-com billionaire who has invested heavily in tech-related entertainment companies, recently said that YouTube would be "sued into oblivion" as soon as it was owned by a company with deep pockets, and that anyone who bought it was "a moron."
YouTube says it complies with copyright laws by immediately removing unauthorized material as soon as it is notified by the copyright owner. It also has courted content owners, striking video distribution deals with NBC.
Dennis Miller, a general partner at venture capital firm Spark Capital in Boston, said he thought the copyright concerns were overblown. Even as corporate lawyers wring their hands about the infringement, he said, "the most clever players in Hollywood" are seeding YouTube with promotional video because there's no other place on the Internet that serves 100 million video streams a day.
"It's not that difficult to create another detergent, but Tide continues to be the dominant seller 73 years later," said Miller, a longtime show business executive. "Because the Internet is so differentiated and so fragmented, when you have that remarkable chemical, magical, viral power that is created by a market leader like YouTube, it's very difficult to imitate."
YouTube's founders had often said they preferred to remain independent with an eye toward an initial public stock offering. But the copyright issues and YouTube's high bandwidth costs put a damper on those plans. In addition, the licensing deals with music labels and TV networks are likely to prompt other content owners to ask for compensation.
