It's Official: Google Buys YouTube

Google Inc. has laid speculation to rest--it will buy YouTube for $1.65 billion in a stock transaction.

YouTube operates a wildly popular Web site where original videos appear in a range of quality from amateurish to professional. It will continue to operate independently after the Google acquisition "to preserve its successful brand and passionate community," Google said today. The deal is expected to close in the fourth quarter.

Though YouTube CEO and cofounder Chad Hurley had previously insisted that YouTube wasn't for sale, his view changed when Google agreed to allow YouTube to operate independently, Hurley said during a conference call that included Google and YouTube executives this afternoon.

'A Better Experience'

Bringing YouTube into the ever-growing Google empire will mean that users have a "better, more comprehensive experience" when they upload, watch, and share videos, Google said. It will also give professional content owners more opportunities to get their work out to a wider audience, Google and YouTube executives said during the conference call. Rumors of the purchase first surfaced last week.

The two companies share a commitment to users first and also to innovation, Google CEO Eric Schmidt said. "Together, we are natural partners to offer a compelling media entertainment service," he said.

The deal is "an exciting next step" for Google, Schmidt said, adding that the company expects to make other deals related to providing video over the Internet. YouTube has "built a remarkable team" that is "a perfect example of the kind of people we like to work with," he said in the conference call. YouTube's business is "extraordinary," both as a financial success story and in its vision of serving users, Schmidt said.

Backscratching

YouTube will benefit from Google's global reach and technological know-how, Hurley said. "We're excited by this announcement and thrilled to join forces with the Google team," he said. The acquisition will boost YouTube's new video content platform, which is expected to launch in the next month, he said.

The companies will merge Google's search expertise with YouTube's video expertise, pushing what executives believe is a hot emerging market of video offered over the Internet. Google Video will continue to operate, executives said, calling that service "a very valuable aspect of the Google experience." The aim is that it will improve as a result of the acquisition, Google executives said.

The number of Google shares to be issued will be based on the 30-day average closing price two trading days before the deal is completed, Google said.

Reaction

The deal is a good move for Google, said analyst Aram Sinnreich, founder and managing partner with Radar Research, a Los Angeles technology and media research firm.

"$1.65 billion is certainly a lot, but for a company like Google who will be using it as part of an integrated cross-media advertising strategy it may actually pay off," said Sinnreich. "There aren't a whole lot of companies left to acquire with this kind of reach online," he added.

Analysts also noted the similarities between the corporate cultures and how the companies developed and have grown. "Google has become a huge brand without advertising--same with YouTube," said David Hallerman, a senior analyst at Emarketer in New York.

Because YouTube has registered users, Google over time will know more about user behavior, which will enable the company to target advertising, he said.

Agam Shah and Robert McMillan of IDG News Service contributed to this report.

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