Grouper Buy Sends YouTube Billion-Dollar Buyout Plan Into Overdrive

from the fishing-for-dollars dept

YouTube has already been through one round of the Skype Billion-Dollar Plan, which didn’t quite work as the company’s CEO talked its takeout price down to $600 million. But it’s been resurrected for a second go-round, after Sony yesterday it announced it was buying online video site Grouper for $65 million. Grouper didn’t have too many users — less than 1% market share, according to some figures — which means YouTube must be worth $1 billion. Wait, make that $2 billion. Some people say this isn’t accurate because of the copyright problems a media-company buyout of YouTube could likely bring, but that’s a small nit to pick when there’s the more fundamental issue that you’re talking about billions of dollars for a site that’s only just started its attempts to monetize its traffic. But basing a YouTube valuation on the Grouper deal is way off-base: Grouper wasn’t bought for its miniscule traffic, but for its technology (as TechCrunch points out after dropping that $2 billion number), which Sony could ostensibly use to distribute content online. While YouTube’s attracted a lot of traffic, and offers a cool service, its technology isn’t particularly noteworthy, as is evident from the spate of copycats it’s spawned. Basing a YouTube valuation on the sale of a fairly fundamentally different company isn’t accurate; but somehow it’s hard to believe that will matter when YouTube goes to cash that seemingly inevitable big check.

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Comments on “Grouper Buy Sends YouTube Billion-Dollar Buyout Plan Into Overdrive”

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Yo ho ho... says:

Here we go again

Let’s be serious — does anybody really think that except for Ted Turner there is another idiot out there who would spend $1bn on a profitless company with no core technology?

What was not discussed in the article is that Sony also purchased Grouper for some pretty innovative server-search tech and not just for “eyeballs.”

Wish the analysts and reporters out there would just stop trying to create undeserved hype!

Professor M (user link) says:

Grouper's Server Search Tech and YouTube's Value

Isn’t Grouper’s server search tech kind of like file sharing. Does Sony want to be served a RIAA/DMCA lawsuit or something? or are they going to check every video shared for copyright infringement (which kind of sucks for Grouper users)?
Anyway, as for YouTube’s value, besides just doing advertising and its related, they should go after the home shopping network crowd as I explain in my post –
home shopping tv but online

ValuationsGuy says:

Valuations are not child's play

Thank you. Valuations are a lot more complicated than what armchair experts make them out to be.

Saying Grouper has x users and got $65 million therefore YouTube is worth $2 billion because it has x users is vastly oversimplifying the valuation process, which is carried out by highly-experienced professionals. As noted, Grouper is a fundamentally different business and its key asset it its technology. Obstensibly this is what Sony was interested in buying. Their consumer website is an added bonus but had that been their only asset, this deal likely wouldn’t have occurred.

Vasco DaGameboy says:

I'm amazed

I understand these non-technical money guys thinking that these brands are worth a billion, but it continues to amaze me that people who have some tech savvy buy into these ridiculous valuations. YouTube is king of the video pile ATM, but there are several serious competitors, not the least of which is Google video, that could easily take a chunk of its market share (or, shall we say, viewer traffic, since YouTube isn’t quite a huge cash generator just yet) with a few changes.

Also, there are so many horror stories about huge white elephant purchases (, anyone?) that you would think money men would have learned to look at old, fuddy-duddy measures such as P&L rather than some phantom number of hits.

Oh, and weren’t we having this same argument about Digg just a week or so ago?

Dan says:

VC is the "culprit"

You may want to keep in mind that venture capital and private equity groups are the fuel behind the buying. Yes, Sony bought Grouper, but it’s the VC and private equity folks are who keep the prices high.

This occurs primarily because (for VC especially) they are typically mandated to put their funds to work… even if they can’t find a decent business model. Because who wants to give money to a VC firm and have it just sit in the bank?

So what do these people do? They buy the company… hype it up, and look for a greater fool buyer. The days were the epitome of this thinking. It tailed off for a while, but I wonder if we may be swiging back around toward the good old days.

(And I don’t particularly mind, if we get another mini-mania, that means higher paychecks for IT workers 🙂

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