YouTube Gave Equity To Record Labels On The Morning Of The Google Deal

from the oh-really? dept

Remember how hours before the Google acquisition of YouTube was officially announced, the company first announced deals with a bunch of record labels. While everyone assumed these were basic content deals, the NY Times is now reporting that it actually involved giving those companies an equity stake in YouTube, on which they made a nice profit on a few hours later when Google made the announcement that they were buying the site. That, obviously, helps explain why YouTube wasn't included in the lawsuits Universal Music announced on Tuesday. However, something about this doesn't seem right. The article notes that the labels and YouTube rushed to get a deal signed just hours before the Google deal was signed "in part so that it could benefit in the jump in YouTube's value." Of course, that sounds like something of a scam. By that point, it was clear that YouTube and Google were signing a deal, and YouTube basically gave the labels a super favorable deal so they could make quick millions hours later when Google bought YouTube at the high valuation Google gave the company. Sounds like a case where YouTube basically gave the labels Google's cash before any official deal was completed.

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  1. identicon
    IANAL, but..., 19 Oct 2006 @ 11:15pm

    Worth investigating...

    This is certainly very shady and even though YouTube was not a publicy traded company, the structure of the deal was clearly designed to benefit entities that most likely knew of the impending sale of the company to a publicly traded company. They must have recognized that the deals would have a positive impact on Google's share price once the announcement was made because it helped reduce concerns about lawsuits and gave the appearance that the record labels had decided to work with YouTube/Google. This definitely has the appearance of coordinated dealmaking designed to have an impact on the market for the benefit of certain parties.

    IANAL but I do see some issues with this that may have violated SEC regulations. It's certainly worth an investigation and if I were one of the media companies that hasn't done a licensing deal, I would probably be looking into suing Google, YouTube and these record labels because each party profited enormously from what they knew to be infringing behavior taking place on the service. In essence, these record labels took a large bribe to do a deal even though they knew this was supporting a company with some major copyright issues. The Bertelsmann/Napster case and settlement provides some justification for this type of argument. In that case, the plaintiffs argued that Bertelsmann's investment in Napster kept the company alive and facilitated continued infrigement of the plaintiff's copyrights, especially because Napster may have not survived without Bertelsmann's financial support. In this case, if Google, YouTube and the record labels put this deal together specifically to cement Google's purchase, other copyright holders might argue that each party specifically acted in a manner that enables YouTube/Google to keep infringing.

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