I think he wants to say it. I think he’s pissed off that he’s gotta hide from us. I think he wants to say that he made a command decision and that’s the end of it. He eats breakfast 80 yards away from 4000 Cubans who are trained to kill him, and no one’s gonna tell him how to run his base.
From A Few Good Men, Screenplay by Aaron Sorkin
One word: Hubris. This is what Google is all about. This is why they would pay $1.79 billion for YouTube–and zero for the content that made the site valuable, yet try to get away with paying $125 million for all the world’s books, a quarter of which they were paying to themselves.
But you do have to wonder what in the world Google was thinking to overpay so much for such a huge liability as YouTube, which–by most reports–is losing money hand over fist without taking into account the litigation cost or exposure. (See also “Google Holds Back Stock in YouTube” and “Does Google Adequately Reserve for Losses in Copyright Infringement Suits?”)
In a fascinating piece of journalism, Greg Sandoval has uncovered Eric Schmidt’s Jessep moment:
“Google has revealed little about how it decided to pay $1.79 billion but CEO Eric Schmidt said under oath last spring that he was willing to pay a premium–a big one–for YouTube. Leading up to the acquisition, Schmidt told Google’s board of directors that his estimate of YouTube’s worth was somewhere between $600 million and $700 million, according to court records reviewed by CNET.
A Google representative declined to comment about Schmidt’s valuation.
Schmidt had his reasons for asking his board to OK an offer of $1 billion more than what he thought the site was worth. The CEO made the comments during a deposition he gave in May as part of the copyright lawsuit Viacom filed against Google and YouTube in 2007. In short, he believed that Google had to offer that much, or competitors, presumably Microsoft or Yahoo, would walk away with the increasingly popular video site.
‘This is a company with very little revenue,’ Schmidt said while being questioned by Stuart Jay Baskin, a Viacom attorney. ‘(YouTube was) growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer–because of who Google was–paying much more than they were worth…We ultimately concluded that [the target price of] $1.65 billion [that ended up being closer to $1.79 billion] included a premium for moving quickly and making sure that we could participate in the user success in YouTube.'”
Hmmm. He wanted to “participate in the user success in YouTube.” What in the world does that even mean? Could it mean paying a premium for attracting so much illegal content?
This was a brilliant piece of lawyering by Viacom, straight out of a movie–“I think he wants to say it. I think he’s pissed off that he’s gotta hide from us. I think he wants to say that he made a command decision and that’s the end of it.”
And the smartest guy in the room fell for it hook, line and sinker. I doubt seriously whether the same deal would get done today. I don’t know if this statement by Schmidt from the WSJ sounds “rueful” to you, but it does to me: “The problem with buying at those levels is you have to get your money back.”
What exactly was the $1 billion premium for? Perhaps as one analyst quoted by CNET put it: [YouTube] was popular because it had access to content that it shouldn’t have had and that you couldn’t get elsewhere because no one else was willing to put it up illegally…Clearly, (Google’s leaders) [understood] what was driving momentum behind YouTube.” So maybe they did pay for content after all–just not to the content owners. Could it have been a big tip for taking the “infringement risk” on the path to participating in “user success”. Of course–user success. Like the Pirate Bay.
If it was the premium that Schmidt decided to pay for illegal content it was a Satanic bargain at best and it dwarfed any payments to content owners that were made after the fact to those lucky few with the financial and market clout to threaten the Leviathan of Mountain View. So at least that billion is our money–all of those artists, songwriters and indie labels who couldn’t afford to put the litigation gun on the table. As the monopsonist book enthusiast Sergey Brin put it so clearly–“Content owners will not set the price. “Everyone is familiar with this problem in selling your house. We’re not going to use the price you suggest.”” That’s right, kiddies. Keep talking like that. Where are the anonymous amici when you need them? (And by the way–I guess no one told the Google CEO that you can’t compare physical and digital assets–so I guess it’s like selling your house if you lived in Second Life? It’s so hard to keep it all straight, isn’t it?)
You should read the excerpt from the Schmidt testimony in the CNET piece. It is a fantastic piece of lawyering and a good lesson in why you should pay attention when your lawyer objects and s-h-u-t u-p.
But only read it if you can handle the truth.
Although you have to ask yourself, where in the world was the board?