Google Reportedly Eyeing YouTube

Google is reportedly in talks to acquire YouTube Inc. for $1.6 billion, The Wall Street Journal’s online edition reported this afternoon. YouTube is the popular online video site that has garnered a lot of ink in recent months for its goofy, user-generated videos, which offer a perfect example of the “long tail” content aspect enabled by the Internet.

YouTube, which was founded in February of 2005 and remains a free service, is a place for people to share, video and comment on video. Today, people watch more than 70 million videos on the site daily, according to the company, which was reportedly exploring ways to integrate advertising into its site.

If Google were to buy YouTube, it would significantly bolster its effort to get into online video. Google recently launched Google Video, where folks can search for, watch and buy TV shows, movies, music videos, documentaries, personal productions and more. But if you visit Google Video, the site is still labeled “beta” mode.

Still, the appeal of online video is clear. As research firms like Parks Associates report, the Internet is beginning to live up to its much-hyped ability to deliver new content to users, with a small but growing numbers of users that are now paying for these experiences. But household spending on this remains quite small. While revenue for DVD rentals and sales and movie theater receipts total $23 billion each year in the United States., annual revenue among all online rental or download-to-own sites is estimated to be no more than $50 million, said Kurt Scherf, vice president and principal analyst at Parks Associates; so there’s still plenty of room for business model experimentation. He added that it’s important to consider “the boldness with which the major media actors are embracing the Internet.”

In a recent Webinar hosted by Parks Associates, Scherf gave a variety of examples on how companies like Apple, the major networks and cable companies are experimenting in the realm of online video. For example, CBS inked early deals with Comcast to provide some content as an on-demand service. “Major media companies are the current and long-term winners, in our opinion, and we expect consolidation here,” said Scherf.

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