So two twenty-somethings start a new website in their garage a year ago, and today they sell it for $1.6b (the dotcom boom is back!)

1. Ready for Its Close-Up (NY Times editorial)

Even by the standards of the online world, YouTube has been something of an overnight sensation, spreading like a gale-driven wildfire almost from the moment it officially debuted last December. The Web site cracked the code for successful video on the Internet when it chose an egalitarian approach, putting the ease of posting and viewing short videos ahead of slick design and ultra-high resolution.

That course paid off. Now YouTube shows more than 100 million clips each day, a figure enticing enough that Google announced yesterday that it would buy the upstart company for $1.65 billion.

While it may be one of the most popular sites on the Internet, YouTube is not without detractors. The company has yet to turn a profit and could face significant legal challenges. It has often been likened to Napster, which was shut down by a federal court ruling in 2001 as an illegal file-swapping service.

But comparisons to the early days of music piracy are off the mark. Much of what is on the site is user-generated material, posted by pranksters and budding auteurs, politicians and video diarists seeking attention rather than money. YouTube has been working with professional content providers from the very beginning, however fitfully it may appear at times. In the site’s first few months, publicity-seeking corporate marketing teams would post clips that were sometimes followed by cease-and-desist letters about the very same content from those companies’ legal departments.

The 10th-most-viewed video in the site’s history is “Ronaldinho: Touch of Gold,” a Nike commercial featuring fancy footwork by the Brazilian soccer star. Consumers have watched it on YouTube more than seven million times. Many companies see potential and are lining up to work with the site, rather than begging a court to shut it down. Yesterday, YouTube announced deals with CBS, Sony BMG Music Entertainment and Universal Music Group.

For Google, acquiring YouTube is hardly risk-free. The posting of videos by Iraqi insurgents and recent scuffles over charges of censorship demonstrate the complexity of running a site where anyone in the world can post a video. But those are the kinds of problems a business wants to have. They signal that a critical mass of people is tuned in.


2. Dot-Com Boom Echoed in Deal to Buy YouTube -- by ANDREW ROSS SORKIN

A profitless Web site started by three 20-somethings after a late-night dinner party is sold for more than a billion dollars, instantly turning dozens of its employees into paper millionaires. It sounds like a tale from the late 1990’s dot-com bubble, but it happened yesterday.

Google, the online search behemoth, agreed yesterday to pay $1.65 billion in stock for the Web site that came out of that party — YouTube, the video-sharing phenomenon that is the darling of an Internet resurgence known as Web 2.0.

YouTube had been coveted by virtually every big media and technology company, as they seek to tap into a generation of consumers who are viewing 100 million short videos on the site every day. Google is expected to try to make money from YouTube by integrating the site with its search technology and search-based advertising program.

But the purchase price has also invited comparisons to the mind-boggling valuations that were once given to dozens of Silicon Valley companies a decade ago. Like YouTube, those companies were once the Next Big Thing, but some soon folded.

Google, with a market value of $132 billion, can clearly afford to take a gamble with YouTube, but the question remains: How to put a price tag on an unproven business?

“If you believe it’s the future of television, it’s clearly worth $1.6 billion,” Steven A. Ballmer, Microsoft ’s chief executive, said of YouTube. “If you believe something else, you could write down maybe it’s not worth much at all.”

In a conference call to announce the transaction yesterday, there were eerie echoes of the late 1990’s boom time. There was no mention of what measures Google used to arrive at the price it agreed to pay. At one point, Google’s vice president, David Drummond, gave a cryptic explanation: “We modeled this on a more or less synergistic kind of model. You can imagine this would be hard to do on a stand-alone basis.”

The price tag Google paid may simply have been the cost of beating its rivals — Yahoo, Viacom and the News Corporation — to take control of the most sought-after Web site of the moment. It was also perhaps the only price that two YouTube founders, Chad Hurley, 29, and Steven Chen, 28, and their big venture capital backer, Sequoia Capital Partners, were willing to accept, given that they most likely could have continued as an independent company. A third YouTube founder, Jawed Karim, left the company to pursue an advanced degree at Stanford.

The deal came together in a matter of days. After rebuffing a series of other overtures, YouTube’s founders decided to have lunch on Wednesday with Google’s co-founder, Larry Page, and its chief executive, Eric E. Schmidt. The idea of a deal had been broached a few days earlier. The setting was classic Silicon Valley start-up: a booth at Denny’s near YouTube’s headquarters in San Bruno, Calif. The Google executives threw out an offer of $1.6 billion and autonomy to continue running the business.

That set off a marathon of meetings and conference calls over the next two days, which kicked into even higher gear on Friday, when news of the talks began to circulate, putting pressure on Google to sign a deal before a rival bid emerged. In fact, the News Corporation sent a letter to YouTube seeking to start talks but never received a response.

“The Google-YouTube deal has to feel a little like the 1990’s, but it isn’t,” said Dmitry Shapiro, chief executive of Veoh, a YouTube competitor that is backed by Time Warner and Michael D. Eisner , the former chairman of Disney. Arguing that online video represents an entirely new medium, he said, “If you knew then what you know now and you had the chance to acquire Amazon or eBay — which weren’t making any money either — you would have bought them.”

Of course, YouTube has also been compared to Napster, whose music-sharing service was eventually shuttered after a series of lawsuits. While YouTube has made some deals with content providers, including one yesterday with CBS, its users have uploaded millions of copyrighted clips, leading some to question whether Google is inheriting a legal minefield. YouTube has said it is different from the old Napster service because it removes content when a copyright holder complains.

“There are some issues with YouTube,” Sumner M. Redstone , chairman of Viacom, said last week on “The Charlie Rose Show.” “They use other people’s products,” he said, alluding to pirated video. “The only way they avoid litigation now is they stop doing it if you call them.”

Mark Cuban, who founded Broadcast.com , an early audio and video site that was bought by Yahoo, is even more skeptical of Google’s legal position, writing on his blog: “I still think Google lawyers will be a busy, busy bunch. I don’t think you can sue Google into oblivion, but as others have mentioned, if Google gets nailed one single time for copyright violation, there are going to be more shareholder lawsuits than Doan’s has pills to go with the pile-on copyright suits that follow.”

Yet the deal with Google was announced hours after YouTube disclosed deals with entertainment companies that appeared to reduce the risk that it would become mired in copyright disputes.

YouTube is Google’s first big acquisition after making a series of much smaller deals for companies, including Pyra Labs, creator of Blogger. Google now joins the Internet’s establishment — Yahoo, eBay and Amazon.com, among others — which have all made giant acquisitions to expand their businesses beyond their traditional trade.

But those companies have had mixed results. Yahoo paid $3.6 billion in 1999 for Geocities, a company that allowed users to create their own Web sites; today, MySpace, a social networking site bought by Rupert Murdoch ’s News Corporation last year for only $580 million, far eclipses it. EBay, on the other hand, acquired PayPal, a rapidly growing start-up that lets people make payments via e-mail, for $1.5 billion in 2002. It now represents more than a third of eBay’s revenue.

Rather than pursuing big acquisitions, Google has been known for plowing money into research and development, spending $483.98 million last year, an increase of more than 114 percent over the previous year.

The success of the YouTube acquisition will probably lie in embedding video advertising into the clips that millions of people watch everyday from their computers. So far, YouTube’s management has been reluctant to include advertising within clips, for fear of alienating users.

Yesterday, however, Mr. Hurley, one of YouTube’s founders, appeared more open to experimenting, saying that he was even considering testing what’s known as a pre-roll — a 15-second ad before a clip — something he had long derided as potentially ruining the user experience.

While more marketers have been eager to advertise against online video, some big consumer companies have been reluctant to fully embrace advertising against user-generated content because it is difficult to differentiate good content from offensive material. YouTube has created an assortment of tools for users and content creators to police its site.

YouTube said it had struck accords to license content from two of the four major music conglomerates — the Universal Music Group and Sony BMG Music Entertainment — and the CBS television network in exchange for a percentage of YouTube’s advertising revenue.

YouTube is also expected to use new technology to identify copyrighted material that users have uploaded to the site without permission, and to share ad revenue with media companies that own the video or music content. (YouTube made a similar pact with the Warner Music Group last month, and had a previous advertising deal with NBC in June).

The deals reflect how media companies are rethinking the distribution of their entertainment content online.

The deal with Universal, the world’s biggest music corporation, drew particular attention because the company had said it was contemplating a lawsuit against YouTube over copyright issues.

Phil Leigh, the president of Inside Digital Media, said the new arrangements represented “a strong endorsement that the major media companies are going to see YouTube as a legitimate business partner.”

Mr. Leigh said that also suggested a rethinking of the approach the companies took to Napster. “It shows that very important, erstwhile reluctant media companies have got religion,” he said.

The YouTube alliances also came the same day that Google announced separate deals to license music videos from Sony BMG and Warner.

Under the terms of the deal, YouTube, which has about 60 employees, will retain much of its identity and will keep its name and its office in San Bruno, more than 25 miles from Google’s headquarters in Mountain View.

The transaction was announced after the stock market closed. Earlier, Google shares rose 2 percent, to $429, after DealBook, a Web log published by nytimes.com, reported that a deal would be announced at the end of the market day.

Benjamin Schachter, a UBS analyst, wrote in a note to investors. “The price tag of about $1.6 billion is difficult to justify on a spreadsheet and may be somewhat of a throwback to the days of paying for eyeballs and page views, but this is a strategic bet that Google would be placing for a long-term objective: to be the technology and distribution partner for content owners and publishers.”


3. Anti-U.S. Attack Videos Spread on Web -- by EDWARD WYATT

LOS ANGELES — Videos showing insurgent attacks against American troops in Iraq, long available in Baghdad shops and on Jihadist Web sites, have steadily migrated in recent months to popular Internet video-sharing sites, including YouTube and Google Video.

Many of the videos, showing sniper attacks against Americans and roadside bombs exploding under American military vehicles, have been posted not by insurgents or their official supporters but apparently by Internet users in the United States and other countries, who have passed along videos found elsewhere.

Among the scenes being viewed daily by thousands of users of the sites are sniper attacks in which Americans are felled by snipers as a camera records the action and of armored Humvees or other military vehicles being hit by roadside bombs.

In some videos, the troops do not appear to have been seriously injured; in one, titled “Sniper Hit” and posted on YouTube by a user named 69souljah, a serviceman is knocked down by a shot but then gets up to seek cover. Other videos, however, show soldiers bleeding on the ground, vehicles exploding and troops being loaded onto medical evacuation helicopters.

At a time when the Bush administration has restricted photographs of the coffins of military personnel returning to the United States and the Pentagon keeps close tabs on videotapes of combat operations taken by the news media, the videos give average Americans a level of access to combat scenes rarely available before, if ever.

Their availability has also produced some backlash. In recent weeks, YouTube has removed dozens of the videos from its archives and suspended the accounts of some users who have posted them, a reaction, it said, to complaints from other users.

More than four dozen videos of combat in Iraq viewed by The New York Times have been removed in recent days, many after The Times began inquiries.

But many others remain, some labeled in Arabic, making them difficult for American users to search for. In addition, new videos, often with the same material that had been deleted elsewhere, are added daily.

Russell K. Terry, a Vietnam veteran who founded the Iraq War Veterans Organization, said he had mixed feelings about the videos.

“It’s unfortunate there’s no way to stop it,” Mr. Terry said, even though “this is what these guys are over there fighting for: freedom of speech.”

One YouTube user, who would not identify himself other than by his account name, facez0fdeath, and his location, in Britain, said by e-mail that he posted a video of a sniper attack “because I felt it was information the U.K. news was unwilling to tell.”

“I was physically sickened upon seeing it,” he said, adding, “I am wholly opposed to any form of censorship.”

The video he posted, which had been viewed more than 33,000 times, was removed earlier this week.

Another YouTube user, who said he was a 19-year-old in Istanbul and who posted more than 40 videos of Iraq violence, said via e-mail that “anti-war feelings and Muslim beliefs (the religion of peace) motivates me.”

Neal O. Newbill, a freshman at the University of Memphis who viewed some of the YouTube videos and posted comments on them, said in an interview that he was enraged by the recorded chants of “Allahu Akbar,” Arabic for “God is great,” that follow some of the sniper attacks.

But Mr. Newbill added that he was awed by the size of the blasts from the improvised explosive devices, or I.E.D.’s, used against American vehicles. A son, nephew and grandson of American veterans, Mr. Newbill said he had sought out the videos, searching on YouTube for “I.E.D.,” “because I like watching stuff blow up.”

The Web sites also contain a growing number of video clips taken by American soldiers. One shows the view from the back of a truck containing several members of a platoon, whose vehicle then hits an I.E.D. and is turned on its side. A few videos also show American servicemen or private security guards firing at attackers, and one shows an American rocket-propelled grenade hitting a building from which insurgents are firing.

A spokesman for United States Central Command, which oversees troops in Iraq, said the military was aware of the use of common Internet sites by both insurgent groups and American military personnel.

“Centcom is aware we are facing an adaptive enemy that uses the Internet as a force multiplier and as a means of connectivity,” Maj. Matt McLaughlin, the spokesman, said by e-mail.

While posting of Web logs, pictures and videos by American troops is subject to military regulations, Major McLauglin said, “ Al Qaeda uses the Internet and media to foster the perception that they are more capable than they are.”

Some of the videos are obvious propaganda, with Arabic subtitles and accompanying music, while others simply have scenes without sound or graphics. They appear to be real, though the results of attacks are not always clear.

One frequently posted video shows individual photographs of several hundred American soldiers allegedly killed by a Baghdad sniper referred to as Juba. But a television news report from the German weekly Der Spiegel that also has been posted on the video sites shows an interview with one American soldier whom the insurgent group claimed to have killed but whose protective vest stopped the sniper’s bullet.

Geoffrey D. W. Wawro, director of the Center for the Study of Military History at the University of North Texas and a former instructor at the United States Naval War College, said the erosion of the command structure of terrorist and insurgent groups had led them to increase their reliance on the Internet and videos to gain recruits.

American troops, too, have always sent snapshots home from the front, Mr. Wawro said, and digital pictures and video are simply a new incarnation of that.

“This is how the new generation does things,” he said.

“It results in a continued trivialization of combat and its effects,” Mr. Wawro added, “but no one feels completely comfortable saying, Don’t do it.”

YouTube does feel comfortable saying so, however, as does Google Video. Both have user guidelines that prohibit the posting of videos with graphic violence, a measure that spokeswomen for each service said was violated by many of the Iraq videos.

Julie Supan, senior director of marketing for YouTube, said the company removed videos after they were flagged by users as having inappropriate content and were reviewed by the video service.

In an e-mail message, Ms. Supan said that among the videos removed were those that “display graphic depictions of violence in addition to any war footage (U.S. or other) displayed with intent to shock or disgust, or graphic war footage with implied death (of U.S. troops or otherwise).”