Google is to acquire web video-sharing site YouTube for US$1.65 billion as part of its strategy to invest in the emerging online video market.

Published: 09 Oct 2006

Google is to acquire web video-sharing site YouTube for US$1.65 billion as part of its strategy to invest in the emerging online video market.

The price makes YouTube, a still-unprofitable start-up, by far the most expensive purchase made by Google during its eight-year history, as per the information available.

The acquisition of the world’s biggest web video company catapults Google ahead of rivals such as Microsoft, Yahoo! and MySpace in the scramble to secure the largest share of what analysts have dubbed the “new frontier” of the Internet.

A media reported: “Although some cynics have questioned YouTube’s staying power, Google is betting that the popular website will provide it an increasingly lucrative marketing hub as more viewers and advertisers migrate from television to the Internet.”

“We are natural partners to offer a compelling media entertainment service to users, content owners and advertisers,” said Google’s chief executive officer, Eric Schmidt. He said that the acquisition was only the start as he looks to build on his fledgeling Google Video business. “Most people believe this is just the beginning of the internet video revolution. YouTube is one of many investments we will be making,” he said.

David Drummond, Google’s senior vice president of corporate development and general counsel, said the $1.65 billion acquisition price will be slightly dilutive to Google earnings for the remainder of this year and into 2007. “There will be some slight dilution this year and next, but we think this is a good structure,” Drummond said.

The YouTube deal is expected to close in the current fourth quarter, Drummond said. “All necessary corporate approvals by both companies boards are complete,” he said.

Under the proposed agreement, YouTube would retain its brand and operate independently from Google. YouTube will continue to retain its brand, as well as all 67 employees, including co-founders Chad Hurley and Steve Chen.

Hurley said: “By joining forces with Google, we can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for our users and to create new opportunities for our partners.”