Will Content Deals Save YouTube?

Can YouTube Inc. forge a new business model with content partnerships to avoid the litigation that took down Napster, Kazaa , and others?

YouTube says it's delivering video to more than 100 million sets of eyeballs and adding 65,000 new videos to its hosting servers every day. But as with its peers in the P2P music world, it's easy for users to upload copyright-protected content to the YouTube site.

Before its $1.65 billion acquisition by Google (Nasdaq: GOOG) was announced Monday afternoon, YouTube was clearly aware of the legal danger in that, and made moves to contain it. (See Google to Buy YouTube.)

Both Google and YouTube have been working diligently to form content hosting agreements with some of the largest media companies in the world, and with success. With all those eyeballs at stake, major media appears to be choosing to play ball instead of fight. (See YouTube for $30B?.)

Monday morning, Sony Corp. (NYSE: SNE), CBS, and Universal Music Group announced new content agreements with YouTube. (See CBS, YouTube Team.) NBC signed a similar deal with YouTube in June. Warner Music Group and Sony announced separate agreements with Google Monday. (See Google Signs Sony, Warner Deals.)

Those deals offer specific cover for a certain amount of content, but have symbolic value too. “We've found that doing deals with content owners makes a big difference in that it opens a steady and trusted dialogue between partners,” said CTO Suranga Chandratillake of the video search site Blinkx.

(Blinkx had its own news Monday. The firm agreed to provide its video search services on some Microsoft Corp. (Nasdaq: MSFT) MSN properties.) (See YouTube's Next Challenger.)

“Having said that, the deals also limit YouTube's activity -- they will have really aggressively to ensure that there's no illegal content from their partners,” Chandratillake says.

Still, while the media giants own a lot of content, they don’t own it all. Smaller content owners could easily try their luck in court against YouTube.

One Stanford Law professor who specializes in digital copyright law thinks YouTube is probably safe. “Because they don't post their own content, they will not be liable for copyright infringement as long as they have a mechanism for taking down content when the content owners complain,” writes professor Mark Lemley in an email to Light Reading.

Accordingly, YouTube announced this summer it will provide content owners with the tools to easily identify and remove pirated audio or video from the YouTube site. Alternatively, content owners will be given tools to authorize and place ads around their content at the YouTube site.

“The relevant statute is the Digital Millennium Copyright Act, 17 U.S.C. sec. 512,” Lemley adds. Section 512 was built onto the copyright law in 1998 to limit the liability of Internet sites in circumstances where they merely act as a data conduit, transmitting digital information from one point on a network to another at someone else’s request,” as the U.S. Copyright Office puts it at its Website.

But the statute goes further. Section 512 even protects sites like YouTube that may unwittingly host pirated content. Again, from the Copyright Office site: “Under the knowledge standard, a service provider is eligible for the limitation on liability only if it does not have actual knowledge of the infringement, is not aware of facts or circumstances from which infringing activity is apparent, or upon gaining such knowledge or awareness, responds expeditiously to take the material down or block access to it.”

Blinkx’s Chandratillake agrees that YouTube may not have as many legal troubles in its future as some have speculated. “I think the copyright issue has been overblown -- these things take a long time to fight and, with the combined traffic and momentum of Google and YouTube, they could build a legitimate business while things were sorted out in the courts.”

— Mark Sullivan, Reporter, Light Reading