Google CEO says media companies need YouTube

San Francisco: Google Inc. Chief Executive Officer Eric Schmidt says media companies will someday see the light. To attract viewers, they have no choice but to put their TV shows and movies on video sites such as his company’s YouTube.

“Eventually all of the copyrighted content will be available on virtually all of the sites," said Schmidt, who is tussling over copyrights with companies such as Viacom Inc. “The growth of YouTube, the growth of online, is so fundamental that these companies are going to be forced to work with and in the Internet," Schmidt said in an interview at Google headquarters in Mountain View, California.

The success of YouTube has networks divided on whether the benefits of putting up clips outweigh the risk of cannibalizing their own efforts. CBS Corp. this week called YouTube a “huge promotional vehicle." Viacom CEO Philippe Dauman said unauthorized videos on the site hurt his company.

Google, the most-used Internet search engine, acquired YouTube for $1.65 billion in November. More than 133 million people visited YouTube in January, 14 times more than a year ago, according to Reston, Virginia-based Web-use tracker ComScore Networks Inc.

The site appeals to viewers with the breadth of its content, some of which has been posted without permission. That’s prompted media companies to cry foul. Viacom demanded the removal of 100,000 clips last month.

“Any smart-thinking media company is going to need to work with them," said Allen Weiner, an analyst at Gartner Inc., a market research firm in Stamford, Connecticut.

Google’s ‘Big Project’

The problem is that YouTube hasn’t fully developed a way to generate revenue, and users may tune out if ads run before clips, Weiner said. That leaves Schmidt, 51, searching for a way to generate money from the site, which he lists as Google’s “big project" this year.

YouTube had sales of about $15 million in 2006, according to Bear Stearns & Co. analyst Robert Peck. Schmidt said making deals for the professionally produced content that may accelerate growth is taking longer than he hoped because of difficulty in getting permission from everyone claiming ownership.

“It’s more complicated than we anticipated," Schmidt said in the interview on “Conversations with Judy Woodruff," which airs on Bloomberg TV tonight. “It’s been more difficult to navigate through the very complicated business structures that the media companies have erected."

Google shares fell $1.76 to $452.96 at 4 p.m. New York time in Nasdaq Stock Market trading. They have dropped 7.4 percent since the YouTube acquisition closed on Nov. 14.

Viacom Deal?

Google faces challenges from media companies such as News Corp. and a film distributor run by billionaire Mark Cuban. Both went to court to force Google to identify users who posted TV shows and films without permission on both YouTube and Google Video. In February, the company acceded to Viacom’s request to remove its content.

“We may do a deal with them some day, or we may not," Viacom’s Dauman said at a conference in Palm Beach, Florida. Viacom, owner of MTV Networks, pursues its own video projects and works with companies that “respect" content, he said.

The demand to remove the content may be a negotiating tactic, said Helene Freeman, an intellectual property attorney at Dorsey & Whitney LLP in New York, whose clients include the band ’N Sync.

“It’s just a question of how people value their content," Freeman said. “The goal of Viacom was to get the best price for their content on YouTube."

YouTube’s Rivals

The company may sell ads that run before, within and after clips on YouTube, said Omid Kordestani, senior vice president of Google’s global sales.

“The good news is that there is a lot of traffic," Kordestani said in an interview today in Sao Paulo. “This allows us to have great platform to try things and make advertising work."

Media companies also have put content online themselves. Walt Disney Co.’s ABC TV network offers shows including “Lost" and “Ugly Betty" for free, while News Corp.’s Fox On Demand has “24" and “Prison Break." Last month, Viacom agreed to offer shows through Joost.com, a rival to YouTube.

“If people are assuming there’s a foregone conclusion the only place to get video is YouTube, I think people are jumping the gun," Albert Cheng, executive vice president of digital media for Disney-ABC Television group, said in an interview. “It’s still premature to call the game."

Other Fights

Google also is fighting copyright claims on other fronts. Publishers and authors sued over its project to scan library books and put excerpts on the Web, while a court in Brussels said Google violated copyright law by publishing links to newspapers without permission.

Google disagrees with the Belgian court’s ruling and is appealing, Schmidt said. Google’s goal is to put all the world’s information in its index and add better software for searching the data, he said.

“We ultimately believe that copyright holders will prefer to make the information available on Google because they are better off having a larger market," he said. “If they don’t, then other copyright holders will choose to give us the information, and eventually people will prefer the people who have a broader distribution strategy."

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