The Ties That Bind Google, YouTube and Media Companies

(MoneyWatch)  Yesterday I posted about how the record companies (and, actually media companies in general) have no choice but to play ball with YouTube, in light of Warner Music's decision to pull its content off the site. Today, I'd like to talk about why it may be in YouTube's best interest to reach agreement with media and record companies over licensing content. It has little to do with the rise of Hulu and everything to do with its parent, Google. Surprise!

It's no secret Google has aspirations that go far beyond being the king of online advertising. It is currently applying versions of its automated, accountable ad buying model to radio, TV and print. The long-term hope at Google is that this could become the de facto method for buying, selling and planning advertising campaigns, instead of the labor-intensive, relationship-driven model that dominates the industry today. To make this happen, Google obviously needs buy-in from advertisers and their agencies, and media companies, who have to agree to give up some avails to Google to sell for the model to work.

So far, it's been a mixed bag. Its Google TV Ads product, for example, has deals with the likes of NBC Universal to sell some inventory on its cable networks; on the other hand, despite Google's "Don't Be Evil" credo, the advertising and media communities for the most part are suspicious of its plans. As Forrester Research analyst David Graves told Adweek in August:

It seems that the television establishment, both the buyers and sellers, are likely to want to buy it person to person. Changing the way TV is bought and sold is a not-insignificant task.

Therefore, strong-arming record companies which are ultimately owned by companies who peddle substantial amounts of ad time seems short-sighted. The media company rationale could be: "why hand over some ad time to the very company that is not properly compensating us for our content?" Interestingly, Universal Music, owned, of course, by NBC, came out saying last week it is seeing "tens of millions" in revenue from its own arrangement with YouTube. Could there be some connection between the corporation's willingness to try out the Google TV Ads product on the one hand and its happiness with its YouTube arrangement on the other? Hmmm ... ponder that over your first glass of eggnog.