WWW- INTERNET upstart YouTube, the bane-du-jour of copyright holders everywhere, won’t sell itself for anything less than $1.5 billion, The Post has learned.
But that number far exceeds the price top media execs appear willing to pay for a company many believe lacks a sustainable business model.
“If they were willing to take $200 million to $300 million, I would buy it tomorrow,” a senior industry source told The Post.
Founded in February 2005 in a Menlo Park, Calif., garage, YouTube has become an Internet sensation – the company currently serves 100,000 videos a day, the vast majority of which are uploaded by the site’s rabid user base.
In November 2005, YouTube received $3.5 million in seed money from typically ahead-of-the-curve Silicon Valley heavyweight VC firm Sequoia Capital, the same shop that helped birth Google. In April 2006, the video upstart received an additional $8 million from Sequoia.
Since then, YouTube’s potential valuation has skyrocketed, jumping from $600 million last spring to $1 billion after this year’s Allen Sun Valley powwow for media bigs, where the site’s young cofounder and CEO Chad Hurley [pictured] was the belle of the ball.
Now YouTube’s “magic number” stands at more than $1.5 billion, according to a senior industry source. Potential suitors include Viacom, Disney, AOL, eBay, and News Corp., the parent company of The Post.
A YouTube spokesperson said the company is more interested in building “a long-term viable company. And we don’t comment on rumors and speculation.” A Sequoia spokesperson did not return calls for comment.
YouTube’s stated business model is to “pursue advertising,” but potential advertisers might be skittish considering industry estimates that roughly 90 percent of the content viewed on its site violates copyright laws. And at least one giant, Universal Music, is threatening to sue the company if its artists’ songs keep appearing there.
As it tries to focus on videos that don’t use content owned by media companies, it yesterday launched the YouTube Underground, a contest to “discover the most talented unsigned bands and musicians on YouTube,” backed by Cingular Wireless, Gibson Guitar and ABC’s “Good Morning America.”
Still, the copyright issue remains the company’s most daunting hurdle.
Because the vast majority of content viewed on YouTube violates copyright law – 90 percent by one estimate – the major media companies appear to be taking a wait-and-see approach while the video upstart scrambles to legitimize itself.
“Sequoia needs to get YouTube on the right side of the line so that they can be one of the good guys,” said Nick Kingsbury, CEO of Chronicle Solutions and a “sector” partner at VC titan 3i.
In order to do this, YouTube is systematically striking deals with the major copyright holders: Earlier this year it signed a pact with NBC, and Monday it agreed to a peace accord with Warner Music Group. “There is a lot of uncertainty about what the business model is going to be,” said Jupiter Media senior analyst Joe Wilcox.
And if there is one thing that Wall Street abhors, it is uncertainty, which makes a big, Google-style IPO highly unlikely in the near future.
“No company whose business was based on copyright infringement ever successfully went public,” said Michael Arrington, editor of TechCrunch. “So it’s going to be a requirement that they get in bed with every major copyright holder before they can do it.”