Google Keeps Peace

The YouTube deal is going just fine so far.
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If no news is good news, then

Google's

(GOOG) - Get Report

purchase of YouTube is looking good indeed.

You remember the initial commotion: Before the merger was washed out of the headlines by a tumultuous earnings season, there was nonstop commentating, handwringing, pontificating and more than enough doomsaying that saw in the deal everything from the burial of Google under a heap of lawsuits to the unholy second coming of the dot-com bubble at the hands of the one company that escaped its ravages.

But earlier this month, the merger quietly closed. There were a few perfunctory headlines on the deal, but most significant was what wasn't said: Nothing has gone wrong. Everything is actually proceeding pretty smoothly.

By "pretty smoothly" I mean that while the two companies face a long and sometimes rocky road ahead, there doesn't seem to be any reason to believe they won't navigate obstacles to bring anytime/anywhere Internet video closer to its full potential.

Google's management is certainly not rushing things, feeling no need to prove that it can turn online video into a highly profitable business and a technology that works itself seamlessly into our everyday lives. The real fruits of the merger probably won't be evident for three years -- a long time for some, but a mere one-hundredth of the time line for how long Google CEO Eric Schmidt says it will take the company to organize the world's information.

In the meantime, YouTube is putting out brush fires. It recently signed a deal with the National Hockey League to post hockey highlights on YouTube starting this month. The NHL agreement is an olive branch to other sports organizations, whose events could become a key growth area for YouTube content.

The deal -- a tentative balancing act of evading copyright lawsuits from pirated content and seeking out new content to draw a larger audience -- echoes similar ones signed with broadcast networks such as

CBS

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and

General Electric's

(GE) - Get Report

NBC

and music labels such as

Sony BMG

and

Universal Music

.

Now contrast that with news last Friday that Universal was suing

News Corp.'s

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MySpace unit for copyright infringement. The complaint called music files and video clips on millions of MySpace users' pages "user-stolen intellectual property."

MySpace says it's testing technology to enable copyright holders to delete unauthorized content from members' pages. I can't think of a faster way to drive MySpace members to the dozens of new social network sites that have cropped up in recent months. MySpace's secret sauce was its ability to create music-driven communities -- and this move will strike at the very heart of that success.

But again, the most telling part of these developments is what didn't happen: Universal could have gone after YouTube, spewing the same legal bluster, but it didn't. In September, Universal Music CEO Doug Morris said at an investor conference that talks with YouTube were deteriorating while those with MySpace were progressing.

Two months and 1.65 billion Googlebucks later, the situation has reversed. With Google standing behind it like a brawny big brother, YouTube is a lot harder to push around. The $200 million -- one-eighth of YouTube's sticker price -- that will sit in escrow "to secure certain indemnification obligations" (Google's code word for potential lawsuits) amounts to an invitation for copyright holders to take the companies on in court.

But no one has tried. That's because whatever money can be pried from that escrow account, less the chunky payouts to attorneys, will be worth far less than the revenue-sharing that would result from working with Google and YouTube to experiment with ways of giving consumers the video content they want while giving rights holders the money they desire.

In retrospect, one of the crucial moments in YouTube's history came a few weeks after the Google buyout was announced.

Viacom

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sent YouTube a letter demanding it strip off Comedy Central clips, including those from

The Daily Show

and

The Colbert Report

.

The backlash was swift and severe: YouTube users railed against Viacom on blogs and YouTube clips, many of the critics pointing out that Jon Stewart and Stephen Colbert owe much of their success to online audiences at sites such as YouTube.

Viacom backpedaled, allowing many clips to be posted again while it worked on a revenue-sharing model with YouTube. Perhaps Viacom initially believed it could shuttle YouTube users over to the clips on its site. But those users, spoiled by the simplicity of YouTube, found Viacom's site slow, clumsy and unfriendly.

There remains plenty that the movie, television and music companies still don't like about YouTube, just as there is plenty for YouTube users to bemoan in the site's loss of its freewheeling style of its early days.

YouTube remains a work in progress, but as long as it can continue to bridge the gap between consumers and content owners, that news is as good as anyone can expect.