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YouTube Not Feeling the Heat

Google's video giant is well-equipped to handle the threat from NBC/News Corp.

This is the end of


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No, wait -- this is just the beginning for Google.

Ah, well. There's plenty of ammunition for both sides, now that

News Corp.

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General Electric's

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NBC division have unveiled, through a carefully orchestrated and highly successful public-relations campaign, their answer to the super-disruptive video site YouTube.

The idea has been around since last fall, but there was something grandiose enough in the formal announcement to set off a debate over whether this new partnership marked a debilitating blow for YouTube or merely presented a cardboard figure to knock over as Google careens toward dominating another market.

Last Thursday's announcement of the News Corp.-NBC partnership was initially taken as another setback for Google. It highlighted ad-distribution partners such as




Time Warner's


America Online division and


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MSN unit.

And it fortuitously came in the wake of


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grandstanding, billion-dollar lawsuit against Google and YouTube.

Of course, Viacom's lawsuit is simply an admission that it has no clue whatsoever about how to make money on the Internet, which is why it's bullying a company that does. But the lawsuit created the appearance that Google was on the ropes.

But then News Corp. and NBC made a terrible blunder: They allowed theirtop executives to talk. NBC CEO Jeff Zucker and News Corp. COO Peter Chernin held a call with the press and analysts and gushed over how great their new video service would be for advertisers and copyright holders. There was little talk of consumers.

And it was this short shrift given consumers that raised red flags. Over at his TechCrunch blog, Michael Arrington

singled out this quote from Zucker as one of the very few related to the site's audience: "We are shocked at the willingness of the consumer to sit through the whole show with ads on"

Arrington, noting both the absence of other media companies in the partnership as well as the failure of News Corp./NBC to come up with an actual name for the venture, suggested it be called Clown Co. "It's either arrogance or it's blindness to the reality of this Bittorent and YouTube world. Either way, it suggests they are in over their head," he wrote.

On Monday, though, the mood swung back in favor of News Corp./NBC and their nameless lovechild, helped in no small part by reports that Google CEO Eric Schmidt had phoned Chernin and asked to be a distribution partner for the new video site. The sense was that this marked a capitulation on Google's part.

On the blog NewTeeVee, Robert Young, an entrepreneur who sold an Internet service provider to News Corp.,

offered a provocative take : The new partnership is paving the way for Rupert Murdoch to pull the rug out from under Google.

"Using Google as the red herring, Murdoch may actually have succeeded in rallying all of his competitors to join forces by contributing their combined digital video assets into one pool (which he has significant control over)," Young wrote. But Murdoch also will control distribution through MySpace, which is second only to YouTube in online video.

"Owning the whole value chain has always been a strategy that has served

Murdoch well, and by the looks of it, he's going to continue enjoying such advantages," said Young. "Not only that, Murdoch could very well have out-maneuvered Google by positioning MySpace to ultimately become what YouTube was supposed to be."

So is Google hurting or thriving in video? To answer that, it helps to review three rules that have emerged about Internet media:

Competition makes good companies better.

Google handles the bulk of searches, but it has never strong-armed anyone into using its engine. It simply offers the best searching experience. More than nearly any company, Google seems to thrive best when it's facing a formidable rival.

That's why I don't buy the image of Schmidt eating humble pie when he asked if Google could be a distributor of the new video library. This is playing right into Google's video strategy.

The Internet gives consumers more power than media giants realize.

People will watch videos on the most user-friendly site. You can have all the advertisers you want and follow the copyright laws to the letter, and you will still lose out if users don't like your business model. Just ask the record labels.

Sites that succeed are built from the ground up, not from the top down.

This is why Google has focused on small acquisitions. It's not that the company is cheap but that it has a proven way to draw in users. MySpace understands this as well, which gives News Corp. a bigger chance at success than its critics assume.

The online video debate boils down to a rivalry between Google/YouTube and News Corp./MySpace that has been around for a while but is just now heating up. Murdoch seems to understand that trusting MySpace's instincts is the key to his success on the Internet.

That may hurt Google in the end, but I wouldn't bet against Google yet. It takes a very long view on things such as video, and it's very patient in making it happen right. More than any media company, Google is willing to side with the consumer -- which is why, even if Google loses a few battles along the way, it's still likely to win out in the end.