Google is buying YouTube for $1.65 billion in stock, teaming the leading Internet search engine with the largest video-sharing website.
Combined, the companies attracted 101 million U.S. visitors in August, second to Yahoo, according to Nielsen/NetRatings.
The deal, announced Monday, fueled speculation that Google could have its eye on Broomfield-based Level 3 Communications, the fiber-optic network operator that provides high-speed Internet access and services for some of the nation’s most popular websites, including YouTube and MySpace.
Google has $9 billion in cash and assets that could be quickly converted into cash, an indication that more acquisitions could be on the way.
San Bruno, Calif.-based YouTube will continue to operate independently of Mountain View, Calif.-based Google after the deal is completed, which is expected by the end of the year.
Analysts said the deal gives Google an advantage over competitors such as Yahoo in one of the Internet’s high-growth areas – video content.
“We are positive on the transaction,” said Standard & Poor’s analyst Scott Kessler. “We believe the combination of YouTube’s brand, community, traffic and technology with (Google’s) distribution, advertising solutions and resources will constitute the No. 1 player in online video.”
Though still unprofitable, YouTube has grown rapidly over the past year and attracts more visitors per month than Google’s and Yahoo’s video websites combined. YouTube says its users watch more than 100 million videos daily.
While much of the content on YouTube’s website is user-generated, users often upload videos that are copyrighted. That has led to comparisons with Napster, the once-popular music- sharing website that folded to copyright pressures.
Perhaps calming some of those fears, YouTube announced Monday it had reached deals with Vivendi’s Universal Music Group and Sony BMG Music Entertainment that will let the website and its users post music videos that include copyrighted material in exchange for a share of ad revenue.
Google also announced similar deals with Warner Music Group Corp. and Sony BMG for Google Video.
After details of the Google- YouTube merger leaked, rumors swirled that Google may be interested in Level 3.
“Some investors believe that Level 3, which was hired by YouTube last month to provide high-speed access and data center connection services, could be a perfect technology fit for Google to meet its other connectivity needs through Level 3’s fiber optic network,” according to a note by Ant & Sons, an independent research firm.
Level 3 also provides services to Google, though that relationship has not been publicized, according to Greg Mesniaeff, a telecommunications analyst with Needham & Co. in New York, but he added that a Google-Level 3 merger would create a “big strategic question mark.”
“I could see Google being able to leverage Level 3’s infrastructure to support its growth,” said Jonathan Schildkraut, an analyst with Jefferies & Co. “I’m not convinced they couldn’t do better by just renting pieces of that as opposed to trying to purchase the whole company.”
Level 3 spokesman Chris Hardman and Google spokesman Barry Schnitt said their respective companies don’t comment on rumors or speculation.
Denver Post wire services contributed to this report.
Staff writer Andy Vuong can be reached at 303-954-1209 or avuong@denverpost.com.
