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A Northern California judge Howard R. Lloyd handed down a decision on August 27th in favor of the video sharing site Veoh, after it had been accused by IO Group of hosting ten of that company's adult movies without permission. Does this judgment provide other mix and video sharing sites a blueprint for legality?

"The key to Veoh's victory was its scrupulous attention to the DMCA (Digital Millennium Copyright Act) safe harbors," wrote EFF senior staff attorney Fred Von Lohnmann. "Veoh responded to compliant DMCA takedown notices on a same-day basis, it notified users of its policies against copyright infringement, it registered a Copyright Agent with the Copyright Office, it terminated users who were repeat infringers and blocked new registrations from the same email addresses (and) it used hashes to stop the same infringing videos from being uploaded by other users. These efforts actually go beyond the requirements of the DMCA safe harbors and made it clear that Veoh was serious about responding to copyright infringement notices."

The Digital Millennium Copyright Act has long offered protection for companies who host user-uploaded music and videos whose copyright may or may not belong to the uploader, but according to Von Lohmann, this is the first time such a case has gotten a final ruling. If Muxtape implements stringent DMCA safe harbor compliance measures similar to Veoh's, it might be able to fend off the Record Industry Association of America (RIAA). This would mean increasing staff in order to deal with each takedown notice that comes from the labels, and also that peoples' mixes would be decimated or worse, as songs are pulled from their mixes.

The judgement underlined that if you take reasonable precautions against copyrighted materials on your service, you may be safe.

Specifically, the court said that online video sites are protected under the safe harbor provisions of the DMCA if they:

    * Provide adequate notice to users that uploading copyrighted material is prohibited
    * Swiftly comply with DMCA takedown notices “on the same day the notice is received (or within a few days thereafter).”
    * Use fingerprinting and other technology to detect copyrighted material, even if the methods are flawed.
    * Take measures to control infringing users. Specifically, infringing accounts need to be terminated and the email banned from any new accounts. The court held that IP address banning was not neccesary: “…Io has presented no evidence suggesting that tracking (or verifying) users’ actual identity or that blocking their IP addresses is a more effective reasonable means of implementation.”
    * Transcoding files to Flash format does not put the files in the site’s control; they are still protected by the DMCA safe harbor (see previous post).
    * Sites are encouraged to spot check videos, and if they do, to remove content that is likely infringing.
    * Sites are NOT required to check every video. The court said “this court finds no reasonable juror could conclude that a comprehensive review of every file would be feasible. Even if such a review were feasible, there is no assurance that Veoh could have accurately identified the infringing content in question.”
    * It’s important to have lots of non-infringing content. The court noted that Veoh had received DMCA notices on only about 7% of its content. This helped its argument that it was different than Napster, which “existed solely to provide the site and facilities for copyright infringement…the sole purpose of the Napster program was to provide a forum for easy copyright infringement.”

YouTube, which is obviously thrilled with the decision, emailed us the following statement to us from Chief Counsel Zahavah Levine:

    It is great to see the Court confirm that the DMCA protects services like YouTube that follow the law and respect copyrights. YouTube has gone above and beyond the law to protect content owners while empowering people to communicate and share their experiences online. We work every day to give content owners choices about whether to take down, leave up, or even earn revenue from their videos, and we are developing state-of-the-art tools to let them do that even better.

The statement by the court that checking every video for infringement isn’t realistic is an important one for Google/YouTube, which has said 13 hours of video content is uploaded every minute on YouTube. If it’s impossible for Veoh to monitor all content, YouTube is going to have an order-of-magnitude larger problem.

Before the parties break out, it’s important to note that this is a district court decision and will very likely be appealed. I imagine YouTube may be lending one or ten of its lawyers to Veoh to assist in that appeal in any way possible. But this is still a key ruling and one likely to impact the YouTube-Viacom $1 billion ongoing litigation as well as a slew of other cases. YouTube in an attempt of good faith, is offering another option: instead of demanding that content be taken down, copyright holders can claim royalties for identified copyrighted content that someone else has uploaded. According to the product manager of YouTube "partners are monetize 90 percent of all claims created through Video ID" rather than issuing takedown notices.

Old, traditional methods of advertising and marketing are beginning to take a new shape or some even fade away. The question remains in regards to online video. How can it be monetized? However, some of the biggest names in video have yet to fully embrace the medium as a highly effective marketing platform. The largest of them is YouTube.com, a video site Google paid $1.6 billion to buy, which has not yet shown to be able to generate significant revenues given its huge audience of 62,000,000 monthly visitors. If Google stands for innovation, why is video monetization such a difficult task?

However, YouTube, despite its large numbers, has not been innovative enough to introduce a business model that works. Every future company will need to have some type of video on its website. Those videos are either going to be commercials or infomercials highlighting the company's products or services. Product demonstrations, training guides, video spokespeople and customer testimonials are just a few examples of video elements consumers are beginning to expect from businesses. Transparency is key today.

The Paid Subscription Business Model

In Google's case, given that they are a public company, what is the point in building something that isn't going to generate money? Let us say that YouTube launches a subscription model with a monthly fee of $40 and 2,000,000 business subscribers signing up. Here is the math: 2,000,000 x $40 x 12 months. That equals about $960,000,000  a year i.e approximately $1 billion of real money.

The question is whether the $40/month is value warranted compared to a free model. The answer is yes given the broadness of Google's channels and the significance of its paid search model.  Here are a few things that could create value to business under the subscription model:

• Universal search integration for videos and visibility across all Google distribution channels
• The ability to add your own branded logo instead of the YouTube logo on the player
• Live Broadcasting
  
• Full HD capability
• Longer videos
  
• Unlimited views and fixed bandwidth cost covered by subscription price
  
• Trend Tracking, video stats and analytics such as conversion rates
  
• Private label
  
• Customized channels and design

I think it is about time that Google stops worrying about to stop worrying about funny videos and start thinking about introducing some practical money-making offerings to businesses that solve problems for millions of revenue generating, and spending, businesses. All these businesses already pay a fortune to Google for their PPC on Adwords. Why doesn't Google incorporate an online video business strategy?

YouTube's Current Business Model

YouTube is expected to bring in $200 million in revenue by the end of 2008, and may increased that figure by 75% or more in 2009. That would amount to $350 million. Not that much considering the total videos served by YouTube.com. eMarketer says industry wide spending on Web video advertisement will reach $1.35 billion in 2008. Google serves a rough 38% of video streams according to comScore. The math just does not add up here.

Forbes magazine presented numbers as to per-day front page advertising, as well as the cost associated with companies’ establishment of branded channels. As far as front page advert placement is concerned, YouTube takes some $175,000 a piece, with a commitment by the advertiser to pay “$50,000 or more in ads on Google and YouTube” with branded channels cost $200,000 each.

Of course another reason for its slow revenue generation is that a great deal of untapped advertising power on YouTube can be blamed on marketers’ hesitation to advertise on user-generated content given the low conversion rates associated with it. Marketers fear the buying placements that might land beside user-generated videos might also create a picture that they are associated with unsavory and potentially damaging content to their brand. However, 2007 IDC report titled "Social Networking Services in the U.S. — Popular, Yes, But How to Monetize Them?." asserts that TV advertising would move more quickly online to sites such as YouTube if marketers felt the content was “brand-safe.” The problem is that user-generated content is just not ‘brand-safe’ inventory. If it’s unsafe and companies run their ad against it, it could hurt their brand, especially if the content the brand advertiser is marketing with violates copyrights and is stolen content.

Conclusion

The issue still remains: YouTube is still using the Digital Millenium Copyright Act as a safe haven for attracting the largest audiences who can post illegal content without Google being accountable (even though Viacom would disagree with that given their billion dollar lawsuit against them). The revenue generated per user is abysmal and so is the revenue generated per video. Is quantity better than quality when it comes to making money? That is a decision that Google execs need to make. Founders Chad Hurley and Steve Chen have sold the YouTube for $1.6 billion and created the new "user-generated Napster." As Shawn Fanning, the founder of Napster will say, making money legally is harder than ever, as his SNOCAP music venture has indicated. It certainly seems that people gather where they can get free content without any guilt about infringing on copyrights. This is the new digital economy. Embrace it, innovate or be gone.