Google CEO hits back on YouTube purchase

Schmidt cites online video's huge potential but says it will take time for it to become big sales, profit generator.

By Paul R. La Monica, CNNMoney.com editor at large

NEW YORK (CNNMoney.com) -- Google Chairman and CEO Eric Schmidt said Tuesday that it will take time for the company's recently acquired YouTube online video-sharing service to become a major source of sales and profits for the company.

Speaking at an industry conference, Schmidt also said Google (Charts) and YouTube are working with big media companies to resolve copyright issues regarding content owned by the media firms that's posted on YouTube without the media firm's consent.

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Google chairman and CEO Eric Schmidt said the company's deal for YouTube is working well but that it will take time for the site to generate meaningful sales and profits.

Schmidt said that the main reason Google agreed to buy YouTube last year for nearly $1.7 billion was because of the massive amount of traffic the site generates. YouTube is, by far, the most popular online video site.

He added that the acquisition "was going very well" but cautioned investors not to expect any meaningful financial impact from YouTube for the foreseeable future.

"Looking at the traffic, user-generated video has tremendous interest," he said at a Bear Stearns media conference that was monitored by Web cast. "There is a large advertising opportunity to be built on that traffic," he said. "But an old joke in the Internet is that URL stands for Ubiquity first, Revenue Later."

Addressing the controversy about copyrighted videos on YouTube, Schmidt said he realizes how important it is for media firms to protect their content.

Viacom (Charts), for example, asked YouTube last month to take down videos from Viacom-owned cable networks such as MTV an Comedy Central that were posted without Viacom's approval.

Speaking at the Bear Stearns conference later in the afternoon, Viacom president and CEO Philippe Dauman stressed that it was important for Viacom and other media companies to have control over their content since advertisers are wary of user-generated content on sites like YouTube.

"People aren't going to spend money for user-generated content like a cat going to the bathroom," Dauman said. "We want to provide advertisers a quality environment that they would pay more for."

Dauman added that after YouTube took down the Viacom-owned clips, traffic at Viacom Web sites increased.

He also said the key factor for Viacom, which recently announced a content sharing agreement with YouTube rival Joost, is getting compensation for its content. Promotional value is not enough, he said.

But he did not rule out the possibility of working with YouTube in the future. "We may do a deal with them someday on terms that meet our criteria or we may not," he said.

Executives from other big media firms, including News Corp (Charts). and General Electric (Charts)-owned NBC, have also been vocal about cracking down on YouTube in recent weeks.

"Users are going to make copies of your copyrighted content so the first thing we want to let you know is that we recognize you own this content. We are not in the stealing business," he said.

But Schmidt added that media firms need to do more than just take an antagonistic stance against people who are posting copyrighted videos. He said media companies need to realize that these users are fans who could be potential paying customers or could eventually watch a video with an ad embedded in it.

"The biggest next opportunity is monetizing those viewers. We want to be the advertising company to monetize that viewership," he said.

He also said that despite the popularity of user-generated content on sites like YouTube, there is also a clear demand for videos created by the big media firms. "We need copyrighted information on the Internet. People want quality," he said.

Still, Schmidt's comments were met with some resistance by those attending the conference. One person in the audience asked Schmidt if he though the company was too arrogant in dealing with media firms and whether this jeopardized Google's chances of working with these companies in the future.

Schmidt said he wasn't concerned and added that much of the tough talk from media firms were negotiating tactics. He even joked about the possibility of companies taking legal action against Google and YouTube.

"I'm sure we're arrogant," he said. "But I have learned that as part of being a player in the media industry, part of negotiations is that everything is leaked and you are sued to death."

Google's stock has fallen slightly so far this year after an 11 percent rise in 2006. Some analysts have attributed the drop to the YouTube copyright concerns as well as increased competition from top rival Yahoo! (Charts), which has unveiled an upgrade to its search technology.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.