YouTube-Viacom, Part Two: YouTube Founders’ E-Mails Show Struggles Over Copyrighted Works

In the second set of documents released today from Viacom’s $1 billion lawsuit against Google (NSDQ: GOOG) over YouTube’s posting of its copyrighted works, e-mails among the video site’s three primary founders Chad Hurley, Steve Chen and Jawad Karim, demonstrate the debates the trio had over how to handle unauthorized content. The e-mails, from the first year of YouTube’s existence, detail clear concerns and veer to outright indifference among the founders and about how it should handle the issue. For the most part, Hurley is mostly worried about creating ill will among large media companies he hoped would pay “big money” to acquire YouTube. The court documents also reveal the specific payouts the founders, along with their investors, received after Google bought YouTube for $1.65 billion over three years ago. (The full PDF can be downloaded here; for a summary of Google’s arguments, see Joseph Tartakoff’s piece here)

Counting clips: Viacom (NYSE: VIA) claims Google has reproduced and distributed for viewing on YouTube 62,637 video clìps that infringe its copyrights. Those clips, it says, were viewed more than 507 million times.

Aspiring to Kazaa: In Feb. 2005, YouTube’s goals were to “aim high” and be considered at the level of Napster, Kazaa, and BitTorrent in terms of the number of users and buzz. In April 2005, Karim wrote his co-founders, “It’s all ’bout da videos, yo. We’ll be an excellent acquisition target once we’re huge.” Also in April 2005, Hurley appeared concerned about the presence of a South Park clip on YouTube and questioned whether it should be left on the site because “it’s copyrighted material.”

Screw the ISP: But Chen told the other founders that he was unconcerned about the copyright issue. “We got a complaint from someone that we were violating their user agreement. I think it may be because we’re hosting copyrighted content. instead of taking it down — I’m not about to take down content because our ISP is giving us sh-t — we should just investigate moving…”

Keeping copyright bastards at bay: By June 2005, Hurley was looking for a way to circumvent the copyright problem: “So, away to avoid the copyright bastards might be to remove the ‘No copyrighted or obscene material’ line and let the users moderate the videos themselves. legally, this would probably be better for us, as we’ll make the case we can review all videos and tell them if they’re concerned they have the tools to do it themselves.”

Google stock price: On November 13, 2006, the closing date of the transaction, Google Class A common stock closed at a price of $481.03; at that price the 3,659,770 shares issued and issuable in connection with Google’s acquisition of YouTube were worth an aggregate $1.77 billion. 12.5 percent of the equity issued and issuable pursuant to Google’s acquisition of YouTube was placed in escrow to secure indemnification obligations.

YouTube’s payday: As a result of Google’s acquisition of YouTube, Hurley received Google shares worth approximately $334 million at the November 13, 2006 closing price. Co-Founder Steve Chen received $301 million, while Jawed Karim received $66 million. Sequoia Capital, which provided $9 million in funding for YouTube and was its largest venture capital investor, received Google shares worth approximately $516 million at the November 13, 2006 closing price. Artis Capital, which invested $3 million in YouTube, got Google shares worth approximately $85 million.

Lawsuit money: In a July 10, 2005 e-mail to Hurley and Chen, Karim said he had found a copyrighted video, adding: “Ordinarily I’d say reject it, but I agree with Steve [Chen], let’s ease up on our strict policies for now. So let’s just leave copyrighted stuff there if it’s news clips. I still think we should reject some other things tho. . .” Hurley replied, “Ok man, save your meal money for some lawsuits! 😉 no really, I guess we’ll just see what happens.

Sarcasm creeps in: A few days later, Chen sent an explosive e-mail to Hurley and Karim saying: “Jawad, please stop putting stolen videos on the site. We’re going to have a tough time defending the fact that we’re not liable for the copyrighted material on the site, because we didn’t put it up when one of the co-founders is blatantly stealing content from other sites and trying to get everyone to see it.” The same day, July 19, Chen sent a stinging and sarcastic message to Karim, cc’ing Hurley: “Why don’t i just put up 20 videos of pornography and obviously copyrighted materials, and then link them from the front page. What were you thinking?

Steal this movie: Clearly, Chen’s worries only went so far. In a July 29, 2005 e-mail about competing video websites, he wrote to Hurley and Karim, “Steal it!” To which Hurley responded: “Hmm, steal the movies?” Chen replìed: “We have to keep in mind that we need to attract traffic. How much traffic will we get from personal videos? Remember, the only reason why our traffic surged was due to a video of this type. . . . viral videos will tend to be THOSE type of videos.

Hurley’s qualms: While Chen appeared to lose some of his compunctions about posting copyrighted material, Hurley’s qualms only grew: “We need to start being diligent about rejecting copyrighted/inappropriate content. We are getting serious traffic and attention now, I don’t want this to be killed by a potentially bad experience of a network exec or someone visiting us. Like there is a CNN clip of the shuttle clip on the site today, if the boys from Turner would come to the site, they might be pissed? These guys are the ones that will buy us for big money, so lets make them happy. We can then roll a lot of this work into a flagging system soon.”

Get big, then remove: By August, an early solution had been forged among YouTube’s founders. Hurley: “Let’s remove stuff like movies/tv shows. Let’s keep short news clips for now. We can become stricter over time, just not overnight. Like the CNN space shuttle clip, I like. We can remove it once we’re bigger and better known, but for now that clip is fine.” Chen replìed, “Sounds good.”