So, how much of a premium was Google (NSDQ: GOOG) willing to pay for YouTube back in 2006 to make sure that none of its competitors got control of the company? In a deposition, cited by CNET, Google CEO Eric Schmidt says that while he believed that YouTube was actually worth between $600 and $700 million, he nevertheless recommended that the board buy the privately-held company for $1.65 billion: “They had indicated to us that they would be sold, and we believed that there would be a competing offer,” he says. “In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It’s set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.”
It was a 250 percent premium that others — including Microsoft (NSDQ: MSFT), Viacom (NYSE: VIA), Yahoo (NSDQ: YHOO) and News Corp. (NYSE: NWS), which all reportedly considered buying YouTube — were apparently unwilling to pay. Three years out, of course, the merits of the deal are up in the air: YouTube has allowed Google to dominate the online video market, but YouTube isn’t making any money (although Google does contend it is getting close) and it also faces a $1 billion copyright infringement lawsuit from Viacom, which prompted the deposition in the first place.