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Google-owned YouTube (NSDQ: GOOG) is in talks to buy original online content studio Next New Networks, The New York Times reported Wednesday. Google has done a horrendous job in recent years securing top-shelf content from Hollywood; such an acquisition reflects that if you can’t make the deals to get that content, you might as well produce some yourself.
Google has made a number of moves over the past few months that has shown upping its game in the content business, where everyone from Netflix (NSDQ: NFLX) to Apple (NSDQ: AAPL) has overtaken them. The hiring of Robert Kyncl from Netflix in September was one indication that YouTube needed someone with digital dealmaking experience in Hollywood. The acquisition of Widevine a few weeks ago showed the company’s concern for being able to transmit premium video in a secure environment.
Bringing content production in-house may reflect increased pressure on squeezing more advertising revenues out of YouTube, which for all its massive size is still largely a home to value-less user-generated content that drain bandwidth costs. But Google has also spoken positively about the profitability of YouTube on earnings calls earlier this year; some analysts have pegged revenues for the site alone in 2010 could reach $1 billion.
YouTube may have been frustrated with the rate of growth at its own efforts to monetize the kind of premium video that would attract advertisers. Some key executives charged with making deals from everyone from popular amateur talent to companies just like NNN left YouTube in recent months, including George Strompolos and Kevin Yen.
Google has long disavowed interest in being in the content business, but an acquisition like Next New Networks would put them firmly and undeniably in that camp. As small a company as NNN is, this could raise the specter of some eventual regulatory backlash should Google go on the hunt for bigger prey.
And that, of course, may be the next logical step for Google: They have pockets deep enough to make a run at some of the biggest content companies in the world, and there’s no shortage of distressed properties that could use that kind of backing, i.e. MGM, Lionsgate (NYSE: LGF) and Miramax. An acquisition like NNN, however, may be an acknowledgement that short-form content specifically tailored for online usage is more compelling for users than movies.
But that may be getting ahead of Google’s game. A decidedly smaller acquisition like NNN is a more acceptable risk at a fraction of the price of one of those companies. Which also begs the question of whether NNN was the best option in small-scale digital production. It’s certainly possible YouTube kicked the tires on the likes of Revision3 or DECA before settling on NNN.
The addition of NNN could also be a nice shot in the arm for Google TV, providing a dedicate resource to supplying whatever kind of content Google feels the platform needs. Given the device’s buyers are likely the early adopters that NNN calls its audience, there’s a nice fit there.