story_spongebob_ap.jpgNEW YORK (Reuters) — Viacom’s billion-dollar legal gambit against Google could lead to more media industry lawsuits and give a boost to rival online video services in the emerging marketplace.

Media executives and analysts are awaiting the outcome of the lawsuit against Google and its video-sharing site YouTube, which Viacom said is intended to defend the notion of intellectual property and the concept of the Internet media marketplace.

Viacom, owner of MTV Networks and Comedy Central, demanded in February that YouTube pull more than 100,000 video clips uploaded by users on to the online video-sharing service. Google and Viacom had tried and failed to negotiate a deal to allow some of Viacom’s content on to YouTube and split the advertising revenues.

On Tuesday, Viacom sued Google and YouTube for more than $1 billion, accusing them of “massive intentional copyright infringement.”

“I think that most media companies will let Viacom do the initial heavy lifting,” said HDNet owner Mark Cuban, a vocal critic of YouTube, in an e-mail. Cuban has subpoenaed Google for the identities of YouTube users who uploaded unauthorized clips of movies produced by his firm.

“If it becomes apparent that there will be damages, then the floodgates to more suits will open,” he said in response to questions about the impact of Viacom’s actions.

Google is protected by a law designed to give Web hosts “the safe harbor we need in order to be able to do hosting online,” said Alexander Macgillivray, Google’s associate general counsel for products and intellectual property.

Other media conglomerates declined to say whether they are also considering legal action against Google, but at least two openly supported Viacom’s defense of its copyrights.

Seminal case

“It is clear from this lawsuit that it is time for YouTube to remove unauthorized material from its site,” a Time Warner spokesman said. “We are in talks (with YouTube) and hopeful we can work together toward a solution that would effectively identify and filter out unauthorized material and license copyrighted works for an appropriate revenue share.”

A spokesman for News Corp., whose Fox TV division earlier subpoenaed YouTube to learn the identities of users who had uploaded copies of “24” ahead of the live broadcast, said: “We support Viacom’s rights to protect its own content in whatever way it needs to.”

UBS analyst Aryeh Bourkoff described Viacom’s lawsuit as “a seminal event” in relations between the media and Internet industries and in determining how content will be valued online.

What’s at stake?

For Viacom, it is “the entire concept of markets and intellectual properties,” said its general counsel Michael Fricklas. “YouTube wants to take first and negotiate later. You can’t have markets in that scenario,” he said in an interview.

But without Google, Viacom would have to go it alone on the Web or turn to start-up sites that are dwarfed by YouTube, the single biggest aggregator of viewers online with 100 million video streams per day.

For its part, YouTube could lose its position as the Web’s most popular video site if other media companies band with Viacom and support smaller rivals in the nascent market.

“Google has the potential to lose its dominance in the video market,” said Forrester Research’s James McQuivey. “AOL Video and Yahoo video are cheering … This is their chance.”

Cuban said there are many alternatives to YouTube that could form partnerships with the media companies while these companies keep control of their content and advertising.

“There isn’t any level of promotion on YouTube that Viacom couldn’t just purchase outright if they felt there was value to being seen on YouTube,” Cuban said in the e-mail.

Viacom, which is revamping its Web strategy, struck a deal in March with Joost, an online video service created by the founders of eBay’s Skype and of file-sharing network Kazaa.

Online video service Metacafe’s chief executive, Erick Hachenburg, said he sees more opportunities to work with media companies arising out of the dispute.

“It can be good for us,” he said. “We haven’t built our business on the backs of piracy.”

Google shares down

Some analysts say Google needs to do more to reach some accommodation with media companies and other copyright owners.

“Google as the owner of YouTube has way too much invested in its position to not do something,” Gartner analyst Allen Weiner said. “This could cost them on Wall Street.”

The share reaction was relatively muted on Tuesday, with Google falling 2.58 percent to $443.03 on Nasdaq. Viacom shares fell 0.23 percent to $39.48 on the New York Stock Exchange.

“It’s the kind of thing that’s more of a press event than an investor event,” said associate portfolio manager Larry Haverty of Gamco, a Viacom investor. He added, “If Google wants to get into the entertainment business, they need to play according to rules.”

But the delicate balance of power could shift back to Google if it lands a deal with a big media company, RBC Capital analyst Jordan Rohan said.

Viacom’s “tactics will work until one of its biggest competitors — Walt Disney or News Corp. — sign a deal with YouTube, at which point Viacom will be open to compromise,” he said.

Yankee Group analyst Michael Goodman said media companies need to strike deals with YouTube and that lawsuits on piracy just delay the inevitable.

“In the long run, the media companies are going up the river without a paddle,” Goodman said. “They’re fighting a battle they can’t win.”

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