YouTube's Balancing Act: Making Money, Not Enemies

If you had your choice of Internet companies to take to this year's prom, you'd choose YouTube, right?

She came out of nowhere, made you laugh and became one of the popular kids, yet hasn't let it go to her head. She even has a bit of an edge, a hint of danger about her. Racy!

So, is there anything to the bad-girl image? After all, Newsweek headlined its story in March about the company with a two-word question: "Video Napster?"

The good news for YouTube is that it stands on much firmer legal ground than the old Napster did, thanks to a special provision in the Digital Millennium Copyright Act that protects Internet hosting services.

The question is whether YouTube's future business plans will jeopardize its copyright safe harbor.

Why YouTube?
On the surface, it's hard to understand why YouTube is such a big deal. There are more than 100 free, Web-based video-hosting services on the Internet.

Yet despite its competitors, YouTube dominates the online video world, streaming 50 million videos per day to more than 12.5 million people each month, according to Nielsen NetRatings. Google, Yahoo and AOL all have competing services, but none has attracted the crowd that YouTube has.

YouTube's content is entirely user-uploaded. Browsing Liz Phair music videos can lead to an amateur video featuring teenage gymnasts doing ninja moves. To post a video clip (maximum length 10 minutes, no porn please), just upload the file to YouTube's servers ? YouTube takes care of transcoding the video, providing a browser-based player, managing the servers and paying for the bandwidth.

Copyright Issues
So how does YouTube's content fare under copyright law?

First, YouTube's 10-minute clip limit and tiny video window cater to clip culture, not pirates. A studio executive with a limited anti-piracy budget would be foolish to spend time and money suing YouTube while millions of full-length features are being swapped through public Bit Torrent indexes.

In addition, there is a flood of perfectly legal original creativity on YouTube ? much of it from teenagers uploading video using everything from cell phones to Webcams to high-quality camcorders.

Also, an increasing number of media heavyweights (NBC, TVT, Epic and Atlantic Records, as well as E! Entertainment, MTV2 and Fox Searchlight) are licensing content for distribution on YouTube. No copyright difficulties there.

But that leaves an enormous quantity of copyrighted material that ends up sprinkled throughout the clips uploaded by users. This content includes television clips (most famously the "SNL" "Lazy Sunday" skit, which was ultimately taken down in response to an NBC letter), music videos, amateur lip-synched songs and the Hollywood trailer mash-ups (who hasn't received an e-mail with "Brokeback to the Future"?).

Some of the content is simply uploaded in its original form (music videos, movie clips), while a great deal more ends up "remixed" into original creative material.

All of these clips are, for the most part, things you can't buy from shops or authorized download services, even if you had known they existed before stumbling on them at YouTube.

Nevertheless, some copyright owners are unhappy. According to a recent report in the Wall Street Journal, Universal Music Group is urging the recording industry to crack down on amateur music videos.

Would UMG have a case? The creation of these unauthorized works implicates a copyright owner's reproduction and derivative rights. Uploading and streaming the video to others may also implicate the public performance right. And because YouTube hosts and streams the copies from its own servers, a copyright owner would have both direct infringement and secondary liability (contributory infringement and vicarious liability) theories available.

On the other hand, YouTube and its users may have a number of good copyright defenses. In my opinion, most of this video-sharing should qualify as fair use ? after all, this is noncommercial activity (at least for the end-users), and a company like UMG may have a hard time proving that there is a realistic licensing market for amateur lip-sync videos shot by 14-year-old girls.

Finally, because its systems are largely automated, it may be that YouTube simply hasn't engaged in the necessary "volitional act" to cross into the realm of copyright infringement. (See CoStar v. Loopnet, 373 F.3d 544 (4th Cir. 2004) for a similar circumstance where an Internet hosting service was let off the hook.)

But outside of law school exams, we're not likely to see these difficult questions resolved because neither YouTube nor its audience can afford a courthouse showdown over every 3-minute homemade music video.

Safe Harbor
Fortunately, YouTube has an important legal shield that was not available to the old Napster: the so-called "online service provider safe harbors" created by Congress as part of the DMCA. One provision, Section 512(c), was designed to protect commercial Web-hosting services, which feared they might be held responsible for the posting habits of their customers.

After all, if you're Verio and hosting hundreds of thousands of Web sites for clients around the globe, you can't afford to be sued every time one of your customers copies a photograph from a competitor's Web site.

Because YouTube essentially stores material at the direction of its users, it can find shelter in the same safe harbor that Web-hosting providers do.

The safe harbor works like this: So long as YouTube plays by a few rules, content owners can't collect damages from it, even if its users infringe their copyrights.

Rule No. 1 is the implementation of a "notice and takedown" system to respond to infringement notices from copyright owners. YouTube, of course, has this in place and takes down material once properly notified by an owner that a clip is infringing. Section 512(c)(3) sets out exactly what a copyright owner must include in a takedown notice. (Note to content owners: If you use takedown notices to remove noninfringing content, you can be sued by YouTube or its users for abusing the system!)

Another rule is that you must have a policy in place to terminate the accounts of those who have been identified as "repeat infringers." YouTube has this policy in place as well, according to the "terms of use" on its Web site.

The safe harbor will not protect a Web host if it is "aware of facts or circumstances from which infringing activity is apparent" ? in other words, if you make your living providing hosting services to pirates-R-us.com, don't look to the safe harbor for protection. YouTube doesn't appear to be sheltering any obvious pirate fleets, so this shouldn't be an issue.

Problems Ahead?
A hosting provider also loses the safe harbor if it "receives a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity."

Here's where things might get a bit sticky for YouTube. Some have argued that this may restrict the kinds of advertising business models that YouTube (and other video hosting services) might want to pursue, as ads tied too closely to an infringing video could be viewed as creating a "financial benefit directly attributable to the infringing activity."

Some pages on the site already feature advertising, and all signs are that YouTube will want to rely on advertising to fuel at least part of its growth. So far, YouTube has charted a cautious course, putting ads only on search results pages, rather than on the clip pages themselves.

YouTube will have to walk a careful line as it stumbles toward a business model. Losing the protection of the DMCA safe harbor could expose it to lawsuits that could be extremely expensive, no matter how they ultimately come out.

Litigation could also cast a pall that scares off investors and potential acquirers. A conservative approach also makes sense in light of the horde of entertainment lawyers already scrutinizing YouTube's every move.

All of this puts pressure on YouTube to come up with innovative business opportunities other than ads before, during and after the videos. Fortunately, there is almost certainly room for at least some ad-supported business models within the scope of the safe harbor. Starting with ads on search results pages is a good starting point ? that way, the financial benefit is not tied "directly" to any particular video that might appear in a results page.

In addition, YouTube should experiment with different revenue strategies that do not raise potential legal problems. For example, YouTube may be able to charge content owners to be featured on the site. The "featured videos" section on YouTube's homepage is already valuable Internet real estate for which many companies would be willing to pay.

In addition, with its considerable expertise and infrastructure in streaming short videos, YouTube could offer a video-oriented version of Google's AdSense (a market that Google itself has recently entered).

YouTube's investors poured another $8 million into the company in April, and you can be sure that money will go toward buying top-drawer copyright advice.

-About the Author: Fred von Lohmann is a senior staff attorney with the Electronic Frontier Foundation, a San Francisco-based nonprofit group devoted to the protection of civil liberties, free expression and innovation in the digital world.