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