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Google To Acquire YouTube for $1.65 Billion in Stock Final FD Fair Disclosure Wire October 2006 Monday

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11EADLINE Google To Acquire YouTube for $1.65 Billion in Stock Final

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OPERATOR Good day and welcome everyone to the Google Inc. conference call. This call is being recorded.

At this time would like to turn the call over to Ms. Kim Jabal Director of Investor Relations at Google. Please go

ahead.

KIM JABAL DIRECTOR OF IR GOOGLE INC. Hi everyone and thanks for joining us today. On the call today

to discuss the announcement are Eric Schmidt our Chief Executive Officer of Google cookbook Sergey Brin the Co

founder and President of Technology at Google David Drummond Senior Vice President of Corporate Development at

Google Chad Hurley Co-founder and Chief Executive Officer of YouTube and Steve Chen co-founder and Chief

Technology Officer of YouTube.

First we will share some thoughts on this news today and then we will take your questions. This call will last

approximately 30 minutes and webcast of the call as well as the press release are available on our investor relations

website.

Now need to remind you that some of the comments we will make today are forward-looking including

statements regarding Googles and YouTubes prospects for improving their services and creating new business

opportunities and the expected timing of the close of the acquisition. These statements involve number of risks and

uncertainties that could cause actual results to differ from those anticipated including regulatory factors changes in

economic business technological and competitive factors and the failure of YouTube and Google to work together

effectively. Please refer to Googles SEC filings including Googles report on Form 10-Q for the quarter ended June

30th 2006 for additional risk factors that may affect the outcome of these forward-looking statements. Copies of these

documents may be obtained from the SEC or by visiting the investor relations section of Googles website.

These forward-looking statements speak as of today and you should not rely on them as representing our views in

the future. We undertake no obligation to update these statements after this call.

Now will turn the call over to Eric.

ERIC SCHMIDT CHAIRMAN OF THE EXECUTIVE COMIvIITTEE AND CEO GOOGLE Thanks very

much Kim. This is very exciting announcement here from YouTube world headquarters. Joining me are the two co

founders along with Sergey and David. Just this morning you all saw five content distribution announcements with

Sony BMG Warner Music Group Universal Music Group and CBS which in my view highlight the growing value that

content owners place on the Internet as new channel to distribute and promote their work. This acquisition is an

exciting next step in terms of our thinking about the evolution of the Internet and video and one of many investments

Figueird Den. Tab

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that we at Google will be making to make sure that video has its proper place in peoples online lifestyle on the Internet

worldwide.

Chad and Steve remind me when first came to Google of Larry and Sergey. say that with great affection. They

are remarkable people and in very short time they have built remarkable team -- creative iimovative visionary and

successful -- perfect example of the kind of people that we like to work with. Of course everyone here knows on the

call that they have built this extraordinary business and social phenomenon that Ive never seen before.

Their vision and focus and values complement their own and the thing that tipped us over was not the great

business success of YouTube or the good working relationships but in fact the vision and the vision about serving their

end users was exactly the same as Larry and Sergeys vision in founding Google. We believe the combination of Google

and YouTube will create this very new and

interestingglobal

media platfornfor users content providers and

advertisers all around the world.

Chad why dont you tell everybody both why you decided to join up with Google and also little bit about where

YouTube is going to go

CHAD HURLEY CO-FOUNDER CEO YOUTUBE INC. Yes would love to do that. Thank you Eric. So

were excited by this aimouncement and thrilled to join forces with the Google team. Google has demonstrated how

great ideas can change the way people find and use information. From the begiiming we have listened to our

community to create stage where everyones voice could be heard. Right now were in the middle of shift in digital

media entertainment and users are now in control of what they watch and when they want to watch it. They decide what

rises to the top what is entertaining.

So by joining forces with Google we will be able to sharpen our focus on this vision to create new media

platform for consumers and partners to distribute their media worldwide. This allows -- with Googles success in

building revolutionary new ad platform this has inspired us to create new model new platform for video content

on the Web. With this new relationship we will combine Googles experience and have the resources to continue on our

mission to offer the most entertaining online video experience.

Now would like to turn it over to Steve for his thoughts.

STEVE CHEN CO-FOUNDER CTO YOUTUBE From the tecimical side at YouTube our team has built

powerful and cost-effective infrastructure that scales to serve billions of videos. Now with Googles teclmology and

search leadership combined with our fimovative architecture we will have the resources to take our service to the next

level.

Were committed to developing creative new features for our community so they can continue to express

themselves in unique and personal ways. Building YouTube this past year has been an extraordinary experience for us

all and we believe that this is just the begiiming. Were extremely excited to be working with Google to define this next

generation of online entertainment.

SERGEY BRIN CO-FOUNDER PRESIDENT TECHNOLOGY GOOGLE Hello good afternoon. just

wanted to tell you how excited am about this aimouncement. As you all know Googles mission is to organize the

worlds information and make it universally accessible and useful. Video is very important part of the worlds

information. We spent lot of time working on our two core areas of search and advertising. We think about search--

oftentimes when you want an explanation or true understanding of something what better way to see it than an actual

video stream Its just fantastic source of information and we think it will be one of the keys to having comprehensive

search experience is to have great search over video.

also want to talk little bit about our advertisers where video is great medium for advertising. From that point

of view were really excited about YouTube on that side as well because expect that will be great chaimel for

advertising.

On the whole its hard for me to imagine better fit with another company both in terms of the offerings and the

video platform that YouTube has built as well as the cultural fit that this really reminds me of Google just few short

years ago. So on the whole am very excited and am delighted to be able to participate here with the YouTube

founders on this aimouncement.

ERIC SCHM So thank you Chad Steve Sergey. Now think we should move on to questions.
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OPERATOR OPERATOR INSTRUCTIONS. Mary Meeker Morgan Stanley.

MARY MEEKER ANALYST MORGAN STANLEY First congratulations -- which was not question that was

statement. But anyway moving on theres obviously huge amount of content on the YouTube site. Theres huge

amount of searches on the Google site. How are you thinking about potentially accelerating the integration of those two

services and assets i.e. more tagging for the YouTube content

Also what is your plan for going out to the Sonys and the Warners and the folks that youjust announced

relationships with today and talking to them about how you can more effectively get their stuff tagged and then

ultimately monetize it

STEVE CHEN So Ill take the first part on the integration of Search and the content on YouTube. Ive always felt

that the YouTube experience is combination of watching videos as well as being able to find that next interesting

video. Weve had lot of different ways that weve indexed these videos. What we feel like is weve reached-- with

Googles help and with Googles expertise in search what we can really do is elevate the most relevant videos up to the

user in an even more fimovative fashion than what we have done in the past.

CHAD HURLEY Specifically talking about our partnerships with media today announcing Universal Sony and

CBS combined with previous announcements with Warner Music Group were committed to developing tools to help

them identify their content and monetize it in new ways -- not only by having new outlet for distribution for their

initial catalog but way to harness the power of user-generated content that didnt exist before.

OPERATOR Imran Khan JFMorgan.

IMRAN KHAN ANALYST IPMORGAN Congratulations on the deal. was trying to get better sense why did

you feel it was necessary to buy YouTube when you have competeting product Google Video What are the reasons

that you think was the success of YouTube that led you to buy the Company

Secondly was wondering why its stock not cash because think in the past you made cash acquisitions.

Finally the last question is Chad can you give us some sense of what the cost side of the YouTube business --

little bit of color what kind of cost structure youre running

ERIC SCHMIDT When we looked around at our mission and what was out there it was clear that Google Video is

doing very well. Google Video has lots of interesting partnerships tremendous amount of content on it and its on

path of very very tight integration inside of Google. When we looked at the marketplace and we saw what was going

on there was clear winner in the networking and social networking side of Video in the sense that people were using

these in ways that we were very impressed with. Thats what really drove us to begin the conversations with YouTube.

David

DAVID DRUItvIMOND SVP CORPORATE DEVELOPMENT GOOGLE INC. On your question with regard to

the stock we structured this as stock transaction in order to make it tax-free for the YouTube shareholders which we

think is good transaction for them and for us in the sense that it in some ways made it cheaper for us. There is some

very slight dilution but we think that this is good structure. Were also pleased that the YouTube shareholders want to

become shareholders of Google and participate with the rest of us.

ERIC SCHMIDT think on the cost structure side can tell you looking around these Youlube people have not

spent very much money. They are very very thrifty. Lets go ahead to the next question.

OPERATOR Doug Anmuth Lehman Brothers.

DOUG ANM ANALYST LEHMAN BROTHERS First can you provide some details around YouTubes

new content ID architecture and how thats going to be implemented in the deals that you signed this morning

Secondly you obviously talked lot about the user experience. Does that mean that going forward you would

probably not consider showing pre-roll ads even on some of the licensed content that you are working with

ERIC SCHMIDT Chad why dont you go ahead

CHAD HURLEY The new systems that were putting in place are going to allow our partners to identify their

content through audio fingerprinting and metadata searches allow them to effectively see whats going on within the

system. Steve you can elaborate on some of the other techmcal details.
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STEVE CHEN Yes we have been hard at work the engineering team here has been hard at work at creating just

improvements in the ways that users and content providers can identify the content that exists on the YouTube site. So

with various mechanisms fingerprinting and audio fingerprinting as well as keyword and context searches

were actively in development and we hope to release this in the next month.

STEVE CHEN In terms of pre-roll advertising specifically think were going to be exploring lot of options

utilizing Googles advanced ad technologies and present good experience that benefits our users experience and also

helps our partners monetize their content.

OPERATOR Mark Rowen Prudential.

MARK ROWEN ANALYST PRUDENTIAL guess this is for Eric but when you think about monetizing

YouTube and getting return on the money that you paid in the near-term and then sort of mid-term maybe three years

out do you think that most of the monetization is going to be coming from search advertising or video advertising

Second you mentioned that its slightly dilutive. wonder if you could be little bit more specific and tell us how

dilutive it will be for this year and next year.

ERIC SCHMIDT First as think you know we dont actually give guidance of any of that sort. So really

shouldnt answer any of those sorts of questions. Im really not the expert on how the YouTube video opportunity will

play out. Whats interesting is in the relatively short period of time that the engineering people have had to talk to one

another and under the constraints of due diligence and so forth we have come up with 20 or 30 different ways in which

the YouTube technology can be assisted by Google technology Google advertising technology can be applied to

YouTube traffic Google Search can be used to improve the user experience for YouTube.

So we dont lack from set of ideas. think most people believe that this is just the begiiming of an Internet video

revolution and there will be many ways in which that video gets uploaded monetized and copyrights respected which

is another key component of the YouTube vision and ours as well.

OPERATOR Justin Post Merrill Lynch.

JTJSTIN POST ANALYST MERRILL LYNCH Can you talk at all about the revenue share features when you

work with content providers any economic outlook you can give us on those deals Just any idea on what you used to

value this acquisition--were you looking at cash flow returns Or any kind of help you can give us on that

Eric Schmidt We typically dont go into the details of the financials of the business deals we have been doing.

suspect YouTube has the same policy. In general the deals are very very good for the partner and that has been one of

the hallmarks of our dealmaking. David do you want to talk about the structure little bit

DAVID DRUItvIMOND Yes. think we modeled this on more or less synergistic kind of model. You can

imagine that it might be difficult to do this on stand-alone basis. We feel that we arrived at purchase price thats very

fair and reflects the great value that has been created at YouTube.

OPERATOR OPERATOR INSTRUCTIONS. Kevin Allison Financial Times.

KEVIN ALLISON MEDIA FINANCIAL TIMES If you guys could talk little bit about the role that copyright

played in guiding your discussions about the acquisition and what your plan is for dealing with copyright issues Aside

from just the technical features what other things are you doing and what steps are you going to take to interact with

studios

CHAD HURLEY Well in terms of guiding our decision from the begiiming we have always respected rights

holders rights and we are going to continue with that mission. What this deal allowed us to do is to focus on that much

more than we ever could before to have the resources to build the systems so copyright holders can benefit from our

site. That will continue.

DAVID DRUIMIN4OND The YouTube vision and the YouTube commitment to enforcing copyrights is very

consistent with Googles. We both rely on the Safe Harbor the DMCA and take many steps to discourage our users

from uploading infringing material. We cooperate with content owners to remove things whenever we find them or

when we hear about them. So we think that with some of the deals like the ones you saw this morning we can take

even greater steps to work with content owners to protect their intellectual property rights.

OPERATOR Daniel Arnall ABC News.
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DANIEL ARNALL MEDIA ABC NEWS Im wondering what if anything users can expect in terms of

integration in the short-term. know lot of people who are certainly using the sites for content and wonder what were

going to be seeing and how quickly.

STEVE CHEN As Eric mentioned just in the last 48 hours we have been rushing to create list of all the

potential integration points between Google. Its difficult to say right now exactly what were going to be attacking first

but there is no shortage of projects in the weeks ahead.

SERGEY BRIN From the Google side think we care very much about Search and as mentioned to increase

the comprehensiveness of Search. We would certainly want to include YouTubes videos in that. think that we have

also worked on the advertising systems but think that theres great deal more experimentation and trials to be done

there so that might not happen quite as quickly in user-visible way.

DANI ARNALL So Google Video doesnt go away right away

SERGEY BRIN No.

ERIC SCHMIDT No it doesnt go away right away or ever. hope thats clear. Google Video is very valuable

part of the Google experience and in fact is going to become even more integrated with Google overall.

OPERATOR OPERATOR INSTRUCTIONS. Robert Peck Bear Steams.

VICTOR ANTHONY ANALYST BEAR STEARNS This is actually Victor Anthony in for Bob Peck. We were

wondering whether or not there was anything particular about the MySpace deal anything that you guys were leaming

from the MySpace deal that made YouTube more attractive For example are there any data mining possibilities that

you guys could probably leverage there

Second as far as the transaction itself are there any breakup fees What would prevent the transaction from

closing We understand that there was bidding war for YouTube. wanted to know why did YouTube actually end up

choosing Google over their other potential bidders

SERGEY BRIN Ill take the first question. We certainly have no intention of any kind of data mining or whatnot.

think the general takeaway that we have seen from sites such as MySpace -- but you can look at others online

YouTube obviously Facebook Orkut in Brazil. think that you see that theres new class of sites that have really

developed very quickly are very successful and are very attractive to users and are obviously delivering lot of value.

think thats kind of next generation of Internet sites and companies. We are very excited to work with them in all sorts

of ways whether it be partnerships or in this case as merger monetization relationships and whatnot. think its just

whole new ecosystem and were excited to be part of it.

DAVID DRUItvIIV On your other questions relating to the closing of the deal we expect to be able to close in

Q4 subject to the normal sort of customary conditions HSR approval and the like. The deal has been approved by all

necessary corporate approvals and we have obtained all necessary corporate approvals of both companies in order to

consumm ate the transaction.

As to your last question its really not possible to comment on what other companies might have been thinking. It

was very good negotiation process in which we arrived at fair deal for both parties.

OPERATOR Laura Locke Time Magazine.

LAURA LOCKE MEDIA TIME MAGAZINE This first question is for Chad. Chad you have repeatedly said in

interviews and so forth that YouTube isnt an acquisition target its not for sale. Essentially whats changed

CHAD HURLEY Well those comments were made because we wanted to remain independent and continue on

our mission to build great products for our users. By now working with Google thats still the case. Were going to be

able to remain independent and concentrate on building great features for our users. But now we will be able to sharpen

our focus on building this new media platform and it also combined with Googles experience and resources to

accelerate that. So thats what excites us about this deal and were looking forward to the future.

LAURA LOCKE What is happening to the YouTube brand How will that integrate with Google Is there going

to be name change

ERIC SCHMIDT Very much no. We have decided that it makes perfect sense to continue YcuTube as brand and

as community and as separate business operation of Google. We think that the brand has value we think that end
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users care lot about it and we want to preserve that. We think it has great value for end users for the Corporation for

our shareholders and for advertisers.

It turns out am getting the message that we need to finish up. So what wanted to do is thank everybody for

taking their time to listen to us. This is the next step in the evolution of the Internet. The Internet started off as way in

which people would communicate and talk to each other and soon here am surrounded by all these video cameras and

people who are the worlds video experts. Its natural next step and one which is

very exciting for Google for

YouTube and think for everyones users. So thank you very very much.

CHAD HTJRLEY Thank you everyone.

OPERATOR That does conclude todays presentation.

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