YouTube, music firms nearing rights harmony.

Peace may be breaking out in the copyright infringement war between viral video giant YouTube Inc. and the major music companies whose tunes are appropriated to provide soundtracks for many of the site's clips.

In less than a year, the wildly popular short videos posted by users on YouTube--the site is visited more than 100 million times a day--have become a cultural phenomenon. They're usually wacky, often weird, occasionally inspired--and probably illegal because the songs and videos often are used without paying fees to those who originally created the materials.

Several recent developments have altered the battlefront terrain significantly.

In September, YouTube said that it would introduce technology to spot copyrighted material. YouTube will not stop the copyrighted material from being posted, but it would be willing to share ad revenues with any company that owns the material, so long as that company had reached an agreement with YouTube.

Subsequently, Los Angeles-based Warner Music Group has agreed to post its entire catalog of music videos on the site, including such performers as Madonna and Faith Hill; in return YouTube will share revenue from ads running with the Warner videos or with any of the 65,000 daily submissions that incorporate Warner tunes.

"Technology is changing entertainment and Warner Music is embracing that innovation," said the company's chairman and chief executive, Edgar Bronfman Jr.

While the pact could provide the model for harmony between the music industry and companies like YouTube that share viral videos, not everyone is in tune.

"We believe these new businesses are copyright infringers and owe us tens of millions of dollars," Universal Music Group Chief Executive Doug Morris said at a recent investors' conference in Pasadena, before his company reopened negotiations with YouTube last week. "What doesn't work for us are the companies that are trying to build businesses using our content without our share."

Adding to the complexity is the fact that YouTube doesn't have tens of millions of dollars. Two former PayPal employees, 29-year-old Chad Hurley and 27-year-old Steve Chen, started the company in Hurley's garage last year. There are around 60 employees in YouTube's sparse office, which is located over a San Mateo pizzeria, and there's little chance of seeing a profit next year.

There may well be a great deal of value there, nonetheless. Media watchers who believe an agreement with Universal and other content producers can be reached see YouTube as a prime buyout target, with a price tag that could go as high as $2 billion.

Currently, no company has been tempted by YouTube's potential upside--illustrated by News Corp.'s success with social network site MySpace.com--because of the cloud of copyright infringement hanging over the site.

The legal standoff

Two types of clips are found on YouTube: short videos created by amateurs that chronicle things like family trips to Universal Studios, domino art exhibits, parodies of commercials, college profs going off or kids dancing. The other consists of material gleaned from television, like vintage Richard Pryor bits, talk show hosts screwing up or amusing scenes from the sitcom "The Office." The latter, of course, is the sort of thing media companies want to sell online, as with Apple Inc.'s iPod.

While there are clearly parallels, there are important differences between YouTube and Napster Inc., the music file-sharing site that was sued nearly out of existence by the Recording Industry of America Association a few years ago.

"I think the big difference there is YouTube was originated as a place for personal communication between people for the most part," said Karen Frank, an attorney for Howard Rice Nemerovski LLP Canady Falk & Rabkin law firm in San Francisco.

"There are probably copyright protections in the content individuals are posting on YouTube, but the whole value in it to date has been around personal communication, and not around exploiting commercial, copyrighted content."

YouTube officials are quick to point out that, as opposed to Napster, they know what material is being posted and have been willing to take down material at the request of the copyright owners. In February, YouTube removed clips from an episode of "Saturday Night Live" at the behest of NBC's parent company, General Electric Co.

Many observers noted at the time that the video posting, and the publicity that ensued when it was removed, brought new life to "Saturday Night Live," a program whose popularity was flagging. Frank explained that while the studios own the rights to the music and have the rights to collect royalties, others see clearly that there is value in the promotion from the postings. Additionally, it provides an opportunity for traditional media firms to connect with a young audience increasingly drawn to new media platforms like the Internet.

"Some of these content owners are seeing there's great promotional value in having some of their content distributed on YouTube and this is part of the excitement in the technology and ways to reach new audiences," Frank said. "It definitely presents new opportunities, but that does not negate the copyrighted nature of the content."

The RIAA's attorneys at L.A.-based Mitchell Silberberg & Knupp LLP declined comment, but it appears a case against YouTube and other file-sharing companies would not be simple.

YouTube isn't profiting from the videos or selling advertising based on the content, and it removes material at the request of the copyright owners. Additionally, Congress in 2000 provided a key protection for Google Inc., Yahoo Inc. and other search engines that can be applied to file-sharing firms.

When Los Angeles News Service owner Robert Tur earlier this year sued YouTube over its posting of footage of the beating of Reginald Denny by gang members during the Los Angeles riots in 1992, the defense cited the Digital Millennium Copyright Act.

"YouTube has an important legal shield, the so-called 'online service provider safe harbor' " said attorneys for the Electronic Frontier Foundation, an Internet freedom advocacy group. "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."

Legal action by the music giants against the file sharing sites could alienate the creative youth audience the major media firms are battling to connect with.

Monte Vista, a Long Beach-based lounge singer with a passionate but erratic club following, said that he was glad to see the deal between Warner and YouTube.

"They finally got smart and decided to work together, rather than fight," said Vista.

He said he didn't really have moral qualms about using parts of someone else's songs, but he did have business concerns. "I'm always telling my boss (at his day job, online retailer SelfishCauses.com), 'Don't use this logo or that trademark, because you're going to get sued.'"

Vista added that he would never use a record company's song, or for that matter, download a studio's movie, because that would be illegal.

"The only videos I've ever posted, both of them on MySpace, were one of me snoring and another of me delivering a drunken tirade," Vista said. "Now that I think of it, though, on the drunken tirade one, I'm singing 'Dirty Water' by Tommy James and the Shondells. So maybe I don't give a damn about copyrights."

Staff reporter Emily Bryson York contributed to this report.

BY DAN COX

Staff Reporter