Google targets video-sharing website YouTube in $1.6bn deal

Google is in talks to buy the popular YouTube video-sharing website for about $1.6bn (£855m). If the deal proceeds, it will combine two of the most successful online companies to emerge since the dotcom bubble burst in the early part of this decade.

Talks between the two high-profile internet companies are understood to be at an early stage, with no certainty a deal will eventuate. A spokesman for Google declined to comment yesterday.

YouTube was founded in February last year by three former employees of PayPal, the electronic payment arm of the auction site eBay. The financial backing was provided by the private-equity company Sequoia Capital that has stumped up about $11.5m to fund the company. The site was formally launched late in 2005.

For Google, YouTube would bolster its own video site and substantially boost its traffic statistics. Merging the sites also provides enormous potential to capture a much larger slice of the burgeoning internet advertising market that is growing apace. Google can also provide YouTube with sounder financial backing to satisfy its growing bandwidth needs.

There have been rumours about a potential takeover of YouTube for months, with a takeout price estimated to be anywhere between $600m and $2bn. Chad Hurley, the chief executive, has repeatedly said the site is not for sale. Rumours of the talks were reported on TechCrunch, a technology blog site, and were picked up by The Wall Street Journal.

YouTube is based on free video sharing, allowing users to post videos for other users to watch. The site proved wildly successful, with more than 100 million video clips viewed on the site a day and 65,000 clips added every day. It has about 32 million unique users across the globe, and is one of the 10 most popular sites in the world. YouTube's success has overshadowed rival video-sharing sites such as MySpace and Google Video. It is the largest such site, with a market share of almost 50 per cent.

The content posted on the site ranges from self-generated video clips, where users post films of themselves, to clips from movies and TV shows or other forms of video content. Popular videos have included corporate training videos, amateur musicians playing music, vintage comedy clips and spoof versions of hit films includingSnakes on a Plane.

The site has recently come under pressure from large media firms, unhappy that pirate versions of copyright-protected material were surfacing on YouTube.

YouTube is considered a "new media" website in that it attracts a huge amount of users who interact with online content and with other users on the site. Such companies, dubbed social networking sites, were thrust into the spotlight after Rupert Murdoch's News Corp purchased the successful site MySpace.com for $580m in 2005. Bebo and Facebook have also become household names, and internet users have flocked to such sights.

Separately, the MySpace.com founder Brad Greenspan, who was ousted in 2003, has accused the management of the site of deliberately selling the business to News Corp on the cheap. Mr Greenspan made $47m from the sale. He has called for the US Securities & Exchanges Commission to investigate the deal, arguing that its management deliberately misled investors as to what the site was worth by withholding information about how fast advertising revenue was growing. He said the site could be worth $20bn within a few years.

Meanwhile, Sumner Redstone, the chairman ofViacom, has quashed rumours the company might buy Facebook. He described losing out to News Corp on the MySpace deal as "humiliating".