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There are two schools of thought about this.
One: There are many people saying that sites like Youtube is the future of Television. They will be cutting deals with TV networks, movie studios, record labels to broadcast movies, TV shows and music videos. They will also continue to allow people to upload their own content and keep the "video community" alive. Think of it like this. Some of the more popular movies on the site get in excess of 500K views. That's about the same number of viewers that watch NHL hockey games on OLN. So if you are among those that feel this is the future of TV than it is well worth that price.
TWO: They will eventually get sued so much that they will become a shadow of their former self. There is a ton of copyrighted material on Youtube. Many people think it is the new Napster. Right now if you ask for it to be removed they will remove it, but all it takes is one person to sue them and win and the flood gates will open. They could then be open to a rash of lawsuits by not only the owners of the copyrighted materials, but by the google shareholders as well. If you are of this school of thought it obviously wasn't worth the price.
So I would assume that Google feels they can get a hold of the copyrighted materials problem. They and Youtube have already started making deals with record labels to allow their music in videos. In the end Google is worth around 200 billion, so 1.6 isn't a huge risk for them to own something that could end up being revolutionary.
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