When Veoh raised $40M from a cornucopia of investors including Goldman Sachs, an investment banker acquaintance of mine asked what it could possibly do with all that money.  I stressed that YouTube, despite all of their traffic, only generated some $15M in revenues in all of 2006, even though their inventory merited them making $7.5M per month… alas, I also stressed that the costs of hosting videos adds up quickly as you scale.  That’s one negative of scaling in the video content business, I presume. 

Anyway, mainly, I told him, legal.  Look at how much YouTube saved its skin by selling to Google and having Google battalion of lawyers stand up for it against Viacom and others.

I’m not commenting on the merit of matters, but if you have to choose between filing a defensive lawsuit against Universal Music for threatening to sue you, or waiting to be sued and working your way out of the corner, it might be brazen, it might be bold, but it’s the legally smart (and cheaper) thing to do.  You set the facts on the face of the record and force Universal to work backwards.

Of course, UMG has much, much more than $40M and it has a lot more to lose, so this could naturally backfire.