Orange set to buy YouTube rival DailyMotion

Telecommunications provider Orange is to acquire nearly half of YouTube rival DailyMotion, with intent to buy out the rest at a later date.

Orange will spend €58.8 million ($80 million) to buy 49 percent of the French video hosting site, confirming rumours that have been circulating that DailyMotion was on the verge of being acquired.

Investors in DailyMotion, like Advent Venture Partners, said that they were not looking to sell the company, which, if true, means that the offer from Orange was simply too good to pass on. 

DailyMotion has been making profits throughout 2010, but it needed a $68.5 million capital injecture from a number of leading European capital venturists in three rounds of funding, suggesting it was not entirely capable of generation its required revenue on its own.

DailyMotion was founded in 2005, the same year as YouTube, and it has grown to 90 million users with 20 percent of those in France alone. It never had the backing of a big company like Google, but its number two position behind YouTube suggests there’s still some room for competition.

Orange intends to buy the remaining 51 percent of DailyMotion shortly after its initial acquisition, and while the figure for that chunk of the company hasn’t been revealed it’s likely to be similar to the €58.8 million ($80 million) currently offered for the first half. With a total price tag of around €120 million ($163 million), it’s hard not to think it’s a little paltry compared to the $1.65 billion that Google paid for YouTube.

That said, Orange could be getting a bargain, but what will it gain from buying a video site? It doesn’t have the advertisement revenue stream that Google has, but it could offer special bonuses on DailyMotion to its phone and internet customers. 

For example, video duration or size limits could be increased, more storage space could be offered, and the service could be incorporated into Orange’s existing websites.