Google Inc's big-ticket buy of online video-sharing superstar YouTube Inc was a shrewd step toward the Internet "holy grail" of bypassing cable and television networks, according to US analysts.
Analysts saw Google's US$1.65 billion stock deal for YouTube as a well-reasoned financial gamble that the cash-flush Internet powerhouse could afford.
Factor Google chief executive Eric Schmidt's new seat on the Apple Computer Inc board of directors in August, and some see a recipe for transforming home video viewing.
Apple could provide hardware expertise such as the soon-to-be-released iTV device the company's chief executive Steve Jobs previewed in San Francisco.
Google could provide an online video "pipeline" complete with sophisticated search features and, thanks to YouTube, a treasure trove of user-generated videos.
Jobs has the potential to use his influence as Walt Disney Co's largest single stock holder to further sweeten the mix with commercial films.
"I think all eyes will look at what is going to happen with Apple and Google with regard to long-term strategy," said Rob Enderle, principal analyst at Enderle Group in Silicon Valley.
"It could be kind of amazing. The pieces look like they are falling in place," he said.
Apple has been secretive about content for the computer box codenamed "iTV," which was designed to plug into a television and link wirelessly to home computers.
Pictures, music, video or movies downloaded onto a computer would be routed into television or stereo systems connected via iTV.
Meanwhile, Google has "lots of dark fiber," fiber optic cable lines that have been laid but are unused, according to analysts.
"The device you would watch stuff on is iTV, the channel is Google and YouTube, and then the relationship between Apple and Disney provides access to high-definition content," Enderle said.
"iTV will take a direct feed from this service and basically replace the set-top box. I'm not convinced the cable companies see this coming," he said.
Analyst Brian Haven of Forrester Research warned it would be premature to proclaim television networks and cable television obsolete.
Cable companies have close ties with networks and studios, which are eager to protect profitable distribution streams and wary of online piracy risks, Haven said.
Most homes also lack the large bandwidth connections necessary to download films at qualities to rival cable television programming, according to Haven.
"There are too many elements in play to say it would make an end-run around cable," Haven said. "The iTV box could play a significant role in the living room, but it will not replace what you see on cable."
Delivering video directly from the Internet to television screens in people's homes has been a long-standing industry objective, analyst Matt Rosoff of Directions on Microsoft said.
"This has been the holy grail now for 10 years," Rosoff said. "Things could go that way."
The Google-YouTube alliance could show that it is obscure user-made videos that people want to find easily online and not the Hollywood blockbusters, said Joe Laszlo of Jupiter Research.
"Right now, video search sucks and it sucks really badly," Haven said. "Hopefully, Google will change that with its search expertise."
Analysts agreed that despite the seemingly astronomical price tag Google paid for YouTube, it was a smart deal with the potential to appear brilliant if it proves part of broader scheme to dominate the online video market.