Google Invests in Video Company Machinima
Get ready for more vertical integration in the online video business. Google is set to invest in video company Machinima, according to a report Monday at All Things D. Machinima offers videos for video gamers and is the third most-popular content network on YouTube in the U.S., according to comScore. Its YouTube channel has 109 million subscribers and 26.6 billion views.

Google is also considering additional investments in the creators of online video series, according to a report at the New York Times that cites an unidentified source.

The Machinima investment would remove the line that has existed between technology companies and content companies. Google has licensed content for YouTube and Google Play, the collection of music, movies, book and app stores available on the Web and the Google Play app for Android devices. But like most technology companies, Google has not owned content for its platforms.

The Machinima investment is not without precedent, however. Many other ecommerce companies own suppliers either up and down the supply chain. Amazon has its own in-house imprint, Amazon Encore, as well as a digital-only imprint in conjuction with marketing guru Seth Godin called the Domino Project. MP3 download service eMusic sells up-and-coming artists exclusively through its own eMusic Selects program. Netflix and Hulu have each created original programming. Music video network Vevo counts Universal Music Group and Sony Music Entertainment as two of its three joint venture partners. Vertical integration is seen elsewhere in the media business, too. Cable operators own television networks and various media assets (television, film and music) are often owned by the same company.

But an investment in Machinima would represent more than vertical integration. It would represent a new era of online video. In order for Google to create the future of television, it needs brands to advertise on its platform. And to attract brands and higher value advertising, Google needs higher quality video content. The company is putting $100 million into original programming for YouTube and is pushing premium content in an effort to lure advertisers. Machinima was one of the original content creators to sign up for Youtube's Original Channels initiative. ( All Things D)

Online Commerce Startup Gumroad Raises $7 Million
Add another social commerce startup on your growing list of companies worth your attention: Gumroad has raised $7 million in Series A funding from Mike Abbott of Kleiner Perkins Caufield & Byers.

Gumroad makes it easy for creators - any type, although the company is targeting musicians - to share and sell their goods with fans and followers. A digital good is uploaded to Gumroad and the seller gives it a name and price. Gumroad makes it easy to share a buy link via Facebook and Twitter. Buyers enter a few fields of information - email address, credit card number and related details - complete the purchase and receive a secure download link. Gumroad takes a 5% fee on each payment plus a 25-cent credit card fee. It supports all major credit cards and supports deposits to accounts in over 190 countries.

Both digital and physical goods can be sold through the platform. Buyers of physical goods will have to enter shipping information in the checkout procedure. Gumroad does not provide pick, pack and ship services for physical goods, so the seller is responsible for sending the physical items to buyers.

Exactly how excited you should be about Gumroad depends on your views on social commerce in general. Some high-flying market forecasts foretell of a coming social commerce bonanza. Booz Allen predicts social commerce will grow 600% from $5 billion in 2011 to $30 billion in 2015. Gartner believes that by 2015 companies will generate 50% of their Web sales from social and mobile applications.

Or maybe you think do-it-yourself social commerce will need to sort through obvious infringement issues before it can truly blossom. For example, sellers do not need to offer proof of ownership before selling digital goods on Gumroad. That seems like a headache waiting to happen. Expect large content owners to take issue if and when people start selling music to which they do not have the right to distribute online.

In any case, Gumroad is exciting because it addresses an entirely new aspect of ecommerce - social media - and reduces the friction involved with selling goods online. Other companies are already doing cool things in this space, from music and entertainment-focused Moontoast to video ecommerce platform Cinsay. Social commerce is at least a few years from making a big dent in ecommerce numbers, but startups are already working hard to build the market for the future. ( Gumroad blog)

Perfect 10 Sues Tumblr Over Nude Photos
Adult entertainment publisher Perfect 10 is suing Tumblr, the blogging platform used by many musicians, for copyright infringement. Perfect 10 alleges Tumblr has engaged in two activities that would put it in violation of the Digital Millennium Copyright Act's safe harbors.

First, Perfect 10 says Tumblr has not responded to its take down notices relating to its images posted on the platform. The DMCA protects companies that host user-generated content as long as they remove infringing content upon notice. "I'm not sure anyone's checking that email," Perfect 10 president Norm Zada told paidContent. "Twenty-five other Internet Service Providers have taken down material that Perfect 10 has identified in our DMCA notices, Tumblr did not."

Second, Perfect 10 says Tumblr employees had posted Perfect 10's images "to help start the business." That's similar to the argument Universal Music Group, Sony Music and Warner Music Group have against music streaming service Grooveshark. A company that has an active role in hosting unauthorized music or images does not enjoy the DMCA safe harbor protection.

It's not yet clear what the impact on Tumblr or its users could be. The company could be forced to install a system similar to YouTube's Content ID that catches unauthorized uploads of copyrighted music and videos. Tumblr pages could be filled with "This image not available" notices similar to how embedded YouTube videos are dead links due to copyright owners' request for removal. At the very least, Tumblr may have to beef up the policing of its servers and react to take down requests from copyright owners.

In the past, Perfect 10 has sued Google (for using its images in thumbnails, a case it lost), Giganews Usenet Service, Megaupload and even the financial institutions that process credit card payments on sites the company claims host its images illegally. ( paidContent)