Google is in the final stages of talks to buy YouTube for about $1.6 billion, according to inside sources. The deal was first reported by Michael Arrington on TechCrunch as "completely unsubstantiated rumor" but moments ago The Wall Street Journal confirmed that the talks are real.

The Journal's Kevin Delaney reports:

Google Inc. is in talks to acquire popular video-sharing site YouTube Inc. for roughly $1.6 billion, according to a person familiar with the matter. The discussions are still at a sensitive stage and could well break off, this person says.

Arrington said early this morning that:

A quick phone call to a VC confirmed that the rumor is circulating (he also confirmed the price), but that is far from confirmation that this deal is happening. I’m digging for more but the source on this one is very good.

We know that YouTube has had informal talks with a number of companies about acquisition in the $1.5 - $2 billion range. And I suspect Google won’t be daunted by the prospect of dealing with a ton of pissed off copyright holders.

Based on experience with these sort of rumors, I’d put this at 40% likely to be at least partially true.

Such a deal would be "damn cheap," Trip Chowdhry, an analyst with Global Equities Research, told the Journal. "YouTube's brand identity is no less than Google's and is no less than Coke's.''

While YouTube is the brand name in user-created video services, Google Video is one of dozens of also-rans. As the conventional wisdom is that video will be very, very big very soon - and Google has of course the content-based advertising market wrapped up, such a move sounds sensible. But it's definitely a sea change for Google, which is in the habit of buying lots of very small, beneath-the-radar companies, not brand-name companies.

For YouTube's founders, who have been moving to monetize their golden goose as quickly as possible - unfortunately with deals to promote Paris Hilton and reality TV - the big pay-off must look a lot more attractive than negotiating the copyright abuse waters and the long road to profits.

Update:

From Andrew Lipsman, senior analyst at comScore Networks

TRAFFIC DATA

Total U.S. - Home/Work/University Locations
Source: comScore Media Metrix
Total Unique Visitors (000)

Select Sites            Aug-06
----------------                ------
Yahoo! Video               21,141
MySpace Videos          19,406
YouTube                      19,089
MSN Video                   15,414
Google Video Search    11,891

STREAMING VIDEO DATA
Select Video Properties
July 2006
Total U.S. - Home/Work/University Locations
Source: comScore Video Metrix

Select                  Unique U.S.     Streams Initiated
Properties            Streamers (000) by U.S. Users (MM)
----------                      --------------- ------------------
Total Internet (U.S.)   106,534         7,182
Yahoo! Sites                   37,934          812
MySpace                         37,422          1,459
YouTube                         30,538          649
Microsoft Sites               16,227          156
Google Sites                     7,520           60

Select                  Share of
Properties           Streams Initiated
----------                      -----------------
Total Internet (U.S.)   100.0%

Yahoo! Sites               11.3%
MySpace                     20.3%
YouTube                     9.0%
Microsoft Sites           2.2%
Google Sites               0.8%

Tom Foremski: Interestingly, CNET's News.com still has nothing on this story more than 8 hours after the news broke.