By Alexandra Berzon

YouTube’s decision to license copyright protection tools from a small Silicon Valley startup was expected to ease relations between the Google-owned video sharing site and big media companies.

But observers said the agreement, confirmed to Red Herring, could alienate users who flock to YouTube to upload and view clips of the latest popular TV shows and newscasts.

Google’s decision to license technology from Los-Gatos, California-based startup Audible Magic highlights the challenges that Google must navigate as it tries to maintain its underground appeal while appeasing big media companies that generate advertiser–friendly content.

YouTube has come under intense pressure from media companies such as Viacom for not utilizing copyright protection tools and allowing hundreds of thousands of unauthorized videos to be uploaded by users onto the site. YouTube removes copyrighted materials after being contacted by media companies, as required by law.

But this practice has helped YouTube build a vast online library of unauthorized content, angering the media companies. CBS, NBC and Viacom recently walked away from the negotiating table after failing to reach revenue-sharing agreements.

Audible Magic, which announced last week it was providing tools to YouTube-competitor MySpace, claims that it can automatically find and remove videos based on audio music or soundtrack “fingerprints” embedded in files provided by media companies. Audible Magic co-founder Vance Ikezoye has said the company’s technology would not allow users to re-upload the files in a different format.

“If we had the content registered we believe the technology can enable the kind of identification and filtering and monetization desired,” said Mr. Ikezoye.

YouTube earlier this week said the company possessed “substantial” copyright protection tools. Audible Magic’s “audio fingerprinting technology” depends on the cooperation of media companies to provide the fingerprints of each media file, said company co-founder Vance Ikezoye. Audible Magic already has built relationships with big music labels and is in the process of also developing a database of fingerprints provided by film and television companies.

YouTube would not comment on the deal and what a spokesperson Friday morning called a “third party technology”.

But to analysts, the Audible Magic news speaks to a potential Google weak spot. “You have this incredible technological behemoth throwing up its hands and saying: ‘We’re really smart guys and we know a truckload about online advertising and search marketing, but we don’t really know that much about the media business, we don’t understand their sensibilities,’” said Jupiter analyst Todd Chanko.

The technology, if successful, would likely dramatically reduce the number of professionally created clips available on YouTube.User-created content like personal confessionals, unexpectedly delightful little finds and amateur shows are part of YouTube’s roots and still engender a large and loyal following. But consumers—and advertisers—want to see professional content on the site.

“Advertisers will find it hard to align themselves with video of unknown quality,” said Mr. Chanko. “Imagine you’re selling Huggies diapers, and somehow your ad appears on the page of a Mexican snuff video. User generated content can be a very, very dangerous game for advertisers.”

“They can do relatively well with user generated content, but (without professional content) they won’t be able to meet the ambitions that Google has for the site,” said analyst Phil Leigh.

Mr. Leigh said he expects media companies and YouTube to take a little break from one another, and then reassess how much they need each other.

“The consumer is not going to remember a dozen different places to go for videos,” said Mr. Leigh. “In the end, they’re going to gravitate towards two to three, and YouTube is going to be one of those.”