Why a Yahoo-News Corp. Deal Makes Sense

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 |  Includes: MSFT, NWS, YHOO
by: Larry Dignan

News Corp. is reportedly talking to Yahoo about an arrangement that would look a lot like a joint venture. It’s unclear how these talks will play out, but the structure of the deal is far superior to Microsoft’s proposed integration go-round.

The Wall Street Journal, AP and others have all followed blog reports from TechCrunch and Silicon Alley Insider noting that News Corp. is talking to Yahoo about a deal (see Techmeme). This deal would leave Rupert Murdoch with a 20 percent of Yahoo. News Corp. would toss in the Fox Interactive properties–MySpace, AmericanIdol.com and others–and some cash with a private equity player to get a beefed up Yahoo.

The more I think about this arrangement the better it sounds. Here’s why:

Yahoo would have clarity of mission. If this News Corp. deal were consummated Yahoo would become what it’s supposed to be–a media company. Yahoo is a sort-of-technology company, but it’s no Google. Microsoft would give Yahoo technology, but not the type it wants. Almost instantly you’d have a Windows (Microsoft) vs. open source (Yahoo) on the backend technical infrastructure. Who needs those religious wars? Yahoo is about entertainment, splashing American Idol on Yahoo.com and being a mainstream network.

A joint venture would be more nimble. Let’s face it - a Microsoft-Yahoo deal would take years to get right. There would be integration squabbles. Meanwhile, Google would grab more market share.

I can understand the deal. Ok, I understand the concept of clean teams and all of that other integration mumbo jumbo from covering the Hewlett-Packard-Compaq merger. But those moving parts are messy. This deal is simple–swap some properties and cash and poof you’re done.

Yahoo would have a social networking strategy. MySpace would take care of that. Add in Flickr and you have some mojo.

News Corp. gets distribution for its properties. WSJ.com and Yahoo Finance–a match made in heaven.

Yahoo gets rid of Microsoft. No matter how much Microsoft bids it appears it will lose talent in a hostile Yahoo takeover.

Media companies should be owned by egomaniacs. I have a working theory: Media companies shouldn’t be publicly traded. And they should have some nut job at the top. Conde Nast can launch things like Portfolio magazine because Si Newhouse wanted to. Murdoch is in the same mold. Contrast that approach to Time Warner.

Will this deal happen? Who knows? But News Corp.-Yahoo is sounding better all the time.