Fox Said To Be Exploring End to Google Advertising Deal

Even while parent company News Corp. (NWS) continues to try to disrupt the Microsoft/Yahoo merger (MSFT) (YHOO), Fox Interactive Media is rumored to be in negotiations with Microsoft take Google’s (GOOG) place as the MySpace advertising partner.

The Google-FIM deal, first announced in August 2006, obligated Google to make guaranteed minimum revenue share payments to FIM of at least $900 million based on Fox achieving certain traffic and other commitments. But the original deal was negotiated in extreme haste, say people with knowledge of the deal. In February 2007 the parties were rumored to be working on the final agreement, months after ads were already being served by Google.

In Google’s haste to keep the deal from Microsoft they may have paid more than they can stomach.

According to our source, Sergey Brin’s thinly veiled buyer’s remorse verbalized during Google’s most recent earnings call on January 31 angered News Corp./FIM execs:

We don’t talk about individual partners’ performance or anything like that. Now I do want to highlight though, we have had a challenge in Q4 with social networking inventory as a whole and some of the monetization work we were doing there didn’t pan out as well as we had hoped. But we are continuing the efforts and we are still optimistic about future quarters.

…we have a huge amount of social networking inventory, including the MySpace relationship, including of course Orkut, our own network, which is very, very successful and probably like 20 others, or something like that. I don’t know the exact number. But we have an incredible amount of this inventory and in fact, it varies quite a bit in how it all monetizes, based on a number of factors, some of which we understand, some of which we don’t.

…I don’t think we have the killer best way to advertise and monetize the social networks yet. We’re running lots of experiments. We had some significant improvements but as I said, some of the things we were working on in Q4 didn’t really pan out and there were some disappointments there. I hope to be able to report more progress in the future but it’s a big opportunity because it’s so much inventory.

The vast majority of social network traffic that Google serves ads into is controlled by MySpace - this was a direct complaint about that deal. Shortly thereafter, our source says, FIM started discussions with Microsoft about taking over the advertising inventory. Microsoft announced a guaranteed payments deal with Facebook just two weeks after the initial FIM/Google deal. I’m sure they’d be very happy to get their hands on MySpace traffic, too. And if anyone has more money to burn than Google, it’s Microsoft.

What we don’t know is what kind of termination clauses are included in the existing agreement. But Google seems to be saying publicly that they wish they had never entered the deal. Perhaps now, with Microsoft waiting on the sidelines waiting to play sugar daddy, MySpace will suddenly be sexy again.

Comments

[Tom B]

"with Microsoft waiting on the sidelines waiting to play sugar daddy, MySpace will suddenly be sexy again."

About as sexy as as a cheap trollop, I should think. If MSFT wants to "eat" Google's mistakes-- so be it. Ballmer has more money than brains.

[CliffA42]

If Google is smart enough to back out of this one, all the more power to them. Remember why their name is now a standard verb in all languages!

[flwpower]

Like every company you make a few mistakes, this was a lesson for Google, I don't think MFST is dumb enough to take that road. If they do their stock will just sink more. I'm glad to see Google stock down a bit here, at 500 bucks it's almost Christmas again. I'd love to see 475 then I'd back up the truck. With so much new stuff in their pipeline.. phones and such, this is going to be a 1000 stock in a short time. Two maybe three years for sure. Only reason it's down now is because there were so many that bought it on margin and the calls were made to make those people cash out. After all this sub-prime junk is out of the way it will move and move fast.

[Tom B]

"I'm glad to see Google stock down a bit here, at 500 bucks it's almost Christmas again."

I bought some more at 505-- guess I should have waited a bit more, but "timing" is always a crap shoot.

[marketwatchr]

The difference is that Google makes decisions with too much emotion. Microsoft dosen't. Yahoo's overly emotional leadership is what allowed Microsoft to offer to buy Yahoo while it was $19. Business is business.
Seregy's emotions may have got them in more trouble than this one decision....time will tell.