Why Do Time Warner and News Corp Want Yahoo?

The battle over Yahoo (YHOO) is creating a feeding frenzy among the media and internet giants. Nearly two months after Microsoft (MSFT) made its $44.6 billion dollar bid for Yahoo, Yahoo is considering partnering with AOL while outsourcing search ad sales with Google (GOOG) to counter the Microsoft bid.

Then, late Wednesday night, in sweeps News Corp (NWS), which is considering partnering with Microsoft to sweeten its bid. So what does it all mean? It's all a play for Yahoo's advertising engine, which Microsoft would like to own so it can compete online just as it has in software.

And yes, no matter what, Google still has the upper hand. But let's take a look at why media giants -- Time Warner (TWX) via AOL and News Corp--are involved.

What does CEO Rupert Murdoch have up his sleeve? We don't know how far along negotiations are, but News Corp is looking to contribute Fox Interactive, including MySpace, as well as cash to a partnership with Microsoft and Yahoo.

Well, Murdoch was in talks with Yahoo a year ago, way back before News Corp bought Dow Jones, always interested in expanding News Corp's web presence. Many say that buying MySpace for a pittance was one of the smartest acquisitions in new media. Murdoch even reportedly offered to help Yahoo! CEO Jerry Yang fend off Microsoft's advances until he realized he'd be better off joining MSFT.

For one thing, Murdoch would like to monetize MySpace, and this is one good way to do it. With growing competition from Facebook, this might be the time to cash in on the social networking site that's generated phenomenal traffic but not quite the revenues analysts would like to have seen by this point.

What's AOL doing in this mess? The fact that its business has failed to impress explains it all. I think AOL and Yahoo together would be so messy that the combo is incredibly unlikely to happen. Both AOL and Yahoo, while web powerhouses, are trying to figure out their brands (AOL isn't the strongest) and their business strategies.

Both are in the same business--online advertising--and not complementary, like Microsoft, Yahoo, and News Corp are. Time Warner has been trying to figure out how to transition AOL from its subscription model to an ad-supported one, but ad dollars haven't been growing as fast as expected.

So, this basically looks like a way to hand off AOL and get it off Time Warner's plate. Considering that the new Time Warner CEO, Jeff Bewkes, has talked in detail about spinning off assets, this move makes a lot of sense for TWX, but it just doesn't make much sense for Yahoo.

I wouldn't bet against Murdoch on anything. He snapped up MySpace for just $580 million, when it turned out to be worth billions, and he managed to buy up Dow Jones. But I think Microsoft can make this acquisition of Yahoo happen without Murdoch's help. All of these media players are piling in to themselves find a better way to compete against the Google behemoth, but for Yahoo these partnerships may just end up being ways to get Microsoft to raise its offer price.

Comments

[George R]

Nice article, Julia.

I find all of this fascinating from my position as a small business owner and Internet addict.

I do disagree with one of things you said in your post, however. While I see AOL having lost its identity (and its perceived self confidence) on the global stage, I do not see this with Yahoo. I think you, the media, have been too hard on them. As I see it, they are the premium small to mid-size business and consumer brand in the entire Internet space. And their services in finance, real estate, e-mail, personals, and sports seem to have dominant market positions both here in the U.S., and elsewhere. I have been in branding for 25 years. The Yahoo brand is excellent. To me, it still stands for innovation and leadership in a still infant age industry.

Google, while its brand as a word oriented search product, is substantial, has confused the overall market with its investments in green technologies (wonderful industry, and mission, but why Google?), the cellular airwaves, Aerospace, chicken coops, healthcare, and basically everything else its rocket scientist executives can think of. I see the company VERY vulnerable though the Internet's next phase.

By and large, the Internet world's current power players have grown up not liking Microsoft. Microsoft stands for high prices, elitist attitudes, billionaire owners, software glitches, government influence, and a ton of other things that the masses simply do not care for and cannot relate to. I do not see that attitude changing anytime soon, as Ballmer appears to be somewhat arrogant in both his style and his approach towards partnering. He simply does not have the "presence" that Gates had, and still has, on the global stage. If nothing else, the folks from Redmond could absolutely ruin whatever reputation and/or momentum Yahoo has established in the small business, social networking, and higher end of the consumer channels.

My vote. An independent Yahoo, or a Yahoo combined with AOL, Softbank, Alibaba, or even MySpace, is the best thing for the overall market. As a consumer, and as a potential business partner to all of them, I firmly believe that more choice is better than limited choice, and we will all be better off in the next Internet phase with a third leg on this Microsoft and Google dominated stool.

Thanks for sharing your views with the rest of us.

George
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[BATO]

As with other Yahoo fans, I stand with the company being independent.Yhoo is part of American history. Although no longer the poster child of wallstreet, it still has wallstreet written all over it. Given the chance to prove itself oncemore, Yhoo will rise back and prove alot of investors wrong for leaving this iconic company.