Cable networks are a sweet spot in a media industry struggling to find its financial footing. They are driving conglomerates' earnings as well as richly priced deals, and will be a growth vehicle for branded content across all digital platforms.

Whether it is Comcast's bid for 51% ownership of NBC Universal (GE) or Scripps Networks Interactive's (SSP) 65% control of The Travel Channel, cable networks are commanding mid- to-high-teens earnings multiples at a time when most media values are in flux.

The unintended consequences of Yahoo (YHOO) and AOL (TWX) repositioning themselves as online content companies and magnets for television advertisers is that they will be targets for acquisition or strategic partnerships in an improving economy.

Yahoo and AOL could be choice assets to savvy players that are better at integrating and utilizing than Time Warner's debacle with AOL. It may be unthinkable to suggest that AOL should enter a new corporate relationship after an agonizing decade. But it is difficult to imagine AOL -- or Yahoo, for that matter -- flourishing long-term as stand-alone entities, even if they succeed in adjusting to their new business models. Here's why:

• Both companies command valuable online audiences that can be better monetized by a smart partner. AOL's audience is valued at around $1.7 billion, based on Yahoo's audience valuation of $11 billion, according to Credit Suisse analyst Spencer Wang.
• Both companies are limited in value they can create from their audience base over the next five years.
• Including its access service, Wang figures AOL's overall stand-alone value is at least $4 billion. (Compare that to AOL's $161 billion value when it merged with Time Warner in 2000 and its $20 billion value when Google paid $1 billion for a 5% stake in 2005.)
• AOL's total revenues are expected to stagnate just below $3 billion through 2014, when its adjusted operating income (before depreciation and amortization) is expected to decline to about $600 million from $975 million this year, Wang estimates.
• Yahoo's revenues will decline 13.5% to $4.7 billion this year, and average only 4.8% through 2014. Its operating income will decline 11% to about $1 billion in 2009 and grow an average 11% to $1.7 billion by 2014 -- due largely to aggressive cost management, Wang says. Yahoo's $22 billion equity-market cap is the lowest of its Internet peers, half of which is comprised by its 40% stake in Alibaba Group and 35% stake in Yahoo Japan.

Still, Yahoo and AOL have heavily invested in original and third-party content, making them more valuable to larger media players. While both companies continue new initiatives -- such as improved home and search pages, mail, mobile connections and content categories -- none are game-changing enough to do more than generate incremental gains. Yahoo continues its longtime lead in news, sports and finance, while AOL is making good strides with its robust content verticals.

Hulu's online video platform may be a success with the masses, but it will have to begin charging for at least some of its content if it doesn't want to destroy the $185 billion television ecosystem it draws from.

Broadcast and cable TV are under siege by the very interactive digital technology that will extend their profitability. Television networks are finding it difficult to aggregate large audiences that generate ad revenues and fees to underwrite production. New platforms like Hulu could possibly help to ease that financial imbalance. However, the longer the ad-supported video hub remains free, the more it contributes to television's demise, according to a new report by Soleil Securities analyst Laura Martin. Her arguments and math are clear-cut.

Annual domestic TV ad revenue is about $65 billion and video subscription revenue is about $120 billion. The overall market cap of media companies participating in the TV value chain is an estimated $330 billion, Martin says. All is at risk due to a variety of factors, including $600 million in value transferred to Hulu by its owners -- General Electric's (GE) NBC Universal, News Corp.'s (NWS) Fox and Walt Disney Co. (DIS) -- for which they receive no payment.

A case can be made just a month into the new TV season that the Big 4 networks are not taking enough strategic risk to ameliorate the continuing erosion of ad revenues, audiences and content economics.

One of the few calculated risks worth noting is NBC's move of Jay Leno from late-night to weeknights at 10 pm EST, which is the most pilloried maneuver this fall. Although it has cost the General Electric (GE) owned NBC TV network and many of its affiliated stations double the steep ratings losses of its rivals in that pivotal time slot (a decline of about 33%), it is a risk that could have financial upside regardless of the talk-show's continuing performance.

The full year of "Leno" that NBC has committed to will cost less to produce and market than the original hour-long drama it replaces. Already a proven commodity, "Leno" is likely to generate higher advertising revenues and profit over time, regardless of early missed ratings guarantees, although the show will be useless as a syndication option.

Mobile connected devices clearly are the universal screen of choice – and not just because of this week’s big news that Dell (DELL) will brand its first smart phone, Verizon Wireless (VZ) will offer customers Google’s Android (GOOG) operating system and Microsoft's (MSFT) Windows Mobile apps will be loaded into 30 new smart phones by year’s end.

While tech and telecom giants slug it out on the retail front, the real story is consumers’ 24/7 love affair with wireless mobile devices.

Comcast's bid to co-own NBC Universal is a grab for digital content dominance that will trigger influential paid models, force a revamp of broadcast television and spawn a new wave of media deals.

Despite the favorable deal terms discussed, Comcast would have to justify the bold move by creating pay walls for content, reducing its reliance on advertising, and revamping broadcast TV and cable delivery, which will be increasingly marginalized by streaming video online.

Radical changes to existing business models are inevitable in the creation of a new media giant that defies the industry's dismal track record with such unions.

The escalating risks associated with buying NBC Universal (GE) or any traditional media conglomerate -- which includes declining TV stations and broadcast networks -- is why Comcast (CMCSA) will likely settle for a 51 percent stake in the company, for now.

Corporate parent General Electric is in talks to spin off NBCU into a private company to which Comcast would contribute an estimated $6 billion in content assets and about $7 billion in cash. Although GE's 80 percent ownership would be reduced to 49 percent, it would accrue NBCU cash flow on its balance sheet and could transfer an estimated $12 billion in debt to the stand-alone entity, sources said. A report on NBCU-owned CNBC confirmed some of the details being discussed with Comcast, the nation's largest cable operator.

Walt Disney (DIS) CEO Bob Iger is likely to couple the appointment of a new studio chief with new initiatives and changes aimed at reinventing the film business for the digital age.

The recent, abrupt departure of veteran studio chief Dick Cook frees Iger to revamp the studio process and structure in response to the intensifying impact of the digital tsunami and the recession on Disney's free-falling filmed entertainment revenues and earnings. The studio, which has contributed as much as 15% of Disney's total operating income, has posted its first quarterly losses in about five years.

The cross-company leveraging of Disney's evergreen brand and character franchises, a hallmark of Iger's four-year tenure, has been a vulnerable defense to rapidly changing consumer behavior. Iger is likely to embrace some dramatic new approaches to film distribution, marketing, merchandising and financing.

The elephant in the room at Advertising Week sessions in New York beginning today is the ongoing reluctance of companies to mine user preferences and other data many consumers are willing to share in exchange for more relevant products and services.

The complicated business of online data mining is core to nascent interactive marketing and e-commerce, which have stalled during the recession even as consumers continue to go digital. This week’s advertising conclave should be the place to more thoroughly examine and debate data mining and other new sciences that will shape the interactive marketplace. It is sure to be broached in discussions about consumer trust, and maybe even in a Faceboook session aptly titled “Knowing is Better.”

General Electric’s (GE) pending decision to retain total or partial ownership of NBC Universal could hinge on radical changes to its weakest financial links, including its ad-dependent NBC broadcast network and TV stations, which could boost the media company’s overall revenues and value.

One option may be to convert the network into one or more branded entertainment multimedia platforms supported both by paying consumers and advertisers, much like NBCU’s successful cable networks.

Cautious optimism from media executives and analysts about the modest uptick in advertising fails to take into account two wild cards that could spoil the recovery party and is already causing a rift on Wall Street.

How much advertiser spending will eventually come back, and where will those dollars land? What sources of organic revenue growth will sustain a media recovery after cutting costs?

More notable than news about iPod upgrades or Steve Jobs’ return to the public spotlight this week is the wave of change that competition has brought to Apple (AAPL), which has shifted into defense mode -- even with itself.

iPod Touch price reductions, iPod Nano new features (camera and FM radio) and an updated iTunes were among the anticipated, albeit modest, responses to an exploding consumer electronics marketplace.

Picture this: a mega merger of Comcast (CMCSA) and Time Warner Cable (TWC).

A proposal to merge the two largest domestic operators — which is sure to alarm uneasy cable TV subscribers and federal regulators — is the brainchild of Citigroup analyst Jason Bazinet. His exhaustive analysis in a new client report concludes that the controversial move could yield $2.7 billion in annual cost savings and $12 billion in synergies by combining the companies’ 78 million customers.

YouTube's latest effort to generate and share advertising revenues from more grassroots videos hinges on Madison Avenue's willingness to take a giant leap of faith.

If successful, corporate parent Google (GOOG) will make another sizable contribution to creating an economic backbone for the viral Web that reaches beyond the professional content model forged by Hulu. YouTube's recently expanded partnership program opens its existing ad-revenue sharing option to all registered contributors in order to grow the portion of hosted videos monetized using Google's AdSense.

The bankruptcy of Reader’s Digest (RDA) is yet another reminder of the magazine industry’s weighty dilemma: Much of its branded print content is devaluing faster than it can be exploited online. As some general interest publications fall away and some savvy niche titles thrive on the Web’s long tail, the search for new business models is taking unexpected turns.

Time Warner (TWX) is inching closer to selling its legendary magazine portfolio of titles from Time and Sports Illustrated to Fortune and Smart Money. At the same time, Activision Blizzard (ATVI) is entering the magazine fray with a pricey subscription-only quarterly periodical for diehard World of Warcraft video game fans. Meredith (MDP) is recasting its stable of domestic titles – including Ladies Home Journal, Traditional Home, Fitness and Family Circle – as “national media brands.” ESPN is reducing the annual price of its weekly glossy to $1 while giving its two million subscribers free access to the Walt Disney's (DIS) ESPN.com paid site, Insider, to encourage sampling.

Google's (GOOG) wealth creation is unprecedented in the five years since it went public. Although its $150 billion market cap is nearly half what it once was, it has generated massive value for other companies. With more than 60% of U.S. and global search, its tentacles reach into all corners of cyberspace.

Like past monoliths of new growth industries, Google appears to be invincible. But Google is vulnerable just because it is thinly spread in a rapidly changing marketplace where rivals are eating away at the edges and fighting for turf. A major shift in technology or consumer behavior could alter the playing field, just as it once did for broadcast TV networks, music companies, telephone companies and typewriter manufacturers.

Google is locked in its fiercest battles over search, email, office applications, social networking, portals and brand advertising, Web browsers, mobile operating systems, ad servers and exchanges, and operating systems. Some of its biggest challenges:

Image via CrunchBase

The notion that Apple (AAPL), in a post-Steve Jobs era, would be driven to merge with Google (GOOG) because they are “rapidly converging” anyway is not only absurd and improbable, but a slight to both companies. Never mind that the creation of a nearly $300 billion behemoth would short circuit regulatory agencies worldwide.

This could be the year Vivendi (VIVDY.PK) unloads its 20 percent stake in NBC Universal. But even if it finally exercises that option in November, NBCU’s parent GE (GE) isn’t unlikely to unload part or all of the unit for at least a year, according to my sources.

Should such a sale come to pass, it would represent the first market test of traditional network valuations in the rapidly transforming digital environment. A transaction could lower the pricing bar for other traditional media players. A closer look at the moving parts reveals how complicated the situation can become.