Yahoo is looking to expand its reach to young consumers through the acquisition of the company, which generates more than 3 billion monthly views on Google's YouTube.
Yahoo faces competition from private investment firm Chernin for control of the California-based company, Sky quoted insiders as saying.
Chernin is already a shareholder in Fullscreen, having bought a stake in June last year along with the world's largest advertising group, WPP and Comcast Ventures. (Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.)
Chernin, owned by former News Corp. executive Peter Chernin, is understood to have the right to buy Fullscreen at a previously agreed price if other bidders do not offer at least $300 million, Sky reported.
Watch: Yahoo: Bull vs. bear