Time Warner And News Corp: Why They Want Yahoo, Too

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

And then late Wednesday night in sweeps News Corp , 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 via AOL and News Corp--are involved.

So 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. And 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. And considering that new Time Warner CEO Jeff Bewkes has talked in detail about spinning off assets, this move makes a lot of sense for TWX, 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 Yahoothese partnerships may just end up being ways to get Microsoft to raise its offer price.

Questions? Comments? [e-mail]