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News Corp. Discussing Partnership With Yahoo

By Frank Ahrens and Peter Whoriskey
Washington Post Staff Writers
Thursday, February 14, 2008

Rupert Murdoch's News Corp. is talking with Yahoo about business deals, including one that would combine News Corp.'s MySpace with Yahoo.

The giants of the Internet -- Google, Microsoft, AOL, Yahoo and social networking sites such as MySpace and Facebook -- are jostling for dominance of the online advertising market, the fastest-growing of all advertising sectors.

On Monday, Yahoo rejected a $44.6 billion buyout offer from Microsoft that was aimed at combining the second- and third-largest online advertising companies to challenge Google, the leader.

In response, Yahoo is talking with a number of potential partners, possibly as a way to either stave off future Microsoft offers or in an effort to drive up the software giant's offer.

The talks between News Corp. and Yahoo, reported on Tuesday by Silicon Alley Insider and confirmed yesterday by sources familiar with the situation, may signal a resumption of discussions that took place last summer between the two media giants that quieted during the fall. The sources spoke on the condition of anonymity because the talks are ongoing.

In those talks, launched before Yahoo chief executive Terry S. Semel resigned in June, News Corp. would have given MySpace and other digital assets to Yahoo for a 25 percent equity interest in the popular portal. MySpace is run by the Fox Interactive Media group, which also includes AmericanIdol.com, the photo site Photobucket, and investments in the Hulu.com, which hosts television programs.

A deal with Yahoo could involve a spinoff of the entire Fox Interactive group, which was under discussion last summer.

Such a combination would make News Corp. the largest single shareholder in a Yahoo/Fox Interactive unit. That would marry the world's most popular social-networking site, MySpace, with Yahoo's 4 billion page views per month to make a formidable opponent for Google.

Over the last three months of 2007, Yahoo's share of all Internet searches dropped from 20 to 18 percent, according to Nielsen Online. Google's rose from 54 to 56 percent.

Yahoo's board of directors plans to meet this week to continue discussions about Microsoft's bid, according to a number of reports, though it is unclear if any deal will be ready for the board's review. The company does not comment on when its board meets.

Yahoo and Time Warner's AOL unit have also been discussing a deal, sources confirmed this week, though it was not known if Yahoo was seeking to purchase AOL or form a partnership that could more effectively compete against Google and Microsoft for online advertising.

Yesterday, a Yahoo spokesman would say only that the company's board was evaluating all of its strategic alternatives and would pursue the best course of action to maximize long-term value for shareholders.

The company said it sent a letter to shareholders defending its decision to reject Microsoft's bid. "Today, Yahoo! is a faster-moving, better-organized, more nimble company than it was just a few months ago," the letter said, according to a news release. It continued, "The fact is that we are well on our way to transforming the experiences of Yahoo!'s users, advertisers, publishers and developers -- an important shift that is at the heart of our plan to create stockholder value."

News Corp. declined to comment.

Murdoch has publicly suggested that the growth of MySpace has been slowing compared to the rapid climb of rival Facebook, though MySpace's value has rocketed up since Murdoch bought it and other assets for $650 million in 2005. In 2006, Murdoch pegged MySpace's value at $6 billion. Analysts now estimate that the site, which claims more than 100 million user profiles, could be worth at least $10 billion.

As recently as Feb. 4, during News Corp.'s second-quarter earnings call, Murdoch said his company was not interested in buying Yahoo. But, he added, "you never know."

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