Industry in Focus November 8, 2006, 12:10AM EST

Old Media and New Media: Friends, Not Foes

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Aids Old Media To further enhance its already significant presence and opportunities in online video streaming, sharing, and advertising, Google last month announced the proposed acquisition of YouTube for $1.65 billion in stock. This would be the largest and most aggressive acquisition Google has ever made, in our view, and an acknowledgement of YouTube's growing importance. We foresee deal consummation by the end of 2006, pending necessary approvals.

Google isn't the only Internet-based company that helps traditional media companies attract, interact with, and sell to their audiences. Yahoo! has nearly half a billion users around the world and, like Google, operates a top search engine and shopping service. Yahoo! also sells more Internet display advertising than any other company, and has extensive relationships with Fortune 500 media firms.

In addition, Yahoo! has a nascent video offering that features user-generated content. Last March, Yahoo! announced a partnership with CBS (CBS; ranked 3 STARS, hold) to offer content from 60 Minutes. Yahoo! now features 60 Minutes video and other content on its news, sports, and entertainment sites. The two companies are also collaborating on a 60 Minutes microsite. We believe this deal will provide Yahoo! with unique and revenue-generating content, and 60 Minutes with advertising revenues and exposure to a massive and younger audience.

Web Partners is the Way to Go

Although Apple Computer (AAPL; ranked 4 STARS, buy) isn't an Internet company, it also has become an important Internet distribution and money-making partner for TV companies. iTunes is the world's most popular online video store. As of September, 2006, Apple was selling more than 1 million videos a week, with content from more than 220 different TV shows. In September, the company announced a movie download service with more than 75 titles.

In addition, a number of smaller companies sell online video advertising to enable purveyors of online video content to make money from their offerings. We believe Google and Yahoo! also have notable opportunities in this area.

In our opinion, the faster traditional media firms work toward partnerships focused on making money from content, the sooner they will be able to reap the benefits.

Kessler follows technology stocks for S&P Equity Research.

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