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Picky, picky. After nearly a year of talks with Microsoft (MSFT
) about a possible joint venture with its America Online division, Time Warner (TWX
) is still trying to figure out which partner AOL should take to the dance. In the last two months, Google (GOOG
) and Yahoo! (YHOO
) have made their intentions known in contending for AOL's hand (see BW Online, 10/13/05, "AOL's Growing List of Suitors").
But now that Yahoo has bowed out, the race is on between the two remaining suitors. And if it's a low-maintenance partner that AOL is looking for, it seems that Google's the one. They already have a partnership whereby AOL uses Google as its search engine and keeps about 80% of the revenue generated by those searches. The arrangement serves AOL well, making a big contribution to online ad revenue at a time when subscription sales are trailing off.
The pair are discussing broadening their partnership so that AOL can sell search terms served up by Google to AOL's advertisers, according to a person familiar with the talks. Such an arrangement would not necessarily require Google or AOL to throw cash into the deal.
SPLIT PROPERTY? The two companies are also exploring teaming up on video search, where both have their own technology. AOL claims its video-search capabilities in some ways outshine Google's because it has struck partnerships with content providers such as HBO, Warner Bros., and MarketWatch, among others. Last, the duo is talking about ways Google could generate more traffic to Time Warner's Web sites without abandoning the search company's neutral approach to driving traffic to partner properties.
Meanwhile, Microsoft, AOL's other suitor, may face some hurdles in its attempts to hook up (see BW Online, 9/20/05 "Can Microsoft Land AOL?"). Although it has more to gain from a pairing than Google does, some of Microsoft's terms may not be sitting well with the folks at AOL.
The two initially discussed a joint venture between AOL and Microsoft's MSN (see BW Online, 11/07/05 "The Stakes in the Fight for AOL"). But Microsoft wants to team up with just one part of AOL's business -- its Web properties -- leaving the declining dial-up subscriber business behind. AOL maintains that cleaving its two halves may be too complex, since both use the same content and technology.
TRUST ISSUES. Another stumbling block is the valuation of assets that either side puts into a deal. Presumably, Microsoft would be expected to throw in some cash for its 49% of the venture, since AOL's assets are likely to carry a higher value than Microsoft's.
The combination of AOL, the leading online service, with its biggest competitor, MSN, also raises regulatory issues. Although such a combo might pass antitrust muster, a government review could still take close to a year, delaying the potential benefits of a deal at a time when AOL needs to step up online ad-revenue growth quickly.
AOL and Microsoft may decide to retreat to a smaller joint venture, according to sources familiar with the talks, where AOL would jettison Google as a search engine and adopt MSN Search. The two could also tie together their ad-sales networks to form a powerful third player competing against Yahoo and Google.
While talks with both potential partners are far along, Time Warner doesn't yet have a set deadline by which to choose its favorite, as the biggest dance in media plays on.