MuSoft-AOL deal

Not sure that this makes any real business sense
Fight off Google, yes, and important for MuSoft
But not sure it makes sense for TimeWarner

Maybe they still don't "get" the online world.

WSJ.com - Time Warner Nears Agreement With Microsoft in Online Ad Deal:

By ROBERT A. GUTH, DENNIS K. BERMAN and JULIA ANGWIN
Staff Reporters of THE WALL STREET JOURNAL
December 6, 2005 2:45 a.m.

Time Warner Inc. is closing in on an agreement with Microsoft Corp. to build an online advertising service designed to compete with Google Inc., say people familiar with the negotiations.

After months of on-again-off-again negotiations, the two companies are now focused on a deal that would combine advertising-related assets – with minimal, if any, money changing hands. An agreement is expected to be struck sometime before year-end, but it is still possible that AOL could choose instead to deepen its relationship with Google at Microsoft's expense.

As of Monday, however, initial signs pointed to a Microsoft-AOL alliance, albeit one far less ambitious than many analysts and investors had expected.

Under the negotiations, AOL would drop Google as its primary provider of Internet search and use Microsoft's MSN service instead, say people familiar with the talks. Currently, AOL relies on Google's search-engine, and Google gives AOL a cut of the advertising revenue generated by AOL customers. Last year, Google turned over $300 million in revenue to AOL. Their current contract runs well into 2006. Google Chief Executive Eric Schmidt Monday declined to comment on discussions related to AOL. "They're a valued partner and we look forward to continuing to work with them," he said.

Looming over the talks is Carl Icahn, the hedge fund investor who is preparing for a proxy fight to replace a majority of Time Warner's directors, and who has criticized the company's business strategy. A deal that assigned a public valuation for the AOL unit could be a lightning rod for Mr. Icahn's ire. One person close to the negotiations suggested that Time Warner may want to sidestep that possibility by announcing a type of joint-venture that cannot be assigned a dollar figure.

Included in the talks are negotiations over creating a joint advertising sales force that would sell online ads across both the AOL unit and Microsoft's MSN, while keeping the two online services under control of their respective owners, a person familiar with the talks said. The deal would include using an automated "advertising platform" for brokering online ads for the MSN and AOL services, say people familiar with the plans. Microsoft's MSN unit is developing such a service, called AdCenter that it is testing in certain markets outside the U.S.

The deal, if reached, would fall far short of earlier negotiations between the two companies over Microsoft taking a minority stake in AOL unit, say people familiar with the plans. The two companies expect to announce a deal by the third week of December, say people familiar with the talks.

The move is a reaction to Google, which has created an online service that efficiently connects advertising with Internet search results. That has helped the company post an outsize growth rate that has made Google worth $120 billion, compared to Time Warner's $88 billion market value.

A Microsoft spokesman declined to comment. A Time Warner spokesman couldn't be reached.