UPDATE 1-Independent Yahoo is better for business - Google

Thu Jul 10, 2008 10:06pm EDT

(Adds quotes from Schmidt, background)

By Kenneth Li

SUN VALLEY, IDAHO, July 10 (Reuters) - An independent Yahoo Inc (YHOO.O) is better for business, Google Inc (GOOG.O) Chief Executive told reporters on Thursday, saying a combination with Microsoft Corp (MSFT.O) would be anti-competitive.

"The world is better off with an independent Yahoo," Google CEO Eric Schmidt told reporters. There's "more competition ... in search, and more competition in the other advertising markets where Yahoo is a leader."

Microsoft made an unsolicited offer to buy Yahoo for an estimated $47.5 billion earlier this year, but after Yahoo sought a higher price, Microsoft walked away from the discussions.

"The moment we saw the offer from Microsoft, we saw it as anti-competitive," Schmidt said. "It's easy to understand. Look at Microsoft's history."

Yahoo later signed a search advertising deal with Google that is now being reviewed by U.S. regulators. Schmidt said the company is expected to face hearings next week with regulators reviewing whether its search advertising deal with Yahoo is anti-competitive.

Schmidt spoke with reporters at the annual Allen & Co gathering of media and technology moguls, where discussions of the high-profile Yahoo-Microsoft-Google situation theoretically could be taking place since people from the companies are present.

However, Yahoo CEO Jerry Yang told Reuters on Thursday that he was not likely to meet with representatives of Microsoft at the conference.

Critics have said Google's pact with Yahoo was designed to thwart Microsoft's advances, but Schmidt has long argued that its advertising deal was nonexclusive and would allow Yahoo to pursue other advertising partnerships, including with Microsoft.

Since May, Yahoo has said it is open to reignite buyout talks with Microsoft.

Yahoo is facing pressure to reopen the talks from billionaire investor Carl Icahn, who is seeking to replace Yahoo's board at the company's Aug. 1 shareholders meeting.

In recent weeks, Microsoft has said it would be willing to consider making another offer to either buy the entirety of Yahoo or just its search business -- but only if Yahoo's board was replaced.

Criticizing Microsoft's advances on Yahoo, Schmidt said, "Microsoft has a long history of having deals that look quite good and end up looking not so good when you read the fine print."

'MISTAKE'

Schmidt said most media executives now understand that their businesses are undergoing massive transformations as consumers spend more time on the Internet. "There's no denial," he said, pointing to how the volume of presentations dealing with digital issues had risen at this year's conference.

Even though Google still faces a copyright infringement suit filed by by MTV Networks owners Viacom Inc VIAb.N, Schmidt said his company's relationship with the media industry had improved over the last year.

But that sentiment is not shared by all media executives attending the conference. One attendee, who requested anonymity for fear or reprisal from Google, said ahead of Schmidt's talk with reporters that media executives were growing more wary that Google's business was sapping profits from traditional media sectors such as television and publishing.

Indeed, advertising agency WPP Group Plc (WPP.L) Chief Executive Martin Sorrell -- who coined the term "frenemy," or a partner that competes and helps your business to describe Google -- said in May at a conference in Cannes, France, that Google is now seen as a "froe," an apparently more adversarial term reflecting the media industry's more cautious view.

One media company attending this conference would wholeheartedly agree: Viacom.

A U.S. judge recently ordered Google to turn over Google's YouTube user data to Viacom, sparking an outcry from privacy advocates. The two sides have been in discussions on delivering the data while protecting the anonymity of YouTube viewers.

In response to questions about the episode and in a rare moment of intensity, Schmidt called Viacom's recent demands that the user viewership data be handed over a "mistake" and added that the entire lawsuit should be "retracted." (Editing by Gary Hill)