Big media reconsiders role on the Internet

By Kenneth Li - Analysis

NEW YORK (Reuters) - News Corp (NWSa.N: Quote, Profile, Research, Stock Buzz) and Time Warner Inc's (TWX.N: Quote, Profile, Research, Stock Buzz) willingness to make a deal with Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) is seen as a tacit admission that big media empires will not go it alone on the Internet any more.

Even if they lose Yahoo to Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) -- as widely expected on Wall Street -- analysts and media industry insiders say the two could explore other combinations including merging Time Warner's AOL with News Corp's MySpace.

"MySpace and AOL are Internet assets that are in either a state of limbo or a state of decline," said Jordan Rohan, founder of digital media advisory company Clearmeadow Partners. "Google's growing faster than you are and it's responsible for the majority of profitability for each of these. You're dependent on your biggest competitor and that's a terrible position to be in."

Both MySpace and AOL depend on Google for search advertising.

As the U.S. economy increasingly looks like it might be in recession, concerns about the long-term growth rate of Internet advertising have forced big media companies to reevaluate their role.

Perhaps the days when they can take on Google or Yahoo by themselves have reached their highest point. Both Walt Disney Co (DIS.N: Quote, Profile, Research, Stock Buzz) and General Electric's (GE.N: Quote, Profile, Research, Stock Buzz) NBC shut down their ambitious Internet portals in 2001.

Time Warner's stock has suffered through the 7 years since its merger with AOL, even as its restructuring into a one-stop shop for Internet advertising shows early signs of progress.

Meanwhile, News Corp's Fox Interactive Media (FIM), which owns the world's largest online social network MySpace, quietly started to dial back growth expectations late last year, and now expects fiscal 2008 revenue to fall short of News Corp Chief Executive Rupert Murdoch's $1 billion target.