AOL Closer to Picking Partner

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Time Warner Inc. could be nearing the finish line in picking a substantial partner for its America Online unit.

AOL has been courting two Internet giants — Microsoft Corp. and Google Inc. — as partners and, according to published reports, is leaning toward a deal with Microsoft.

According to a report in The Wall Street Journal, Microsoft and AOL would form a joint venture to sell advertising across AOL and Microsoft’s MSN Web portal. While both parties would keep the revenue generated on their own portals, the ads would reach more people.

Also according to the paper, Microsoft vaulted to the forefront after it guaranteed AOL minimum advertising revenue. Google, according to the Journal, balked on that point.

But Google currently derives about 10% of its advertising revenue through AOL, so it might not want to drop out.

An executive familiar with the negotiations confirmed that Time Warner was talking to the two companies about a possible deal, but said an agreement likely would not happen for a few weeks.

Time Warner has been working hard to accelerate AOL’s transition from a subscription-based revenue model to one based on advertising sales. To do that, AOL needs to gain access to Internet search technology.

Time Warner chairman and CEO Richard Parsons said at an industry conference last week that AOL was talking to several different parties about a possible partnership.

Parsons said at the Credit Suisse First Boston Global Media Week conference in New York last Thursday interested parties began contacting AOL about three months ago, “when they realized AOL was not dead.”

AOL, he said, has identified two areas where it needs help — developing a more robust search technology that would generate more advertising revenue from visitors and driving more traffic to the portal.

“What we’re trying to do is supercharge aol.com that way,” Parsons added. “Could we get there without doing anything? Yes. It would just take longer and we’re trying to shorten the time frame.”

Parsons added that while potential partners had inquired about buying an interest in AOL, “We’re not sellers of assets. Beyond that, it depends how well these discussions work out.”

Google initially got into the AOL fray when it caught wind that Microsoft was talking about a possible deal. Google approached Comcast Corp. in November about possibly joining in on a minority investment in AOL, which then was estimated to be worth about $5 billion. That investment appears to be off the table.

At the UBS Warburg Global Media Week conference last Thursday, Comcast co-chief financial officer John Alchin declined to comment on speculation about a Google partnership.

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