Google, Comcast Eyeing AOL Stake?

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Less than one month after raising more than $4 billion in a secondary public offering, Internet juggernaut Google Inc. (www.google.com) is said to be teaming up with Comcast Corp. to purchase a minority stake in Time Warner Inc.’s America Online Inc. division, according to a report by The Wall Street Journal.

The Journal, citing people familiar with the discussions, did not reveal how big a stake Google and Comcast would take in AOL. The article stated that the deal would value AOL at $20 billion, but that the actual investment would be far below that.

A cable executive with knowledge of all three companies confirmed that talks were ongoing but said they were at very early preliminary stages. The cable executive said Comcast was approached by Google about a deal a few days ago, but the search-engine giant could decide to invest in AOL on its own.

Google raised about $4.1 billion in a secondary public offering Sept. 14, bulking up its cash reserves to more than $7 billion.

According to the Journal, the alliance would focus more on AOL’s Web portal (www.aol.com) rather than its dial-up Internet business. The paper said the deal would allow Comcast and Google to gain access to AOL content in order to drive customers to their respective services.

Time Warner spokeswoman Susan Duffy said the company would have no comment on the Journal article. Comcast did not return a call for comment. Google did not return an e-mail query for comment.

Fulcrum Global Partners LLC media analyst Richard Greenfield, while having no knowledge of any talks between the three media giants, said a partnership between Google, AOL and Comcast would be a good move for all three parties.

Greenfield said that it is safe to assume that AOL is talking to everybody about how to create the best platform for selling advertising.

“Obviously, the portal is the key to [AOL’s] strategy. They have a massive Web presence with AOL being one of only four companies that does $1 billion or more in [annual] Internet advertising. They already have a relationship with Google, so it makes sense to talk about a broader relationship. For Comcast, having a portal that touches just under 8 million broadband subscribers versus the potential to use the AOL portal across AOL’s global footprint would seem like a significant opportunity.”

AOL uses Google’s search-engine technology and Google pays AOL a portion of the advertising revenue generated by AOL customers. According to Google’s 10-K annual report filed with the Securities and Exchange Commission in March, AOL generated about 12% of Google’s $3.2 billion total revenue in 2004, or some $382 million.

Time Warner has been said to be in talks with several different potential partners regarding AOL. Earlier this month, a report in the Journal said Time Warner was in discussions with Microsoft Corp. about selling a stake in the online service.

At the Goldman Sachs & Co. Communacopia conference Sept. 21, Time Warner chairman and CEO Richard Parsons said the media giant was open to selling a piece of the AOL business, but no deals were imminent.

Parsons said AOL lacked its own search engine, but it could strike a deal to use that technology from another company and sell it under the AOL brand. However, he added, Time Warner would stop short of selling AOL outright.

“We don’t want to lose control of and access to AOL for our business,” Parsons told reporters after his presentation at the September conference. “Not only do we think AOL has good growth potential, we think it has the ability to drive growth in our other businesses. Therefore, we’re going to want to retain a relationship with AOL to mine that value. Whether that’s 51%, 100% or 37%, I don’t know. It depends on the structure.”

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