Report: Time Warner and Microsoft Rethink Alliance

Media conglomerate Time Warner and software maker
Microsoft are once again exploring the possibility of
merging the MSN Internet portal with the America Online unit of Time Warner,
according to The Wall Street Journal.

Microsoft, which is said to have initiated the talks earlier this year, is
reportedly interested in buying a big stake of the struggling online
business, possibly leaving the two
companies equal partners
in a venture that would make for the world’s
largest Internet company.

A Microsoft spokesperson declined to comment today. Time Warner
representatives were not immediately available for comment.

The companies are reportedly discussing numerous possibilities, including
combining their respective Internet search businesses, instant messaging and
online advertising.

However, the talks stalled in the late summer over a range of issues,
including technical obstacles and questions about control, according to the
Journal, which cited people familiar with the talks.

The move would likely allow the software giant to focus its Internet
operations on developing Web search products, rather than its Web portal and
Internet access business, analysts say.

One source told the Journal if a deal is not reached this year, it probably
will not happen. Time Warner is also having conversations with other
companies interested in partnering with AOL, the Journal reported.

The potential alliance between the two companies could have significant
ramifications to the industry, and more specifically provide a new challenge
to Google and Yahoo, both of which could see their lead in search technology
and online advertising shrink.

Currently Google provides Web search on AOL’s services, and 11 percent of
Google’s revenue came from advertising on AOL sites. It is more than likely
Microsoft would not renew those contracts once they expire.

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