Yahoo's Unlikely Amigos

Why the portal and newspapers find they're joined at the hip

Evidently the newspapers are going to try to partner their way out of it. In this case, "it" is whatever disadvantages the medium faces in the online world. And sliding revenues, reported by major newspaper companies in the last half of 2006. And those companies' steep stock price declines. A nine-company consortium representing more than 215 U.S. dailies has already signed on with Yahoo! (YHOO )—itself no stranger to share price slippage of late—to partner with Yahoo HotJobs in an online classifieds venture. This consortium, including the likes of E.W. Scripps (SSP ) (which is mulling what it may do with its newspapers), Hearst Newspapers, and MediaNews Group, is in a 90-day exclusive negotiating period with the online giant over at least five key areas to broaden the partnership. (More on this later.) And the three companies behind the online help-wanted classifieds site—Gannett (GCI ), McClatchy (MNI ), and Tribune (TRB )—are discussing an alliance to create an online ad network.

Both groups welcome other partners, but the Yahoo partnership has had better luck in scoring them so far. Morris Communications and Media General have signed on since the HotJobs deal was announced. New York Times Co. (NYT ) and the newspaper division of Advance Publications (which also owns the glossy magazine world's Condé Nast Publications) are discussing joining up as well, say executives familiar with the matter. (A Tribune spokesman said other unspecified companies are considering joining its partnership.)

The Yahoo partnership has a weakness for wacky monikers. The online giant and its "Nine Amigos" have assigned at least five "tiger teams" to explore relationships with Yahoo. Among them: extending distribution of Amigos news stories with Yahoo, including spotlighting them in search results; turning over Amigos site-search engines to Yahoo and creating co-branded search toolbars; finding ways to integrate Yahoo's local search with newspapers' data; having newspaper sales staffs sell Yahoo ads to local advertisers and having Yahoo staff sell national ads for the Amigos sites; and allowing the Amigos Web sites to use Yahoo's ad technology.

You can argue that newspapers are dealing with a sworn enemy here, but the reality is more nuanced. The big online players have a horrible record in tailoring products to local markets. In the mid-1990s, Microsoft (MSFT ) planned a local city guide called Sidewalk. There was wailing, weeping, and gnashing of teeth among newspaper executives, who feared that a well-heeled newcomer would crush them. But the service never grabbed substantial share, and Microsoft sold it in 1999. Meanwhile, it's not hard to find examples of some newspaper companies welcoming arrangements that were once deemed unthinkable. MediaNews Group, which publishes more than 50 papers including The Denver Post and San Jose Mercury News, will soon open a combined print and online national sales office in New York—and is currently discussing involving Yahoo, as well.

Once again, souring revenue scenarios—for both Yahoo and newspaper companies—spur creativity. Yahoo seeks a fix appropriate to its content-centric ways, which persist even after a key architect of its media ambitions, Lloyd Braun, departed late last year. The world's No. 1 portal is betting that, like Microsoft, it can't do local by itself. It's also betting there is huge upside in the local space for the kinds of display ads in which it still outshines Google. And it's a nod to the reality that advertisers remain more comfortable having their ads around tamer and more traditional media rather than, say, user-generated videos. (Sighted at long last: the commercial advantage to the blanding-out of the local paper.) As for the newspapers, nuances aside, they are dealing with the kind of company—online, and measuring profit by the billion—that they once feared. But these days, they fear reality more.

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By Jon Fine

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