News Corp.'s Talks with Microsoft: A Flawed Deal?

Even an alliance with the mighty Microsoft may not help Rupert Murdoch's media empire loosen Google's grip on the news. In an effort to keep News Corp.'s (NWS) newspaper content out of Google's search results, Murdoch's media giant has held early-stage talks to forge a deal that would put content from The Wall Street Journal, and possibly other company-owned publications, exclusively in Microsoft's Bing search engine, a person familiar with the talks says. The discussions come amid Murdoch's mounting frustration that Google (GOOG) benefits at the expense of his own media outlets when Web users search for news online. But analysts and antitrust experts say the move will do more to hurt Murdoch than Google. In exchange for the exclusive content, Microsoft (MSFT) would pay an undisclosed fee, according to the Financial Times, which initially reported the discussions. Microsoft has also approached other news outlets about a similar agreement, the report said. Microsoft would use exclusives with widely read publications as a way to gain share in the lucrative market for online search. Bing has a mere 9.9% of search traffic, vs. Google's 65.4%, according to October data from ComScore (SCOR). News Corp. may be using the discussions to gain a leg up in negotiations on a separate arrangement, due for renewal next year, that gives Google the sole right to handle search and place ads on MySpace, the social networking site owned by News Corp. Since the initial $900 million pact was signed in 2006, MySpace has been surpassed by Facebook as the most widely used social network, rendering the partnership less valuable to Google. Murdoch is "really just trying to up the ante," says Sanford C. Bernstein analyst Jeffrey Lindsay. Likely Decline in Online ReadersWhatever role the talks with Microsoft play in the MySpace deal, they may do little to undermine Google's position as the go-to online news search tool. Even a planned search alliance with Yahoo! (YHOO), with its 18% share of the market, will leave Microsoft with less than half Google's share. Cutting The Wall Street Journal and other publications out of Google results would slash traffic to News Corp. sites and make the company all the more beholden to Microsoft to make up the ad-revenue shortfall. "To the extent that they find reduced traffic, it would be reducing their revenue and they would become more dependent on Microsoft," says David Hallerman, senior analyst at market researcher eMarketer. "Being dependent on a large giant company for a large share of your revenue is very shortsighted." Google accounts for 26.3% of the Web traffic to The Wall Street Journal alone, according to Web traffic researcher Hitwise. In theory, other publications could join News Corp. in cutting ties to Google and allying with Microsoft. But those newspapers and outlets also would have to be willing to stomach an immediate decline in online readers. Most of the newspapers in the Newspaper Association of America rely on Google for about 30% of their online traffic, says Randy Bennett, senior vice-president for business development at the industry group. Most would "think long and hard before they just move their listings wholesale to Bing." Blogs would balk too, says Arianna Huffington, co-founder and editor-in-chief of the news Web site The Huffington Post. "Dividing access to content, and trying to deny news consumers as wide a range of options and viewpoints as possible, is not a road we intend to go down," Huffington says. Regulators might look askance at publications acting in concert to dump Google in favor of Microsoft. "This would raise significant antitrust issues because competitors would be agreeing to limit their competitive conduct in an important respect—delivery of their service to the public," says Sam Bayard, assistant director of Harvard's Citizen Media Law Project. Google has long maintained that any Web site is welcome to remove itself from the search engine's index. "We respect copyright owners' wishes," the company said in an e-mailed statement. "If publishers don't want their Web sites to appear in search results, there are easy ways to remove it." Still, if News Corp. and Microsoft were to start making a dent in its share, Google could always push back, Bayard says. Legally speaking, he says, the company may not be bound to keep honoring those wishes.

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