Billionaire investor Carl Icahn fired a salvo at Yahoo on Thursday morning, threatening a proxy fight unless Yahoo gets Microsoft back to the negotiating table.

In a letter to Yahoo Chairman Roy Bostock he said Yahoo’s board had acted “irrationally” in turning away an offer that amounted to a 72 percent premium and warned Yahoo not to announce any “strategic alternatives” (such as a deal with AOL or Google) without a shareholder vote.

I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

Icahn also disclosed he has purchased 59 million shares and has sought antitrust clearance from the FTC to acquire up to approximately $2.5 billion worth of Yahoo stock.

Microsoft has remained quiet so far. Wall Street Journal reported earlier that Icahn had been yet unable to lock in Microsoft’s support.

Also, despite having nominated a 10-member slate, which include Icahn, former Viacom chief Frank Biondi, Icahn Enterprise’s vice chairman Keith Meister, former New Line co-CEO Robert Shaye and corporate governance expert Lucian Bebchuk, he could yet settle for a smaller slate of Yahoo directors.

After spending a week telling the world how uninterested they are in Yahoo, Microsoft has remained quiet so far.

(Reuters)

Keep an eye on:

• CBS to buy CNET Networks for $1.8 billion to boost its Web presence, and maybe laying to rest a CNET activist investor fight (Reuters)
• Ask.com to expand its vocabulary with plans to buy Lexico, owner of Dictionary.com and Thesaurus.com (Reuters)

(Picture: Reuters / Icahn at the Lazard presentation during the Time Warner battle.)

Apple’s deal to start selling HBO shows will please fans of “Sex and the City” and “The Sopranos.” But will it open up a can of worms when it comes time for renewal talks with other TV show owners?

Since iTunes’s launch, Apple has stuck by a strict policy to keep pricing simple to attract new users. But seven years since its launch, it may be time to tweak the model. For years, content owners have demanded flexible pricing — perhaps charging more for some shows than others. What works for Wal-Mart, where bargain bins overfill with discount DVDs, will work on the Internet’s busiest content storefront.

With the HBO deal, Apple appears willing to explore the time-honored retail concept. A more flexible pricing policy could also bring NBC Universal back to the U.S. store.

Keep an eye on:

• Fox forms new branch to co-produce, finance and distribute local language films in Japan, Germany, India and Russia. (Hollywood Reporter via Reuters)
• Clear Channel settlement imminent. (WSJ)
• Dish Network posts higher profit, but subscriber growth slows. (Reuters)

For a mogul who’s spent a lifetime snatching up newspapers across the globe — and who spent the better part of his time talking about them on Wednesday’s quarterly earnings conference call — we found it surprising that he insists he’s not spending more money on the dying print business.

Murdoch: “From day one, the financial press has been fixated on portraying this move as a change in strategic direction; the company is now focused on allocating more of its capital on print businesses. That is not our intent, nor is it factually correct. We have not changed our playbook.”

Murdoch argued that Dow Jones, the splashiest of his newspaper buys yet, is barely a newspaper publisher at all. To lay out that argument, Murdoch appears to have abandoned his earlier argument that a free Wall Street Journal online would be better than a subscription-based site.

WSJ.com still has more than 1 million paying subscribers, up 11 percent compared to last year. (It’s unclear if he meant that the site added 11 percent more subscribers compared to the same period last year.)

Then there’s the paper itself, where Murdoch sees big opportunities to boost ad sales and circulation volume and revenue. Individually paid subscriptions rose 1.6 percent to 1.46 million and overall circulation rose 0.3 percent to 2.07 million. Circulation revenue rose 6.8 percent in the quarter, slightly below the 7.3 percent growth in 2007.

Its biggest growth area remains its enterprise division, which houses the Dow Jones Index, Factiva and Newswires — all of them subscription businesses. He says the Dow Jones Indices business revenue rose 37%, with profits up nearly 50% in the quarter ended March 31st. Factiva revenue grew 10 percent.

Dow Jones’s financial information and services group revenue rose 13% , with profits up over 8%.

All this in the first quarter after the purchase! Then again, maybe Murdoch thinks some people have set the bar higher than that.

This is destined to be an extra-inning game; to use an overly used metaphor, we’re only in the first innings. Those of you expecting to see immediate dramatic results in 12 weeks are kidding yourselves and setting an unrealistic bar. Over time, as we have done dozens of times at News Corp, most recently with SKY Italia and MySpace, we’ve made our acquisitions work, generating great returns to our shareholders. We’ll do it again at Dow Jones. It may take time, but I am as confident of it as any acquisition I have done.

Then there’s his Newsday bid, which was one of the more exciting parts of the conference call. Boxed in by Newsday reporters on the call, Murdoch spoke frankly about his confidence in landing the Long Island daily.

No, I don’t think Cablevision will prevail. Just be patient for a couple of days (inaudible). We’re certainly not in the business of getting into an auction here …

We’re hoping to wrap it up within the next week. And I don’t mean the end of next week, I mean within the next seven days … It takes two to agree. But we’re at a pretty advanced stage. I’ll just leave it at that at the moment.

Nope. No newspapers here.

(Photo: Reuters/David Moir / News Corp. Chairman and CEO Murdoch stands with Scotland’s First Minister Salmond during the official opening of the News International press printing plant at Eurocentral near Glasgow in central Scotland.)

Legendary media money manager Gordon Crawford blasted Yahoo Chief Jerry Yang for blowing the Microsoft deal in high profile interviews with the Wall Street Journal and the New York Times.

“I am extremely angry at Jerry Yang and at the so-called independent board,” Crawford told the Times. ”I’m hoping that there is such an outpouring of outrage that the board is embarrassed into revisiting this thing …  but I’m not optimistic about that.”

It may not be wise to aggravate Crawford, portfolio manager for Capital Research Global Investors, a division of Capital Research & Management, which owns 16 percent of Yahoo.

Just ask AllThingsD’s Kara Swisher about how Crawford treated Steve Case in the AOL Time Warner disaster. Within a year, AOL Time Warner Chairman Steve Case resigned.

(Photo: Reuters/Steve Case)

Yahoo Chief Jerry Yang is leaving the door open to Microsoft, he tells us. In an interview with Reuters’ Michele Gershberg, Yang says he had been seeking common ground when Microsoft abruptly ended deal talks.

Yang: “We were negotiating a way to find common ground and then on Saturday they chose to walk away.”

Asked if they’re up for more from Microsoft, Yang says, “If they have anything new to say, we would be open … I am more than willing to listen.”

Is this a cover-our-butts move in the event they face shareholder lawsuits or is it a candid appeal to Microsoft to come back to the table?

Separately, sources are telegraphing that a final agreement between Google and Yahoo has not been reached as they discuss a potential deal with regulators. They also say any potential deal with Yahoo would not be prohibitive to Yahoo striking other agreements down the line. The move appears to be Google’s attempt at playing both sides — offering a carrot to Yahoo, while appeasing regulators.

The intrigue builds …

Microsoft dumped its offer to buy Yahoo on Saturday. A closer reading of Microsoft CEO Steve Ballmer’s letter to Yahoo’s Jerry Yang shows Microsoft is content to do nothing less than choke the air supply out of Yahoo’s trachea.

Consider these sweet bon mots in Ballmer’s letter, which is also a thinly veiled salvo at Google:

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

– First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them.

This would undermine the reliance on your display advertising business to fuel future growth.

– Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

– In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

– This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

– It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We are eagerly awaiting Google’s response.

Meanwhile, Global Equities Research analyst Trip Chowdhry advances speculation — based on discussions with his industry contacts and applying game theory to his analysis — that Ballmer has masterfully played his hand to block Yahoo from a merger with Amazon.com.

Chowdhry thinks that Microsoft’s deal to buy Yahoo would likely be blocked by the Department of Justice, given its experience in 1995 with a deal to buy Quicken software-maker Intuit, when the DOJ did just that. At the time, Microsoft Money was the fourth biggest player.

Chowdhry: Yahoo’s management should make sure it does not fall into the trap of a potentially fake bid, as Microsoft itself probably may be knowing that the chances of a deal going through is unlikely, and the outcome could be similar to 1995, when DOJ blocked Microsoft’s acquisition of Intuit. We think Yahoo should hire Game Theorists to get insight into Microsoft’s both tactical as well as strategic moves.

(Photo: Reuters)

Warren Buffet’s Berkshire Hathaway sells bricks, candy, car insurance, carpets, ice cream, jewelry, knives, paint and underwear. Many of these items are available for sale at stalls at Berkshire’s well-attended shareholders meeting every year.

In looking for something new to hawk to some 32,000 investors at the meeting in Omaha, Nebraska, this weekend, Berkshire-owned Business Wire will be selling Buffett baseball cards.

About 2,500 packs of “Berkyville Wiredcats” cards will be available. Each pack of six cards will sell for $10. The proceeds will go to Buffett’s favorite local charity, the CASA of Douglas County, Nebraska. CASA, or Court Appointed Special Advocates, is an organization for abused and neglected children within the court system.

But will the cards come with Wrigley’s gum?

Television service startup Sezmi Corp plans to do what dozens of others have promised: kill cable and satellite.

Sezmi’s end-run around traditional distributors is clever, people briefed on it tell us. The system, which involves replacing your cable or satellite box with a Sezmi set-top and a media receiver (the speaker-like box on the left) purchased at a retail outlet or through broadband service provider. Connect it to your TV, place the receiver somewhere inside your living room, and you’re ready to go.

Behind the scenes, network television, cable programing and Internet videos from the likes of YouTube are delivered in one of three ways: over-the-air digital broadcasts, broadband and a third proprietary method that sends cable programming over unused space on a local broadcaster’s wireless spectrum to deliver basic cable network channels. To maximize capacity, especially with HD TV channels, the service will figure out what you’re most likely to watch and store them on the set top’s hard drive.

Sezmi will also come with a remote control with buttons that individual household members can program. Dad can personalize his homepage to show sports and news programs, for instance. Sezmi also adds a social element by letting users share favorite playlists.

What’s missing from the announcement? Partners. None were named at launch, although for illustrative purposes, executives showed us a Powerpoint slide filled with channels that cover about 85 percent of all viewing, including ESPN and CNN.The service will live or die on these partnerships. “I’m quite impressed with the concept,” Forrester analyst James McQuivey says. “The proof on this one will be the partners that they get lined up. I need to see second and third tier telcos and ISPs coming on, local television groups signing up.”Park Associates’s Kurt Scherf agrees: “It’s a great idea that needs some refining.”We’ll circle back when we hear more.

Meet Warner Bros’s new video game czar Martin Tremblay, who was named president of Interactive Entertainment.

Tremblay will report directly to Kevin Tsujihara, president of Warner Bros Home Entertainment Group, when he starts in July.

Warner poached Tremblay from Vivendi Games, where he was president of worldwide studios since 2006, during which he oversaw the release of “F.E.A.R”, “Scarface: The World is Yours”, and the “Crash and Spyro” series.

He was also president of Ubisoft Montreal before that, and grew the company from 350 employees to 1,500. The studio has been responsible for some of the hottest selling franchises including “Rainbow Six” and “Splinter Cell.”

Is Warner Bros ramping up investment in games? The division of Time Warner recently ponied up another $30 million to invest in “Larry Lara Croft” series maker SCi Entertainment Group.

Time Warner’s first quarter results were yet another demonstration of how the one-time biggest media company on Earth is making some progress, but continues to grapple with its biggest issue — AOL.

First the good news (take-aways from the call):

• Cable networks were a standout in the first quarter, with advertising revenue rising 13 percent. The strong audience ratings have inspired it to hold its presentation to advertisers on the same week as the broadcast upfronts. Bewkes: “You may have noticed that this year, Turner’s up front is scheduled for the same week as the broadcast upfront. That is not a coincidence. We believe Turner is now positioned better than ever to challenge the broadcast networks. This argument is increasingly resonating with advertisers and agencies and we expect to see that reflected in this upfront.” Just how good is it? Consider that CPMs at Turner are about 60 to 70 percent of the prices commanded by broadcast, Bewkes said.
• In a quarter when Wall Street expected rivals to steal share from cable operators, Time Warner Cable stunned investors by adding 55,000 basic video subscribers. Growth in new customers came across the board.
• Another bright sign this year could come from a decision to shrink film release windows. Time Warner plans to release all of its films on video-on-demand and DVDs on the same day. A decision to back Sony’s Blu-ray has encouraged Time Warner to now project industry wide sales of movies on next generation format to rise about 30 percent faster than it previously thought, or about $ 1 billion in sales.
• Time Inc, a perennially unloved division, has rarely been a source of good news for the company. But in the first quarter, its digital initiatives helped the division’s online revenue offset the decline in print advertising. Unique visitors were up about 30 percent year over year and page views rose 25 percent.

Now the bad…

• AOL: Even as the rivals enjoy robust online advertising growth, AOL’s restructuring and “execution challenges” in trying to integrate over $1 billion worth of acquisitions hurt the first and probably the second quarter’s display advertising business. What’s also troubling to investors is that its third party advertising business, which commands lower margins, will be a bigger part of its business mix, executives said. Online ad growth will be better in the second quarter compared to the first, but 2008 profits is expected to be lower than last year.
• There was a small measure of relief that Time Warner has finally decided to split off its cable business, but investors were looking for much more — like news of a big special dividend paid out by Time Warner Cable to Time Warner shareholders for its troubles all these years — or any details at all.
• Why didn’t a single analyst ask a question about AOL’s context within the Microsoft, Yahoo bid? And none of the executives volunteered information either.

(Photo: Reuters)