Google’s second quarter earnings disappointed Wall Street yesterday and sent its shares tumbling. The search giant blamed lower returns from managing its huge cash piles but analysts are also concerned the market leader in search advertising might augur a wider slowdown in online advertising.

Google itself said revenue growth from search ads was “positive” in every sector except for real estate, which was down by a small amount.

But the Street wasn’t convinced, perhaps because Microsoft also disappointed with its quarterly earnings citing “tough” economic conditions which impacted its software business and online ad sales.

As is well known Microsoft has been involved in on-off on-again buyout talks with Yahoo while Yahoo is separately flirting with the idea of a merger with Time Warner’s AOL unit. But just in case the AOL talks don’t work out for Yahoo, Reuters has learned that Yahoo is prepared to renew talks over News Corp’s Web properties, which include leading social networking site MySpace.

Keep an eye on:

• Rambler Media, owner of Russia’s Ramble Web portal has agreed to sell the Begun advertising agency to Google for $140 million (Reuters).
• Warner Bros is set to unleash an online series on Batman that it hopes will usher in a new kind of Web entertainment blending comic books and animation called “motion comics” (WSJ)
• EMI is hunting for a smaller New York headquarters for its North American recorded-music operation after completing a global cost-cutting initiative last month that eliminated some 2000 jobs world wide. (New York Post)

(Photo: Reuters)

Time Warner’s talks with Yahoo and separately with Microsoft have taken on renewed urgency as a pivotal Yahoo annual shareholders meeting approaches, a source tells us.

But are the discussions earnest or is AOL being used as a pawn in an increasingly ugly battle that will ultimately lead to a linkup of Microsoft and Yahoo? It’s hard to tell at this point as a steady stream news, punctuated by public accusations of “misleading” statements come from Microsoft, Yahoo and billionaire investor Carl Icahn, make handicapping the outcome difficult.

Icahn, who holds a 5 percent stake in Yahoo, has waged a proxy battle to remove Yahoo’s board and has aligned himself with Microsoft to seal a deal.

Some on Wall Street, including Bernstein Research’s Jeff Lindsay have sung the praises of AOL’s stock and cash deal for Yahoo, which in April was believed to be worth as much as $37.01 per share. But when asked, most industry and financial analysts hold firm a belief that Yahoo is still Microsoft’s to lose.

Ignoring signals that there will be no deals with AOL before Yahoo’s Aug. 1 shareholders meeting, Time Warner appears intent on pressing its case with the potential suitors perhaps eyeing an opportunity — especially after this past weekend’s fallout between Microsoft/Carl Icahn and Yahoo.

Keep an eye on:

• Rival New York Newspapers the Daily News and New York Post are considering some type of collaboration, in an effort to cut millions in annual costs. (New York Times)
• Paramount Pictures abandoned efforts to secure about $400 million in film financing through Deutsche Bank. (Reuters)
• Every song from Metallica’s upcoming album “Death Magnetic” will be available for gamers to download and play on “Guitar Hero III” and its sequel “Guitar Hero World Tour” on its release day. (Billboard)
• Wall Street Journal to raise price to $2. (Reuters)

(Photo: Reuters)

They call it the Duck Pond, but it’s actually teaming with (vicious) swans. It’s considered a big media and tech powwow, but a broad swath of global corporate titans of finance and politics round out the guest list.

It’s the 26th annual Allen & Co Sun Valley conference, where high-wattage huddles transpiring on the tranquil resort grounds among stunningly rich business people swathed in questionable leisure wear could end up in big deals months from now. The legend springs from the track record: AOL and Time Warner, Walt Disney and CapCities/ABC, Google and YouTube are all said to have gotten started here.

In between knitting (!), yoga, white-water rafting and golfing, and bridge (!) games execs like Google’s trio Eric Schmidt, Larry Page and Sergey Brin mix it up Disney’s Bob Iger, Time Warner’s Jeff Bewkes and News Corp’s Rupert Murdoch.

Although the mood this year is decidedly somber as the deteriorating U.S. economy weighs heavily on the minds of moguls, deal chatter persists and will likely center on what AllthingsD’s Kara Swisher likens to the Godfather-like meeting of the five families — the drama over who’s going to link up, buy, merge, strikes with whom playing out between Google, Yahoo, Microsoft, Time Warner and News Corp.

In particular, Yahoo’s Jerry Yang and Sue Decker are under the hotlights again after billionaire investor and career agitator Carl Icahn fired another salvo on Monday urging shareholders to join his campaign to wipe clean the board slate and pave a way towards a deal with Microsoft. Microsoft’s backing Icahn, it seems. The software maker is open to pursuing a deal to buy all or part of Yahoo — only if a new board is elected.

The only thing missing from the pitch: price.

Gordon Crawford of Capital Research & Management, which owns 16.3 percent of Yahoo, is also mulling backing Icahn, Swisher reports. Crawford is expected to attend as well.

Meanwhile, Time Warner’s Jeff Bewkes could seal a deal to merge the company’s AOL operations with Yahoo and take a stake in the embattled Web giant in time to appease shareholders at Yahoo’s Aug. 1 annual meeting. Or maybe not so fast.

(Photo: Reuters/Rick Wilking)

Finally, some movement.

It seems that the head of U.S. Federal Communications Commission Kevin Martin will support Sirius Satellite Radio’s proposed purchase of rival XM Satellite Radio.

The Washington Post and others are reporting that Martin decided to support the deal after the companies agreed to concessions intended to prevent the new company from raising prices or stifling competition among radio makers.

A decision has been a long time coming. Seventeen months ago the two companies announced they would merge, bringing entertainers such as Oprah Winfrey and shock jock Howard Stern under the same banner. The Justice Department approved the deal in March, but the companies are still waiting for the FCC.

The question is, have the delays made the whole issue mute? Have iPhones and every other sort of portable music/phone/camera/microwave oven gadget made concern over the XM/Sirius combination seem… well… dated?

Keep an eye on:

• Carl Icahn, who launched a proxy battle in May to replace the board of Yahoo says the deal Yahoo forged with Google “might have some merit” (Reuters)
• A bigger, meaner “The Incredible Hulk” crushed the competition at North American weekend box office with a $54.5 million take, but still fell short of its predecessor (Reuters)
• Time Warner hopes to move swiftly to find a buyer for AOL’s dial-up business after the company completes its separation from the Platform A advertising division in the next month, unnamed sources told the (NY Post).
• Canada’s Nortel Networks is challenging larger rival Cisco Systems with a negative advertising campaign, saying that Cisco’s equipment uses twice as much energy as that of Nortel’s (WSJ).
• The Associated Press will attempt to set standards on how much of its articles and broadcasts bloggers and Web sites can excerpt without infringing on its copyright (New York Times).

Take-Two Interactive CEO Ben Feder told us yesterday the company is in formal discussions with a range of parties interested in its “strategic alternatives,” which could involve a sale.

But they didn’t say with whom.

The “Grand Theft Auto” game maker has been fending off the unsolicited advances of Electronic Arts‘ $2 billion offer since March. At the time, Take-Two management deemed the $25.74 per share offer too low, charging EA with low-balling the company ahead of the release of the latest from its hit criminal action franchise. Take-Two traded at $27.52 on Friday morning.

So, who else might be a potential white knight? Time Warner, which has made no secret of its ambitions in the games arena, would be a nice fit, although we’re hearing they’re not in this one. Just this week the company led a $40 million round of financing for online games developer Turbine Entertainment, on the heels of a $30 million investment in April in “Lara Croft” maker SCi Entertainment Group.

A deal to separate from its cable division, which is expected to net Time Warner about $9 billion in cash, frees up some capital for deals in the content sector. They’re competing with NBC Universal and a consortium of investors to buy Landmark’s Weather Channel.

Viacom would be another rational suitor having struck gold with its purchase of “Rock Band” and “Guitar Hero” developer Harmonix. But the company has all but taken itself off the market for big deals, repeating a mantra in recent months to grow its operations organically.

Beyond that a universe of domestic and foreign buyers, game developers and other media ventures could have expressed interested. Discuss.

(Reuters)

Keep an eye on:

• AOL expands, integrates Platform-A in Europe. (Reuters)
• Zagat’s pulls self off the market after failing to find a buyer to meet its price. (paidContent)
• Sony CEO Howard Stringer speaks to the Times and ends up asking the questions. “Should we get out of some of these businesses?” (NYT’s Bits)

(Photo: Reuters / Take-Two Chairman Strauss Zelnick)

We’re moving into summer now — peak wedding time. Naturally, all sorts of mergers are on the mind.

Take a much-speculated about combination of Time Warner and NBC Universal, a subject that inevitably pops up when anybody talks about potential mergers in the media world. Thanks to Newsweek, it’s once again making the rounds.

Here’s the key takeway from the article:

And so they have begun preliminary efforts to explore a commingling of their entertainment assets-combining GE’s NBC Universal with Time Warner-in hopes of eventually igniting investor enthusiasm and pumping up their stock prices, according to media-industry executives familiar with the developments but not authorized to comment.

The article says Jeff Immelt and Jeff Bewkes, of GE and Time Warner, respectively, talked about it among a range of subjects that came up during a recent conversation. (A GE spokesman told Newsweek that the subject came up, while Time Warner declined to comment).

Other points of note in the story:

The two sides are not currently in negotiations.

Things are most likely to heat up in the fall, after the Olympics (NBC carries the games).

The two sides already appear to have an idea about how a deal would be structured.

Immelt and Richard Parsons, Bewkes’ predecessor, also considered a deal.

It’s going to be a fun summer.

Keep an eye on:

• “Sex and the City” fashioned a surprisingly strong opening at the North American box office, as frenzied female fans used the romantic comedy as an excuse for a big party (Reuters)
• Makers of dishwasher detergent and fabric freshener are dressing up their packaging in the hopes that consumers will showcase the bottles when they’re not using them (The Wall Street Journal)
• Discovery Communications is introducing Planet Green, a new cable brand that will be dedicated to eco-friendly living (New York Times)
• MTV went ahead with its annual star-studded movie awards at the Universal Studios lot on Sunday, hours after a spectacular blaze destroyed chunks of Hollywood history nearby (Reuters)

(Photo: Reuters / Time Warner Center)

Time Warner Inc is slimming down, concentrating on the content side of the business (forgive the jargon, it’s just that’s what movies, magazines, TV programming are called these days).

The media giant has just unveiled its much-anticipated plans to spin off Time Warner Cable Inc, resulting in the complete legal and structural separation of the two companies.

Plans call for Time Warner to exchange its 12.4 percent interest in TW NY Cable Holding Inc, a subsidiary of Time Warner Cable, for 80 million newly issued shares of Time Warner Cable’s Class A common stock. Time Warner will pay a one time $10.9 billion dividend.

But financial details aside, what Time Warner has in mind is appeasing shareholders frustrated by the company’s stock price, and those calling for the company to do something with its AOL Internet unit. Presumably, with the cable plans out of the way, there will be more time to talk about AOL around the executive suite.

It’s the first big, splashy decision by Jeff Bewkes, Time Warner’s chief executive, and will have the company getting back to its roots — namely, the business of entertaining consumers on the screen and in pages of magazines. It should be interesting to watch.

Keep an eye on:

• Microsoft is not looking to bid to buy all of Yahoo but is in talks about other types of deals with the U.S. No. 2 search engine, Microsoft CEO Steve Ballmer says (Reuters)
• Wall Street Journal Publisher Robert Thomson was named the paper’s new managing editor, taking the helm from Marcus Brauchli after he left last month under pressure (WSJ.com)
• Stuart Elliott writes that TV networks are reaching back in time to combat digital video recorders with the live commercial (NY Times)
• The head of Virgin Mobile USA told the Reuters Global Technology, Media and Telecoms Summit that he expects more consolidation in the U.S. telecommunications industry, including deals among providers who rent space on larger operator’s networks (Reuters)

(Photo: Reuters)

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)

Now that Microsoft has broken off its pursuit of Yahoo, the only thing we know for sure is that those two technology icons will not be merging (right now). Every other possibility and option for the two companies is up in the air. (One thing is for sure, Yahoo’s stock is already down more than 20 percent .)

There are no shortage of opinions:

** Microsoft’s Steve Ballmer is “under the gun” to spend the $46 billion earmarked for Yahoo. (New York Post)

** Yahoo’s Jerry Yang and his crew were “elated” when Microsoft withdrew its offer — but their joy may be short-lived. (Los Angeles Times) (NOTE - Yang in his own blog vaguely addresses reports of celebration breaking out in Yahoo’s camp:  “No one is celebrating about the outcome of these past three months… and no one should.”)

** There is no clear idea of a quick fix for Microsoft, as “the center of gravity in computing continues to move away from the personal computer, Microsoft’s stronghold, and to the Internet.” (New York Times)

** Yahoo shouldn’t abandon its proposed search deal with Google. (Silicon Alley Insider)

Even Jerry Yang has some thoughts :

Has this experience changed us? Of course, it has. We’ve emerged a stronger, more focused company with an even greater sense of purpose.

 Shareholders don’t seem to hold the same opinion today. What do you think Microsoft and Yahoo will do next?

(Reuters)

Keep an eye on:

• Warner Bros to Take Over Daytime Programming for The CW (Broadcasting & Cable)
• Cablevision’s $650 million bid for Newsday includes the newspaper’s real estate, and therefore the difference between its offer and offers from Mort Zuckerman and Rupert Murdoch smaller than it first appears. (New York Times)

(Photo: Reuters)

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)