Yahoo, Sony form alliance to boost ad revenue

Andrea Orr

PALO ALTO: Yahoo! Inc on Tuesday entered a joint marketing agreement with

Sony Corp. that could help it bring in more ad dollars, but may also signal a

departure from its long-standing policy of not giving preferential play to any

single content provider.

In one of the first big initiatives announced since former Hollywood studio

executive Terry Semel took over as chief executive in April, Yahoo said it will

team with Sony's North American unit to build a co-branded Web site for

entertainment enthusiasts, while integrating more Sony content into all areas of

its Web site, including Yahoo Shopping.

The new Web site, to be called Sony on My Yahoo, will feature Sony

entertainment products and services, as well as all the regular content found on

Yahoo.com. The site will be promoted through Sony's new Internet access service,

Sony Style Connect, where it will be the start page; and through Sony's popular

line of Vaio personal computers, which will incorporate software to help

consumers access the Sony content.

"Today's announcement is just the beginning of a relationship that will

continue to explore opportunities between these two companies," Sony Corp

of America chief executive Howard Stringer, said during a conference call.

Financial terms of the deal were not disclosed and analysts said they were

not entirely sure how Yahoo would make money on the new venture. But they noted

it appeared the Internet media giant was taking a step in the right direction by

mimicking a strategy that has worked well for AOL Time Warner .

"It is the kind of deal that goes deeper than just selling banner

ads," said Lanny Baker, an analyst with Salomon Smith Barney. "Yahoo

has not really ever shown much skill or much interest in pursuing this kind of

deal before."

Microsoft on its heels



The alliance with Sony comes as Yahoo faces increased pressure to make money on
all the millions of people who visit its site and use of its services, usually

at no charge. Once profitable, Yahoo lost $48.5 million in its latest quarter,

and its online advertising business has seen a more severe slump than AOL's.

In addition, Microsoft Corp last week announced that during its second

quarter its MSN.com Internet portal surpassed Yahoo in total advertising revenue

for the first time.

Baker suggested Yahoo's more pronounced difficulty reviving its ad business

reflected its slowness to come up with new advertising and marketing strategies

as the traditional formats that had worked so well during the dot-com heyday,

started to fail.

"Everyone makes missteps, but when missteps are coupled with hubris it's

really painful," said Baker.

By teaming with Sony, Yahoo now looks to be exploring new ways to help

marketers reach customers online. The two companies said they will develop new

marketing programs around Sony films. In another revenue stream, Yahoo also

plans to sell Sony market research data to assist it in promoting films and

other products. And, it will serve as a consultant to Sony in the development of

Sony's US Internet portal.

However, analysts said the biggest opportunities lie in the potential to

create new marketing programs that are smarter than traditional banner ads. Most

estimated that the deal is no bigger in dollar terms than many Yahoo already has

with corporate partners, but they said the ability of these two companies to

promote each others products and services over time could be significant.

"It is probably just a regular, few million dollars a year type of

contract, which is nothing unusual for Yahoo," said Safa Rashtchy, an

analyst with US Bancorp Piper Jaffray. "But if Sony were to give Yahoo

preferential access to its content it would not only increase Yahoo's traffic

but bring it a lot of new commerce opportunities as well."

Drew Lanham, vice president of alliances and distribution at Yahoo, said the

Sony deal marked the first time a company had taken advantage of all of Yahoo's

services. But he maintained that Yahoo was still content agnostic, in

entertainment and other areas. "I think Yahoo is all about selecting the

best content for the user," he said. "I think that will continue to be

the focus."

(C) Reuters Limited 2001.