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Spinning Potential Yahoo-AT&T Machinations March 9, 2007

Posted by David Card in Media.

The Journal rumors in a thoughtful, if early, Page One story, that Yahoo and SBC, er, make that AT&T, are re-negotiating their distribution deal that’s set to expire next March. The story is largely gloomy for Yahoo, and paints a potential re-shaping of the industry, with power shifting to AT&T. Maybe, but it’s probably not so simple.

Journal sources say Yahoo collects up to a quarter of a billion in high-margin revenues from AT&T. That’d be a quarter of Yahoo’s fee business, and while the estimate looks high to me, it’s in the ballpark. True, if AT&T broadband customers stopped going to Yahoo, that could affect Yahoo’s ad revenues. But seriously, even if 12 million AT&T broadband users — who might be heavy users — abandoned Yahoo, that wouldn’t dent Yahoo’s 150+ million visitors/month that badly. I suspect Yahoo’s hold on AT&T users is pretty tight anyway, and other potential revenue streams, such as up-selling premium and mobile services, haven’t shown much.

But the real story, the hints that Google would pay AT&T rather than the other way around, is indeed a possible indicator. Of what they call rising “traffic acquisition costs” — i.e., the percent of ad revenue shared (and that’s primarily search ad revenue). Rising for everybody.

But I’d read this as possible signs of portal and ad network market share movement. I doubt we’re seeing The (AT&T)Empire Strikes Back.

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