Acquiring Yahoo Would Boost Microsoft's Hollywood Profile

by Booyeon Lee

What could a Microsoft takeover of Yahoo Inc. mean for L.A.?

Microsoft Corp. doesn't have a huge local presence, but Yahoo has 1,000 employees at the entertainment media operation in Santa Monica and another 1,000 at the company's search marketing business in Burbank.

This means the deal could potentially give Microsoft access to the entertainment industry here, said Larraine Segil, a Los Angeles-based alliance expert.

An Internet business is a technology business, but media is the platform.

In 2005, Yahoo's then-chief executive Terry Semel set up a media group in Santa Monica to house its games, news, sports, movies and music services - and especially to court Hollywood.

Semel's dream of marrying Yahoo and the movie industry never really panned out, but the company's content business continues to be a key differentiator from Google Inc.Yahoo drives traffic with celebrity and entertainment news, while Google drives traffic with its search engine and ever-improving algorithms.

Given Yahoo's recent announcement of layoffs and its drop in stock prices, it's apparent the company's strategy has not panned out. Revenue speaks for itself: Yahoo brought in $6.4 billion in 2006 while Google reported $10.6 billion.

But with Yahoo's founder and technologist Jerry Yang now at the helm, analysts have said the company may have an opportunity to close its search gap with Google while bolstering its media content.

"Yahoo's Burbank operation couldn't be closer to studios like Disney and Universal," Segil said. "They would be remiss to close down or reduce Yahoo's presence here.

"Even if the deal survives the scrutiny of antitrust regulators, it's unclear whether the sum of Microsoft and Yahoo would equal that of Google, said Zorik Gordon, chief executive of ReachLocal Inc., a Woodland Hills-based digital advertising company.

The merger "doesn't solve some of the fundamental issues that kept Yahoo and Microsoft from claiming more market share in the first place," Gordon said. "But Yahoo, with Microsoft, would become a more valuable proposition for advertisers in both search and display."