January 11, 2007 4:49 PM PST

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If this agreement goes through to completion, Google would sell ads that appear on CBS-owned radio stations and might even distribute CBS content as part of ongoing negotiations between the companies, a Merrill Lynch research report said Thursday.

"There was widespread expectation that CBS would use CEO Les Moonves' CES keynote address (in Las Vegas Tuesday) to announce a wide-ranging deal with Google to sell CBS advertising inventory...and to utilize CBS' content online to drive incremental ad sales," Merrill Lynch analyst Jessica Reif Cohen wrote. "Although no deal was announced, we believe the companies continue to negotiate, which should be incrementally positive for CBS."

Representatives of both CBS and Google declined to comment, citing policies against commenting on rumors or speculation.

A Google-CBS advertising deal would expand Google's fledgling efforts in the radio advertising market by opening up CBS' nearly 150 radio stations to Google advertisers, many of whom would represent a new market opportunity as first-time radio ad buyers.

Google began testing Google Audio Ads, its automated advertising system for radio, last year. The service integrates technology from Google's acquisition of radio ad company dMarc Broadcasting.

For CBS, a Google ad deal could boost advertising revenue and offset any revenue pressure that might come from weak ratings, while a content deal could expand its audience to online viewers and bring in additional revenue, the report said.

"Assuming that an agreement included 10 percent of CBS Radio's advertising time, this portion of a deal could involve approximately $200 million in revenue," the research note said. "The upside for CBS would be in: 1) attracting new (likely smaller) advertisers to its platforms a la Google's experience with search, and 2) creating a more efficient sales model that reduces the friction/cost of selling advertising."

The deal is expected to include low quality radio inventory and is not expected to include television ads, the report said. Under a content distribution deal, Google would likely guarantee revenue to CBS or split the revenue generated from ads that accompany the CBS content, according to the report.

Advertising industry insiders said they were not surprised to hear about the purported Google-CBS talks.

"It makes sense that the radio industry would be experimenting with alternate ways to squeeze more value out of their advertising inventory," said Tim Hanlon, a senior vice president at Denuo, a consulting arm of the advertising agency Publicis Groupe. "Clearly there is a lot of unused or unfulfilled availability on a lot of radio stations that could be turned into real revenue by allowing new entrants, new interested advertisers into the media."

Executives at two companies that compete with Google Audio Ads said the search giant has some hurdles in entering the market.

A Google-CBS deal, if it pans out, "would be an indication that Google has little to no access to major markets," said Josh Wexler, chief executive of Softwave Media Exchange, which offers an automated system for radio and TV ad buying. "Obviously, doing a deal with CBS would give Google access to inventory in major markets."

Dave Newmark, chief executive of Bid4Spots.com, which runs a weekly reverse auction for radio ads, predicted that Google would have to initially subsidize ads under a CBS deal in order to jumpstart the effort. "CBS stations are very highly regarded and management is extremely protective of the rate integrity of those stations," he said. "I would be surprised if the deal enabled Google to access the inventory at dramatically reduced rates."

CBS has streamed commercial-free versions of its shows on Google Video and reached a deal with YouTube, which Google acquired last year.

Google has been trying to expand its lucrative online advertising system to other markets. The company announced a test involving 50 newspapers in November and quietly ran a limited test in some magazines in 2005.

See more CNET content tagged:
CBS Broadcasting Inc., radio, Google Inc., radio station, inventory

 

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