Update 12:02 p.m.: I added a detail about change-in-control provision.
On Thursday, Yahoo and Google trumpeted the financial benefits of their search-ad deal. But on Friday, a regulatory filing showed the companies also have factored more pessimistic possibilities into their plans.
Specifically, Yahoo's filing with the Securities and Exchange Commission describes the terms--including antitrust litigation, low financial performance, or management changes at Yahoo--that could let the parties back out of the deal.
Yahoo headquarters in Sunnyvale, Calif.
(Credit: Stephen Shankland/CNET News.com)Microsoft has explicitly raised antitrust concerns about a Yahoo-Google search-ad deal in the past, arguing it will increase Google's dominance in the area, and it's likely Microsoft will raise further objections now that the Internet companies have signed a 10-year deal. But if things get really bad on the antitrust front, Yahoo and Google are permitted to back out.
Antitrust escape hatch
Either party may cancel the deal "to avoid or end a lawsuit or similar action filed on competition law grounds," the filing said.
Don't expect the companies to flee at the first sign of antitrust trouble, though: Google and Yahoo have both argued their deal doesn't violate any antitrust law.
For example, Google points to the relevant market as all online advertising, not just the placement of textual ads next to search results. And Yahoo said antitrust approval isn't even required, though it and Google won't launch actual ad sales until after a Justice Department antitrust review that could last up to three and a half months.
Financial performance
Google also has an option to scrap the deal if it doesn't meet financial terms. Specifically, starting 10 months after it begins selling ads on Yahoo's site, if the deal doesn't produce gross revenue for Google of at least $83.33 million for the four consecutive calendar months.
Don't take that to mean that Google expects at least $250 million a year for its own coffers out of the deal, though. The company will pay Yahoo an unspecified portion of the ad revenue, a practice Google already offers many online publishers through its AdSense program.
The filing said Google will pay Yahoo a variable percentage of its gross revenue to Yahoo, with the percentage changing according to unspecified revenue levels.
Yahoo said Thursday it expects to increase its revenue by $800 million in the first 12 months of the deal, with incremental cash flow from operations of $250 million to $450 million. Yahoo had revenue of $1.53 billion in its most recent quarter, excluding commissions paid to advertising partners.
Change in control
Either party may scuttle the deal with a "change in control," such as a merger or acquisition, and the filing details some of those possibilities.
The specific details are extremely complicated--one sentence runs 354 words long--but suffice it to say that the companies look to be particularly focused on a change in control involving Microsoft, News Corp., or Time Warner.
For example, Yahoo or Google could cancel the deal if--just to pick a wild and crazy possibility--IBM acquired 50 percent of Yahoo's voting share power. But if it's Microsoft, News Corp., or Time Warner acquiring the shares, the companies can terminate the deal when just 35 percent have been acquired.
Canceling the deal from a change in control would cost Yahoo, though. Unless it's because of a Microsoft acquisition or stake in the company, Yahoo would have to pay Google $250 million, minus half the revenue Google got from the deal.
Yahoo has agreed to start marketing Netlog and showing ads on the German social-networking site, the companies said Tuesday.
The multi-year partnership makes Yahoo's ad network the exclusive supplier of display, or graphical, ads, the companies said. While textual ads appearing next to search-engine results have proved powerfully profitable for Yahoo's top rival, Google, the market for showing display ads has many more players jockeying for top position.
Netlog is used by 1.3 million different people each month, and through the deal, advertisers can use Yahoo or Netlog to reach more than a third of German Internet users, the companies said.
In particular, Netlog is good for showing ads to younger people. "We are very glad to be able to offer our advertisers and agencies an even higher level of reachability within the 15- to 24-year-old target group," said Heiko Genzlinger, commercial director of Yahoo Deutschland, in a statement.
CNET Networks, News.com's parent company, on Thursday announced a three-year strategic partnership with Yahoo under which CNET will be a third-party content provider of technology news and reviews.
The partnership also allows for Yahoo to sell display ads on CNET properties and for CNET to sell ads alongside the content it provides on Yahoo sites.
"Working together, we have the ability to build more robust content environments and more comprehensive programs for our marketing partners," CNET CEO Neil Ashe said in a press release.
The announcement was made as CNET reported its quarterly earnings, a net loss of $6.1 million, or 4 cents per share, compared with a net loss of $9.1 million, or 6 cents per share, in the year-ago period. Reuters said the per-share loss was in line with Wall Street estimates, but net revenue of $91.4 million fell short of analysts' average expectation for $93.4 million.
CNET has also been in the news of late because the hedge fund Jana Partners is trying to take control of its board.
Qwest Communications International is in talks with Verizon Communications to bundle its wireless service with Qwest's broadband and landline voice services, according to a Wednesday report in The Wall Street Journal.
Qwest, the only major phone company without its own wireless service, has been reselling wireless service from Sprint Nextel. But Qwest CEO Ed Mueller said earlier this week at his company's analyst conference that he is not happy with the arrangement and is looking for a new partner.
The problem with the Sprint deal is that Qwest is unable to offer the same services and handsets that Sprint offers when they are first introduced at Sprint. This lag time puts Qwest at a disadvantage, Mueller has said.
Instead, Mueller said he'd like a more tightly integrated relationship with a wireless operator that might enable the company to get paid a commission for subscribers or would be tightly integrated to its broadband or landline voice service.
Qwest has not confirmed that it has been talking to Verizon specifically, but Mueller mentioned that the company is interested in striking a partnership with any of the four major wireless carriers in the United States.
Meanwhile, Verizon Chairman and Chief Executive Ivan Seidenberg has confirmed that the two are in talks. The Journal reported that Seidenberg said Tuesday at a Merrill Lynch analyst conference that his company, which owns Verizon Wireless in a joint venture with Vodafone Group, has had conversations with Qwest about a possible wholesale deal.
Some kind of wireless deal is important for Qwest, not because the company expects to generate a lot of revenue from the service. Rather, Qwest believes that it's important to offer wireless as part of its bundle to keep customers loyal to its other profit-making services, such as broadband.
Mueller said this week that customers who sign up for only one Qwest service are three times more likely to cancel the service than customers who sign up for at least two services.
Joost has announced another partnership--but this one's a little different than the seemingly endless announcements of niche TV deals that the much-hyped Web video start-up has been rolling out over the past few months. This time, Joost will be partnering with the Creative Artists Agency (CAA), a talent and literary agency with offices in Los Angeles, New York, Nashville, and several international locations. Through this deal, the CAA--which represents industries from TV to theater to video games to sports--will help Joost secure more content for distribution.
In other words, it's a partnership that will optimally lead to more partnerships.
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