AT&T Piles on Yahoo

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AT&T turned the Wall Street Journal (behind paywall – see Gigaom as well)) into a marketing tool today, planting a story that it’s long and successful DSL partnership with Yahoo is in jeopardy. Yahoo needed this like they needed a hole in their head, as CEO Terry Semel is still reeling from a recent stockholder action calling for his immediate dismissal.

At stake is $250 million/year in high margin revenue for Yahoo, which receives a monthly fee for every AT&T SBC DSL subscriber from the joint venture. AT&T wants all, or at least more, of that revenue to stay with them, and today’s threats are the first public volley in renegotiations around the deal. The current deal terminates in 2008.

From the article:

AT&T now wants to overhaul its Yahoo deal, according to a person familiar with the issue. Instead of paying Yahoo a percent of the revenue from its broadband business, AT&T wants to offer Yahoo only a cut of revenue from the sale of products Yahoo provides, such as from its music and photo services, this person says.

One reason AT&T now believes it shouldn’t have to share broadband subscription revenue is that the phone company has been approached by other Internet companies offering to pay to reach its broadband customers, says the person. Google over the past year has played a high-profile role in paying companies that help expand its online services and advertising. Those offers, bankrolled by Google’s Internet ad success, have roiled the market for deals structured like Yahoo and AT&T’s — as Google pays partners rather than charges them.

And while this article was clearly planted by AT&T execs, the companies official position remains that the deal is “the most successful partnership in the industry.”

Why, then, has AT&T “quietly painted over its colorful vans, expunging the Yahoo logo; the vans now sport AT&T’s new blue insignia alone”?

$2.2 billion in Yahoo market cap vaporized today, as the stock fell over 5%. What’s at stake here is more than Semel’s job. For Yahoo to stay an independent company, some good news needs to break. The barely suppressed whispers around silicon valley suggest that if the stock falls further and stays there, Yahoo will become acquisition fodder for Microsoft or others.

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