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Microsoft, Yahoo partner on search

Online ad pairing an opportunity for showbiz

Hollywood’s marketing mavens have sat on the sidelines, watching, as Microsoft and Yahoo flirted with the prospect of taking on Google’s powerful search business. But now that the two have brokered a 10-year-pact, studios could soon realize the benefits of the pairing.

As studios devote a larger percentage of their ad dollars to the Internet in promoting their films and TV shows, Microsoft and Yahoo’s combined search business (which some have termed MicroHoo) will essentially eliminate much of the confusion for media buyers.

That’s because studios will have two companies to turn to vs. the three that previously competed for Hollywood’s marketing money.

The collaboration on one search engine should also help create an easier way for consumers to find movies and TV shows that they want to watch via digital video-on-demand platforms.

Typing in the name of a film, for example, could instantly display various channels on websites, on mobile devices or even Web-enabled VOD platforms that cable operators are rolling out.

Simplifying the process could significantly increase the coin studios can collect.

As part of the deal, Microsoft will power Yahoo’s search offering using the recently launched Bing search engine, while Yahoo will serve as the sales force for advertisers — powered by Microsoft’s AdCenter sales tool.

“This agreement gives us the scale and resources to create the future of search,” said Microsoft CEO Steve Ballmer in a statement. “Success in search requires both innovation and scale.”

The deal is expected to close early next year, with the companies assuming it to take two years to roll out services together.

Combined, the two companies will control 30% of the search market. Google has more than twice that.

Deal is limited to search and does not cover each company’s email, instant messaging or display advertising.

The search deal is good news for Yahoo, which can now focus most of its efforts on developing content rather than building a search function that it’s struggled with over the years.

Yahoo will get 88% of search revenue created by its sites during the first five years, boosting annual operating income by $500 million and reducing its capital expenditure by $200 million.

But the partnership could also serve as a precursor to a much bigger deal to come.

As one Hollywood marketing maven said, “This has nothing to do with the search business; it has all to do with when the other shoe will drop.”

Microsoft has been looking at ways to fully acquire Yahoo — it offered $44 billion for such a buyout last year — and use the company as a way to bolster the content side of its various businesses.

Yahoo is a stronger player when it comes to aggregating online programming and could oversee the integration of Microsoft’s MSN, Xbox Live and Zune-powered music and video downloading services, which the technology behemoth clearly wants to operate more efficiently together in order to sell more hardware like its Xbox 360 videogame console and Zune-branded handheld device, the latter of which has struggled to compete with Apple’s iPod.

“This agreement with Yahoo will provide the scale we need to deliver even more rapid advances in relevancy and usefulness,” Ballmer said.

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