AOL Battle Turns on Video

Internet video is soaring in popularity, buoyed by AOL's broadcast of last July's Live 8 concerts. Those efforts won kudos from critics and fans who were disappointed by the television coverage. The program, which attracted 5 million unique visitors that day and tens of millions of viewers throughout the summer, also caught the attention of advertisers, who are continuing to shift their spending away from traditional media and onto the Web. That was a watershed moment, according to advertising executives.

"It just proves that the Web can generate large audience that view simultaneously, similar to what you find in television," says David Moore, chief executive of 24/7 Real Media (TFSM Quote), an online advertising agency.

Negotiations over AOL's fate may be starting to wind down. The Wall Street Journal has reported that Time Warner could decide this week whether to enter into exclusive talks with Microsoft or Google. Sources familiar with the talks confirmed that the discussions are ongoing but stressed that any timetable talk is premature. This summer, news emerged that several companies were bidding to take a stake in AOL, but since then the focus has turned to a joint venture in which cash wouldn't change hands.

Some analysts and investors have suggested that Redmond, Wash.-based Microsoft would be a better partner for AOL than Google. The stakes also are higher for Microsoft, which lags behind both Google and Yahoo! (YHOO Quote) in the search market. Microsoft chief Steve Ballmer recently told an audience at a conference that the world's largest software company has a "keen interest" in online advertising, according to press reports.

Any AOL combination probably won't have much of an effect on prices in the online advertising market because demand is soaring. Magna Global estimates that online advertising spending will be on par with network television this year.

"What's going to happen in advertising is going to be driven more by what advertisers want to do, and secondarily what the Internet companies are able to offer," says Chuck Jones of Atlantic Trust Stein Roe in San Francisco, who follows the tech sector.