Week in review: Yahoo, Microhoo's biggest loser

Yahoo and Microsoft don't make a love connection, while Grand Theft Auto IV gets a lot of love. Also: Wild about WiMax.

Steven Musil Night Editor / News
Steven Musil is the night news editor at CNET News. He's been hooked on tech since learning BASIC in the late '70s. When not cleaning up after his daughter and son, Steven can be found pedaling around the San Francisco Bay Area. Before joining CNET in 2000, Steven spent 10 years at various Bay Area newspapers.
Expertise I have more than 30 years' experience in journalism in the heart of the Silicon Valley.
Steven Musil
7 min read
After Microsoft failed to make a love connection with Yahoo, we got a clearer picture of Yahoo as a company that didn't even want to be in the dating game.

The merger proposal may be history, but company name combination is going to echo for a while, as pundits perform their own postmortems to decide who was the biggest loser.

Microsoft withdrew its $47 billion offer for Yahoo after talks between the two companies broke down on Saturday. Microsoft hiked its offer to $33 a share, but Yahoo was apparently holding out for $37 a share, which would have been nearly a 100 percent premium for the company's shareholders.

The increased offer apparently wasn't enough to make the deal worthwhile for Yahoo.

A source close to the negotiations described a situation that suggests Yahoo was never really prepared to sell itself to the software company. Although Microsoft made its initial unsolicited $31-a-share offer for Microsoft on February 1, the first substantive meeting didn't take place until April 15--10 days after Microsoft set a three-week deadline for Yahoo to come to the negotiating table.

When asked by Microsoft CEO Steve Ballmer where Yahoo stood on a takeover price, Yahoo executives responded that they didn't really have one.

"From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company, and we are pleased that so many of our shareholders joined us in expressing that view," Yahoo Chairman Roy Bostock said in a statement.

Apparently, many Yahoo shareholders disagreed. Even before the markets opened Monday, stockholders were dumping shares of Yahoo, sending prices down 22 percent in premarket trading. The stock eventually bounced back, reflecting an overall loss of only 15 percent of its value. Analysts who follow Yahoo changed their recommendations on Monday--all to a "sell" or "strong sell."

Selling their stakes isn't the only avenue for disgruntled shareholders. Yahoo announced that it will hold its annual shareholder meeting on July 3, setting the time clock ticking for shareholders to nominate any dissident directors within the next 10 days. The main purpose of unseating Yahoo's entire board would be to remove Yahoo's anti-takeover measure.

Any shareholders who want to run candidates against Yahoo's nominees for the board will be able to put their names forth to Yahoo's corporate secretary by the close of business on May 15. But proxy solicitors, as well as attorneys who specialize in mergers and acquisitions, say it would be difficult to unseat Yahoo's board with a dissident slate without a firm buyout bid on the table for shareholders to consider.

Microsoft may no longer be breathing down its neck, but Yahoo is still working on major deals with Google and Time Warner's AOL that could significantly alter the Internet pioneer. The nearer-term possibility is a partnership to use Google for delivering some ads next to Yahoo search results. That option apparently is still on track to be announced soon.

The Google deal could increase Yahoo's revenue, because Google gets more revenue per click for its ads, but it also could reinforce Google's search ad leadership and make it even harder for Yahoo to catch up with its own Panama system. And although Yahoo thinks that it can address antitrust concerns by employing a system that's open to other ad suppliers as well, regulatory scrutiny is a significant factor.

Wild about WiMax
Sprint Nextel and Clearwire are combining network assets to build a new nationwide 4G wireless network that the companies say has huge benefits for each of them. Cable operators Comcast, Time Warner Cable, and Bright House Networks, as well as tech giants Intel and Google, have invested a combined $3.2 billion in the new company, which is valued at $14.5 billion.

Until now, Sprint and Clearwire have been on separate paths to build nationwide broadband wireless networks using WiMax, an Internet Protocol technology that can blanket entire cities and provides more than five times the speed of 3G wireless networks. Now they are joining forces to create a new company that will have access to more wireless spectrum than any other company in the entire country.

The companies believe that the deal is a win-win for them both. And in many ways, that appears to be the case. Sprint, which has steadily been losing customers after its failed 2005 merger with Nextel, is in no position to spend the capital it would take to build a new 4G network. And Clearwire, which hasn't been profitable since it went public a year ago, doesn't have the spectrum assets or resources to build a competitive 4G network on its own that will rival networks being planned by bigger wireless operators, such as AT&T and Verizon Wireless.

The deal to merge Sprint Nextel's WiMax business unit with Clearwire to build a nationwide 4G network is finally complete, but the newly formed company could be doomed before it even gets out of the gate.

The big questions yet to be answered are whether the new Clearwire will be the company delivering that network and whether WiMax, its technology of choice, will be used to do it.

Copyrights and cash
In a major win for Hollywood studios, a California federal judge has ordered TorrentSpy to pay nearly $111 million in damages for infringing the copyright of thousands of films and TV shows through its BitTorrent search engine. The judge also issued a permanent injunction against TorrentSpy, which was one of the most popular indexes of BitTorrent files before it shut down in March, after a two-year copyright battle with the Motion Picture Association of America (MPAA).

The studios originally sued TorrentSpy in February 2006, alleging that the site promoted and contributed to online copyright infringement by helping people locate illegally copied films and television shows on the Internet. Last December, a federal judge sided with the MPAA by saying TorrentSpy had destroyed evidence that would make a fair trial possible.

Ira Rothken, a TorrentSpy attorney since 2006, said the judge's decision was an "abuse of discretion" and suggested that the large dollar amount was an attempt to draw attention to the case.

"What is really going on here is a Hollywood public-relations stunt," Rothken said. "The reason for the size of the judgment was so a bunch of news organizations would write that 'a $100 million judgment was issued against a bunch of pirates' when, in fact, it was declared against a company with no appreciable assets that has already declared bankruptcy."

According to Rothken, TorrentSpy filed bankruptcy in England last week and is without the ability to pay even a fraction of the $100 million, rendering the judgment's dollar amount meaningless. In March, when TorrentSpy executives shut down the site, they noted that the cost of defending the case was hundreds of thousands of dollars.

Meanwhile, the Recording Industry Association of America isn't ready to throw in the towel on digital rights management, and it even predicts that the highly controversial software will make a comeback.

"(Recently), I made a list of the 22 ways to sell music, and 20 of them still require DRM," said David Hughes, who heads up the RIAA's technology unit, during a panel discussion at the Digital Hollywood conference. "Any form of subscription service or limited play-per-view or advertising offer still requires DRM. So DRM is not dead."

Hughes just stated the obvious. DRM still exists; one can find it at iTunes, RealNetworks' Rhapsody, and at free-music service SpiralFrog, just to name a few. But his statement was startling because the top four music labels have seemingly been warming up to unprotected music files.

Grand Theft Auto IV makes a killing
First-week sales of the video game Grand Theft Auto IV knocked off records and blew away analyst expectations. Take-Two Interactive Software, the game's publisher, sold 6 million copies and raked in $500 million in its first seven days on the streets. The game sold 3.6 million copies its first day on the market.

Analysts had expected GTA IV, which has been criticized as excessively violent, to sell 5 million copies during its first two weeks and 9 million copies total. It beat the previous release record, held by Microsoft's Halo 3, which earned $300 million its first week on the market last year.

Although Halo 3 held the all-time entertainment industry record for single-day sales for eight months, it could be a long time before anyone bests the record-shattering sales achieved by GTA IV.

And given how quickly Bungie Studios' Halo 3 was reduced to second place, it stands to reason that even the monstrous pile of cash GTA IV has earned so far--it has already sold more than 6 million copies, Take-Two said--could be left in the shadow of some game already in the pipeline.

Among the games that are set to be released in the next few months that seem like potential contenders: Electronic Arts' Spore, Blizzard Entertainment's StarCraft II, Konami's Metal Gear Solid 4: Guns of the Patriots, Electronc Arts' 2009 version of Madden football, LucasArts' Star Wars: The Force Unleashed, Activision's next Guitar Hero offering, Harmonix's next Rock Band version, and Nintendo's Wii Fit.

But according to several industry experts contacted for this story, none of those titles seems likely to score the kind of cash in a single day or single week that GTA IV did. So while one of those games, or possibly another one not listed, might some day best GTA IV in total sales, it seems that its short-term sales records are safe for the foreseeable future.

Meanwhile, Take-Two sued the Chicago Transit Authority for allegedly pulling its ads promoting the latest version of the action-driving and crime game just days after the ads were due to appear, thus violating its free-speech and contractual rights.

The suit, which was filed in Manhattan federal court, seeks reinstatement of the ads on buses and display spaces, as well as monetary damages of at least $300,000, the reported value of the contract.

Also of note
A new bill in U.S. Congress would force retailers to card kids attempting to buy video games bearing "mature" or "adults only" ratings...Hundreds of laptops used by the U.S. Department of State that were missing have been located...Consumers are being warned that they may get an ad instead of a music or video file on several file-sharing sites in what security firm McAfee says is the most significant malware outbreak in three years.