The companies' advertising and profit-sharing deal, which includes the promotion of the MSN Internet service in Best Buy stores, expires in March, the companies said. The companies are in negotiations to continue the agreement, but Microsoft wants better terms than it has under the current pact, MSN spokeswoman Parul Shah said.
"It's time for us to re-examine the contract and put something new in place," she said. "MSN is very focused on reaching profitability. We want to make sure all of the business arrangements that we have map to that goal and make fiscal sense for our business."
Best Buy representatives did not return calls seeking comment. But in its quarterly report filed Tuesday with the Securities and Exchange Commission, Best Buy stressed the importance of the deal.
"If we are unable to extend our alliance with Microsoft or to replace it with a comparable (deal), future operating results could be affected," the company said in its filing.
The two companiesan alliance in December 1999. As part the agreement, which was signed in April 2000, Microsoft bought $200 million of Best Buy stock and agreed to promote the company's BestBuy.com online store on its MSN properties. In return, Best Buy agreed to promote Microsoft products, specifically MSN, in its stores and through print and broadcast ads.
The deal was signed during the height of the dot-com boom, when investors were encouraging online companies to pay for traffic first and worry about profits later. That sentiment changed with the stock market bust, as investors increasingly focused on profits.
As a division of Microsoft, MSN has been insulated from the pressures of outside investors. But Microsoft plans to break out MSN's quarterly results beginning this quarter, increasing pressure on the company to better the performance of the historically money-losing operation.
Shah declined to say how much MSN has paid Best Buy under the current agreement. She also declined to say what terms MSN is asking for in the companies' negotiations.