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Yahoo, Broadcast.com eye strategic fit

The two firms have been mum so far on rumors that the portal will acquire the streaming site, but such a deal would make sense, analysts say.

Yahoo and Broadcast.com have been mum so far on rumors that the portal will acquire the streaming site, but such a deal would make sense, analysts said.

Analysts say acquiring Broadcast.com, which streams audio and video events over the Web, would give Yahoo a strongly branded Web property and a traffic boost, plus it would represent a step forward in the firm's broadband strategy.

Speculation about see related story: Report details Yahoo strategies the potential acquisition, which has bubbled up following a report last week in Business Week, comes not long after Yahoo held its first on-site analyst meeting, in which it told the group it was planning more acquisitions this year. Yahoo in January acquired home page builder GeoCities, with which it plans to introduce more e-commerce functions.

A report authored by Hambrecht & Quist analyst Paul Noglows following the meeting also noted that Yahoo would strike a broadband deal toward the end of the year. An acquisition of Broadcast.com would be logical for Yahoo, given its eye on broadband, because it would allow the portal to offer content beyond the mostly text it aggregates now.

Plus, Yahoo is looking to acquire more sites that it can operate as individual brands, similar to its plans for GeoCities.

"For the first time, Yahoo will own and invest in a brand other than Yahoo," Noglows wrote following the analyst meeting. "Company management made a point of saying that they expect to do more of this. They believe that now, for the first time, the Yahoo brand is strong enough to exist side by side with other brands."

Moreover, Yahoo, which already holds a minority stake in Broadcast.com, can use its highly valued stock to buy it outright. Broadcast.com has a market cap of roughly $3.9 billion; Yahoo's market cap is about $32.6 billion.

"Content drives viewership, and Broadcast.com has a lot of content, and I think any portal company that is looking to attract a lot of traffic to the site would love to partner with Broadcast.com," said Dalton Chandler, an equity analyst at Needham & Company.

As its fellow portals get bought or partner with broadband firms, Yahoo increasingly has found itself in an isolated position. However, while Yahoo remains the last dancer without a partner, it is by no means standing still. Rather, its real moves are still forthcoming, according to analysts.

Gartner Group analyst Mike West described Yahoo as the "sleepy guy at the corner of the bar with his hat down over this eyes with a six-shooter cocked."

But some analysts see potential downsides to a deal. If Yahoo were to acquire Broadcast.com, it would be making a bold statement that it plans to compete directly with traditional media companies such as NBC, said Zona Research analyst Ron Rappaport. But unlike the traditional companies that can market their online ventures offline, Yahoo will be dependent on its traditional media competitors to advertise its new content.

"What Yahoo lacks--which is reach outside the box--its competitors will have complete control over," Rappaport said.

Also, Broadcast.com receives much of its content from traditional media companies. Rappaport said many of those companies might see a combined Yahoo-Broadcast.com as a competitor and could reconsider providing content to Broadcast.com.

Plus, one of the pitfalls of an all-stock deal is that rumors can greatly affect the deal's value. Speculation about the deal drove Broadcast.com's stock up today--it closed 31.5 points or 37.06 percent higher, at 116.5.

"[Broadcast.com is] becoming more expensive with what's happened in the market today, but the damage is done," said Needham & Company analyst Chandler.

News.com's Troy Wolverton contributed to this report.