NEW YORK–Time Warner Inc. is closing in on a deal with Microsoft Corp. to team up on an online advertising service to compete with Google Inc., the Wall Street Journal reported on Tuesday, citing people familiar with the talks.
The paper said the two companies were now focusing on a deal that would combine their advertising-related assets, with little or no money changing hands.
It said they expected to reach an agreement before the end of the year, but that it was still possible that Time Warner 's America Online unit could strike a deal with competitor Google instead.
Time Warner has been holding talks with both Microsoft and Google over AOL, sources familiar with the situation have told Reuters and other media.
Sources familiar with the matter had said that Time Warner 's initial discussions included the possible sale of a stake in the Internet unit, but recent media reports said that the two likely buyers may be backing away from such an investment in favor of smaller-scale partnerships with AOL.
Billionaire investor Carl Icahn, who has been critical of Time Warner 's strategy, has also said that he would hold Time Warner board members personally responsible if they forged a deal for AOL that valued the Internet provider too cheaply.
The Journal said that, under negotiations between Time Warner and Microsoft, AOL would drop Google as its main Internet search provider and switch to Microsoft's MSN service.
Under their current agreement, Google derived about 11 percent of its first-half revenue from AOL, which also generates substantial revenue from the contract.
The Journal said Microsoft and Time Warner are also negotiating to create a joint advertising sales force to sell online ads across both the AOL unit and Microsoft's MSN. Both services would remain under the control of their current owners, according to the report.
People familiar with the talks told the newspaper that the companies expected to announce a deal by the third week of December.
