NEWS Corporation has struck internet paydirt, securing at least $US900 million ($1.17 billion) in internet advertising revenues from search engine Google in a move that could increase the value of its internet group to $US5 billion.
The deal, which News chairman Rupert Murdoch flagged on a recent visit to Australia, centres on a "multi-year" agreement making Google the exclusive provider of search and keyword-targeted advertising for News's Fox Interactive Media (FIM) group.
"In one fell swoop we have paid off two-thirds of our internet investments," News president and chief operating officer Peter Chernin said.
"We have got a 70 per cent premium on our MySpace investment and now we are playing with house money."
News, owner of The Australian, bought the MySpace.com social networking site last year for $US580 million. It has since become the top US website, according to the Hitwise group.
Apart from the search function, Google has first right of refusal on display advertising sold through third parties on the FIM network.
UBS media analyst Nola Hodgson said the guaranteed minimum payments meant FIM would now be worth up to $US5 billion, well above the $US1.3 billion in book value now ascribed to the asset.
News is believed to have also negotiated with search providers Microsoft and Yahoo! - which had been MySpace's search provider - but Yahoo! said it did not consider the deal "financially prudent".
FIM includes MySpace.com, with about 100 million registered users, the IGN.com, Scout.com and fox.com sites.
"This deal happened more quickly and is of greater magnitude than we had expected," Ms Hodgson said.
"Importantly, there was no valuation event (ie, no transfer of ownership) as a result of this agreement."
The executive media director at the online media planning group NetX, Kevin Walsh, said the deal was a "win-win" for the parties.
"Google gets to expand its search penetration, which is already pretty high, and Fox gets a search engine without having to develop its own," Mr Walsh said.
"That works for both of them, particularly Fox, as it's incredibly difficult and resource-intensive to build a search engine that can search 30 to 40 billion web pages."
But Matt Houlthan - a partner at Zed Digital, the online division of Zenith Optimedia - said Google's first right of refusal over display advertising was "an interesting portent of things to come".
"It's a perfect example of Google expanding their offering to the display space," Mr Houlthan said.
In Australia, Google had launched a service called Site Match for advertisers to book display ads on Google's affiliate network. "Google are broadening their offering by moving into the traditional publisher display space," Mr Houlthan said.
News's agreement with Google is initially for 3 1/2 years, beginning next financial year. But Mr Chernin said the companies "look forward to expanding their relationship into many new areas over years to come".
News is also expected to report a bumper annual net profit today of about $US2.85 billion, with Credit Suisse forecasting a strong fourth quarter.
