Analyst: News Corp.'s Google saber rattling really about MySpace

News Corp.'s alleged dance with Microsoft's Bing and Rupert Murdoch's big plan to de-index from Google is likely to be nothing more than saber rattling to secure a semi-respectable MySpace search deal, according to an analyst.

Bernstein analyst Jeffrey Lindsay made some key comments on news that News Corp. is looking to cut a deal with Bing (Financial Times, Techmeme).

Today's articles reporting that News Corp. is exploring planning to remove its newspaper content from Google's search engine but keep it on Microsoft are unlikely to cause much angst in Mountain View. We think the reports are saber-rattling from News Corp. to put pressure on Google during the renegotiation of the advertising deal with MySpace. We think Microsoft, as usual, is fishing in troubled waters in the hope that it may get something out of the situation or at least give "market leader" (Microsoft management's name for Google) a poke in the eye.

The MySpace angle was raised by a reader in my last post. And it makes a lot of sense. News Corp. is trying to pressure Google ponying up money for a MySpace search deal. Google is likely to walk away from the MySpace deal, according to analysts.

Google paid MySpace $900 million guaranteed in a 3-year search in a disaster of a deal. Lindsay reckons that Google has countered with only $50 million in guaranteed revenue.

Lindsay writes:

We think the story has broken at a critical time in the Google-MySpace re-negotiation. In the original deal negotiated three years ago, Google guaranteed payments of $300 million per year ($900 million in total) provided News Corp. and MySpace met certain traffic volumes. This deal has been a large negative to Google (we estimate that at its height it reduced Google's operating margins by over 100bps), but has been a godsend for MySpace right through the economic downturn. We note, however, that Google's new CFO, Patrick Pichette has brought a long-absent discipline to AdSense for Content renewals and that instead of agreeing to a renewal of $300 million in guaranteed annual revenues, Google is reported to have counter-offered $50 million in guaranteed revenues – giving some indication of just how uneconomic the original agreement was.

Meanwhile, MySpace's traffic drop has already lowered Google payments to News Corp., estimates Lindsay.

A few points raised by Lindsay:

• Google drives 11 percent to 14 percent of traffic to News Corp.'s properties.
• Murdoch's de-index Google plan only works if other news sources follow.
• Google doesn't need News Corp., which amounts to just 10 basis points of daily traffic (and lower ad revenue). News Corp. gets 12 percent of daily traffic from Google.
• Google would walk away from an uneconomical MySpace deal and Microsoft shareholders won't be too hip to an expensive deal given losses at the software giant's online unit.