By Yi-Wyn Yen

Take-Two Interactive’s management is rallying behind the videogame company’s impressive release of Grand Theft Auto IV last month, but its $500 million opening week may not have been good enough to impress shareholders or ward off a hostile takeover from EA.

Take-Two’s popular franchise, which was released on April 29, crushed Halo 3 in video game sales records and even surpassed movie ticket sales for Spider-Man 3, the blockbuster movie with the highest grossing opening week.

But investors haven’t been inspired to value the company any higher since Grand Theft’s results were released Wednesday morning. Take-Two’s shares shot up 55% after EA announced its unsolicited $1.9 billion offer on Feb. 25, and have remained relatively steady since then. Prior to the bid, Take-Two’s stock traded in the mid-teens.

“Take-Two is totally justified in being very proud of Grand Theft Auto, but this goes to show you that the company is not worth any more today than it was on Feb. 25,” said WedBush Morgan analyst Michael Pachter. “The first-week results have changed nothing.”

Take-Two is banking on its best bargaining chip, GTA IV, to show how valuable the company is to potential buyers. GTA IV sold more than 6 million games in its opening week for more than a half billion worldwide. Halo 3, a Microsoft (MSFT) Xbox 360 exclusive, was the previous record holder with its $300 million first-week launch. Spider-Man 3, the No. 1 box office opener, brought in roughly $382 million worldwide in roughly the same time frame, according to Box Office Mojo.

The box office comparison isn’t “apples to apples” since videogames cost about six times more than a regular movie ticket, but that didn’t stop Take-Two (TTWO) from vigorously bragging about its new record. “This is the largest entertainment release for a first week launch,” Take-Two CEO Ben Feder told Fortune. “What it says about Grand Theft Auto is nothing less than remarkable.”

Analysts expect Take-Two to rake in more than $1 billion in GTA IV revenue by selling roughly 18 million copies through 2009.

There are concerns that without GTA, Take-Two is simply a one-hit wonder. “Every couple years it has a windfall product launch based on a really valuable [intellectual property] and it’s really lean in between those years,” said John Taylor of Arcadia Research. “For Take-Two so much depends on when the next shipment of Grand Theft Auto releases.”

Feder says the company is not just about the GTA franchise. “Take-Two is uniquely positioned in the industry and has the broadest array of intellectual property,” he said.

EA (ERTS) went hostile with its all-cash offer when Take-Two’s management rejected its bid in late February. It has given Take-Two shareholders until May 16 to consider its tender offer.

However, that doesn’t mean that EA and Take-Two’s management aren’t in negotiations. Take-Two’s chairman Strauss Zelnick said he would be willing to talk with EA or any other interested buyers the day after GTA IV’s launch. Last month Zelnick said at a shareholder meeting that he refused EA’s offer prior to that date because it was “highly opportunistic and poorly timed” to get the most out of Grand Theft Auto.

Feder and an EA spokesman said they had no comment on whether the parties are currently in talks

The alternative for EA is to simply walk away from the deal. But analysts say that is an unlikely scenario. They still anticipate the deal to go through, though at a slightly higher share price between $26 to $28. A dilution of shares awarded to Take-Two’s management has reduced the value of Take-Two’s original offer price by 26 cents to $25.74.

“Will EA go higher? Of course they will. But if Take-Two sits down and they want $30, that’s not possible,” said Pachter. “Are EA and Take-Two talking? Of course they are. The question is, will the two sides come up with a reasonable compromise.”

By Yi-Wyn Yen

Google may be getting cold feet. In a last-ditch effort to avoid a merger with Microsoft, Yahoo said it was considering teaming with Google in a search advertising deal. But some Google executives are now questioning whether that’s a good idea, the Wall Street Journal reported Thursday.

One major hurdle: A Google-Yahoo tieup could face tough scrutiny from regulators in Washington and the European Union. Last month Yahoo (YHOO) ran a two-week test displaying some of Google’s (GOOG) search ads on Yahoo’s homepage. Both Yahoo and Google executives said the experiment went well. The two are reportedly in talks to outsource Google’s search technology in a non-exclusive arrangement.

Spokespeople from both Google and Yahoo declined to comment.

Google may have wedged its way into the mix in order to break up Microsoft (MSFT) and Yahoo. Microsoft CEO Steve Ballmer admitted that Google was a factor when the software giant walked away from its $47.5 billion offer last Saturday. In a letter to Yahoo CEO Jerry Yang, Ballmer said his company would not be willing to deal with the “host of regulatory and legal problems” that it would inevitably inherit if Yahoo partnered with Google.

Last month Microsoft’s general counsel Brad Smith lashed out at the two big Internet sites for partnering even in a limited test. He argued that a Google-Yahoo combo would give Google a 90% share of online search advertising and that “this would make the market far less competitive. It would be fair to say that Microsoft would aggressively lobby against a long-term partnership between Google and Yahoo.

Microsoft was one of Google’s biggest detractors when the search giant said it was going to buy DoubleClick, the top firm in online display advertising. Google got approval from both the Federal Trade Commission and the European Committee to acquire DoubleClick, but the approval took the big G nearly a whole year.

Both the FTC and the European Committee ruled that text-based search advertising and display advertising, which is the preferred way that big brands like to advertise, are two different markets, and therefore the merger was not anticompetitive. But regulators may be more wary if the two biggest players in search want to team up.

“Google has incredible chutzpa,” said Jeffrey Chester, the executive director of the Center for Digital Democracy. The public interest group had opposed Google’s DoubleClick deal because it would give Google an overwhelming lead in online advertising.

Chester said both Microsoft and Google have approached him to support their political message on the Hill. He has not yet endorsed either party, and is waiting for a deal - whether it’s Microsoft and Yahoo or Google and Yahoo - to be announced.

However, Chester said he is wary of a Google-Yahoo tieup. “Whatever happens, we don’t want Google to operate Yahoo out of its back pocket,” Chester said. “Whether or not regulators do something about it, we’ll do something.”

By Yi-Wyn Yen

In the aftermath of the Yahoo and Microsoft dust up, News Corp. says it is staying out of the mess.

News Corp. (NWS) had previously been linked to Yahoo (YHOO) and then switched camps to join Microsoft (MSFT) in its pursuit to acquire Yahoo. Microsoft eventually went it alone and four days ago, the behemoth walked away from its $47.5 billion offer with plans to look into alternatives to beef up its online ad unit. News Corp., which owns social networking site MySpace, shot down any rumors that it will partner with Microsoft.

“We’re not in discussions with Microsoft. There are no discussions,” said Peter Chernin, chief operating officer of News Corp. during an earnings call Wednesday with shareholders.

Chernin said that the company holds “regular conversations with everyone in the space,” but has not held any talks with Yahoo or Time Warner’s AOL (TWX) in the last “couple weeks.” Added CEO Rupert Murdoch, “Nor have I.”

In an effort to stave off Microsoft’s unsolicited bid, Yahoo said it was pursuing other deals like partnering with AOL or Google (GOOG). At one point, Yahoo also considered a tie-up with News Corp.’s MySpace. With its massive and highly-engaged audience, a MySpace partnership was seen as way to attract advertisers and help bring economies of scale for either Microsoft and Yahoo. Though Microsoft has a minor stake in Facebook, neither have developed a major social networking presence.

MySpace may generate millions of page views and visitors to its site, but it continues to struggle with growing its sales. News Corp’s Fox Interactive Media, which includes MySpace and other online properties like gaming site IGN and photo-sharing site Photobucket, will miss its $1 billion revenue target for its 2008 fiscal year that ends June 30. Chernin said the company will fall short of its projections by 10%.

Fox Interactive relies on online advertising to generate revenue. MySpace, which makes up the bulk of Fox Interactive’s revenues, generated $66 million in its fiscal third quarter from an ad-sharing deal with Google.

Chernin explained that there’s a learning curve to make money off of social networking sites. “Social media has only been around for a few years,” he said. “It’s still difficult to quantify the economic value of a friend. We’re working with major brands and agencies to educate and experiment with social media.”

Fox Interactive is still in its growing phase, Chernin said. “We will continue to invest. We’re already invested in [third-party] applications, MySpace Music, and new development tools for the homepage,” he said. “It’s too soon to be milking for margins right now. We need to focus on growth.”

By Scott Moritz, writer

Cisco (CSCO) eased slowdown anxieties slightly by setting its sales target below its long-range forecast, but in line with expectations.

The San Jose networking gearmaker posted better than expected adjusted earnings of 38 cents a share up from 34 cents in the year-ago period. Sales for the quarter were $9.79 billion, up from $8.86 billion last year.

Analysts were looking for pro forma earnings of 36 cents on $9.75 billion in sales, according to Yahoo Finance.

Looking ahead, CEO John Chambers told analysts on an earnings call that he expected sales in the fourth quarter ending in July to grow in the range of 9.5% over year-ago levels. That is in line with the 9.2% year-over-year growth expected by analysts.

Chambers said the company still expects its long term growth to be in the 12% to 17% range, but the current quarter was coming in below that pace due to cautious spending in the United States and Europe.

Chambers called the spending caution and sluggish economy a “relatively short-term challenge going forward.”

In March, Cisco fed slowdown fears with a belt-tightening move, asking managers to limit travel expenses and use accumulated vacation time. Those moves may have help contribute to the 2 cent expectation-beating bottom line performance.

Cisco’s solid results helped send the stock up 2% in after-hours trading Tuesday.

By Scott Moritz

WiMax is facing a now-or-never moment as Sprint (S) and Clearwire (CLWR) try to finalize terms of a multi-player joint venture.

Nearly five months into his job as Sprint chief, Dan Hesse has a chance to set Sprint free from an expensive network buildout commitment, and simultaneously spark the WiMax revolution. Sprint and Clearwire are set to announce the formation of a WiMax joint venture involving Comcast (CMCSA), Time Warner Cable (TWC) and funding from Intel (INTC) and Google (GOOG). The announcement could come as early as 6 a.m. Wednesday, according to one source familiar with the plan. Sprint and Clearwire shares surged 7% Tuesday afternoon on raised expectations of an announcement.

It is also possible that the deal could come later, or never, if the parties can’t ultimately agree on who controls the network. Google, for example, has been a uneasy participant, say people familiar with the company. The other players would like to attach Google’s winning name to this ambitious project, but apparently the Net giant has waffled in recent weeks, backing out at one point, then opting back in.

Those watching the unsteady progress of WiMax can’t be brimming with confidence after watching other tech deals disolve. As Microsoft’s three-month failure to woo Yahoo proved, lots of big egos, some forceful approaches and a weakening economy don’t add up to easy negotiations.

Once heralded as the next big thing in mobile broadband, WiMax was to be the successor to WiFi, an untethered Net connection that would usher in a new generation of mobile devices and portable applications.

There have been a couple bumps along the road to WiMax success however. The development of a national network operating on a unified standard has largely been in the hands of two disappointing tech shops: Sprint and Clearwire. The second setback is that the two largest wireless players, AT&T (T) and Verizon (VZ), are pursuing a different technology, called long term evolution or LTE.

The WiMax move would also help move Sprint further down the split-up path. Hesse, with the urgings of some of Sprint’s bigger investors like Ralph Whitworth of Relational Investors, has been mulling a breakup of the No.3 wireless shop. Among the options is the sale of Nextel’s iDEN network, reported to have caught the interest of former Nextel co-founder Morgan O’Brien who runs a public safety networking venture called Cyren Call.

Another step would be the sale of Sprint’s long-distance business, the Global Markets Group. While some analysts say separating the company’s seemingly core network would be nearly impossible, others argue that Sprint is not in a position to turn down any offers at this point.

But the first piece of the splinter strategy for Sprint is WiMax. Hesse inherited the WiMax business, known as Xohm when he took over the CEO job left by Gary Forsee. Forsee staked the company’s future on the promising mobile wireless broadband technology. But the $5 billion cost to build a WiMax network was too much for Sprint, already beset by massive customer defections stemming from its failed merger with Nextel.

The pairing of Sprint’s spectrum and WiMax technology with Clearwire was proposed last year. Sprint needed to get the costs off its books and Clearwire needed a big partner to help make WiMax happen and lend some financial support.

Intel Capital holds about a 25% stake in Clearwire. Clearwire founder Craig McCaw is the largest single shareholder, with a majority of the outstanding shares.

Comcast and Time Warner Cable have identified wireless broadband as a huge opportunity to deliver services like video and calling to a new generation of mobile devices. Last week Comcast raised $2 billion in a bond sale that analysts say signals the Philly cable giant’s readiness to jump into the WiMax venture.

Intel and Google have high hopes that a new national network would open up a mass market for their products and services.

Without this bold joint venture alliance, WiMax faces a bleak future, as other fourth-generation technologies gain ground. The deal could save WiMax from being another promising yet soon forgotten new next thing.

By Scott Moritz

Yahoo (YHOO) chief Jerry Yang has lost a deal and gained some enemies.

Yes, Microsoft (MSFT) walked away from the proposed blockbuster merger - but no, the new enemy is not Microsoft CEO Steve Ballmer.

Instead, it’s Gordon Crawford of Capital Research Global Investors, a holder of 6% of Yahoo’s shares.

Crawford voiced his extreme disappointment in Yang in press reports, including a piece in Tuesday’s Wall Street Journal taking direct aim at Yang and his hamhanded treatment of the Microsoft offer. “I think he overplayed a weak hand,” Crawford told the Journal.

He’s not alone. Other Yahoo investors have taken issue with the way Yang tried to hardball his way to a higher bid.

“This $37 price was ridiculous,” said one Yahoo investor referring to Yang’s deal-breaking counter offer to Ballmer in Seattle on Saturday. “I would have had no problem taking the thing at $31,” the investor said.

Yang has since protested that the $37 pitch was merely a starting point to get the talks going. But after three months, two rejections and a ad outsourcing pact with rival Google (GOOG), Microsoft’s Ballmer decided to use Yang’s starter as an end to the discussions.

The move puts Yang under the spotlight as big investors and small watched Yahoo’s value shrink - on Monday, the stock closed 15% below its closing price Friday.

“This is a clear example where the management didn’t have the best interest of the shareholders at heart. I think a lot of shareholders would have been very happy to do this deal at $33,” said Jacob Internet Fund manager and Yahoo shareholder Darren Chervitz, in Fortune Techland story Monday.

Another big stakeholder, Bill Miller of Legg Mason, whose firm swung to a $256 million loss in the first quarter on bad bets in Countrywide and Bear Stearns, is also feeling the pressure of having more than a 6% position in Yahoo. Miller told Bloomberg that he’s holding out hope that Microsoft and Yahoo can rekindle the discussions.

“There’s probably a lot of people jumping up and down today,” Miller told Bloomberg.

He expects Microsoft to come back. “If I’m sitting in their shoes, I’ll go away and see what happens,” Miller said . “I can come back and the worst case is, I’ll pay six months more of my free cash flow.”

For Microsoft, while the software giant may have averted overpaying for Yahoo, it hasn’t solved the bigger problem: How to compete with Google for the Internet advertising bounty.

Meanwhile, Yang and Yahoo will have a chance to feel some of the investor blowback at the annual shareholder meeting scheduled for July 3.

Observers such as Fortune’s Go West columnist Adam Lashinsky ask: “What will happen to Yahoo’s board? Will angry shareholders kick out its value-destroying board?”

By Paul Sloan

If the humans can’t conquer the chaotic digital music marketplace, let the machines try. At least that is part of the message in a Warner Music announcement Monday.

Warner CEO Edgar Bronfman Jr., long frustrated that the industry gave Apple (AAPL) chief Steve Jobs too much control over the pricing of digital music, has enlisted a small software company to help it figure out a varying pricing model that might eventually affect what we all pay for digital albums on sites like Amazon.com.

The company, Indianapolis-based Digonex, has developed a system that suggests prices for Internet goods based on a set of behavioral principles and economic and psychological theory. Digonex has built software products used by eBay buyers and sellers. Now it’s turning to music, which is a natural fit since Digonex began in 2000 as a music download service called MusicRebellion.com.

Digonex spokesman Chris Pohl said Warner (WMG) will send Digonex a range of data that Digonex will feed into its system, called DigitalOnlineExchange. Among the factors it will examine: The number of downloads a particular album receives; the genre of music, sales by similar artists and historical sales data about that artist. It will then come up with wholesale prices that will fluctuate depending on what the data tells it.

Warner, home to such acts as Matchbox Twenty and Lil Kim, can then decide whether this algorithmic method might be help get people to buy more music online and at prices that helps Warner’s bottom line.
Warner, which has seen its stock trade between $5 and $9 in the past few months, is set to report earnings on Thursday.

By Michal Lev-Ram

Just as one high-profile buyout bid is wrapping up, another may be beginning.

Deutsche Telekom AG (DT), the parent company of T-Mobile, is considering a bid to acquire Sprint Nextel (S), according to news reports Monday.

Shares of Sprint were up nearly 6% on the news, while Deutsche Telekom was down about 1.4%.

While Germany-based Deutsche Telekom has nearly 120 million customers worldwide, T-Mobile is the smallest of the top four mobile operators in the United States, with just 28.7 million subscribers. A combination with Sprint (which has about 54 million customers) would make T-Mobile the largest U.S. wireless carrier, ahead of rivals Verizon Wireless (VZ) and AT&T (T).

Last year, Deutsche Telekom said it would look at international acquisitions as part of a new growth strategy its CEO called “Focus, fix and grow.”

“We want to use our expertise to be able to grow in mobile communications, including the possibility of acquisitions, based on our strict business criteria,” Rene Obermann, the company’s chief executive, said in March 2007.

But while Sprint’s flagging share price, coupled with the benefits of its subscriber base and spectrum holdings, may make it an attractive target, some analysts say a buyout is unlikely to happen anytime soon.

Sprint has been struggling with customer service issues and managing the two networks it currently runs, and has also run into problems with the delayed launch of yet another next-generation network called WiMAX, now expected to roll out later this summer. All three of Sprint’s network technologies are different from T-Mobile’s GSM infrastructure, which means they’re compatible with different phones. Running all four could be a logistical nightmare for Deutsche Telekom.

Citigroup analyst Michael Rollins predicts that there’s a 25% chance of a Sprint acquisition — not just by Deutsche Telekom — in the next year.

“…The problems at Sprint are still deep-rooted and may deter a buyer in the near-term…” Rollins said Monday in a written report, adding that other potential obstacles to a deal going through include issues with regulatory approval and the difficulties of integrating Sprint and T-Mobile’s different networks.

A Deutsche Telekom spokesperson could not be immediately reached for comment. Sprint spokesperson Leigh Horner declined to comment on “speculation.”

Also on Monday, T-Mobile announced the New York City launch of its 3G network. It is the last of the top four carriers to roll out the technology, which provides customers with a higher-speed network well-suited for data services.

By Michal Lev-Ram

Apple’s iPhone may reign over the fledgling mobile music market in the United States, but in the rest of the world Nokia is No. 1 on the hit parade.

Last year alone, Nokia (NOK) sold 147 million music-playing phones worldwide, while Apple’s (AAPL) sleek touchscreen has sold 5.7 million units so far this year. And although the iPhone is now the top-selling music phone in the U.S. market, it doesn’t even make the top five in Europe where three of Nokia’s music-playing handsets are best-sellers. Now the Finnish phonemaker plans to launch a new service later this year that will let people download as many songs as they want for a limited time.

Unlike the iPhone’s pay-per-track model, Nokia’s new “Comes With Music” plan will offer several handsets that include a year’s worth of unlimited music in the cost of the phone. Once the year is over, subscribers will be able to keep their existing tracks on their phone or PC, and Nokia says they’ll have several options of extending their “Comes With Music” membership without necessarily having to upgrade to a new device. The company is still mum on what those other options may be, though it’s likely customers will have to start paying a subscription fee to keep the unlimited downloads service.

“The track-by-track purchase methodology was cumbersome to people,” says Liz Schimel, head of Nokia’s music business. “Consumers were looking for a more seamless way to access a lot of content.”

Subscription-based, all-you-can-listen-to digital music models have been around for a while. Companies like U.K.-based Omnifone and Rhapsody offer similar services and for years rumors have circulated that Apple itself will launch a flat-rate, unlimited version of iTunes. But Nokia is the first mobile giant to turn away from the a-la-carte model of selling mobile music, and, unlike other existing subscription-based services, its will allow people to keep their tunes on their phone and PC even after their subscription expires.

Of course, while customers won’t have to worry about losing their music library, they also won’t be able to transfer their songs to a new device unless that new device is another “Comes With Music” Nokia phone.

The company plans to launch several compatible handsets, as current Nokia music phones won’t work with the upcoming service. It’s not clear how much built-in memory those new phones will have, but one of Nokia’s most popular multimedia phones on the market today is the N95, which, like the iPhone, comes in an 8-gigabyte version.

Lucky for the Finnish phonemaker, analysts say content providers are eager to experiment with new ways of getting their music onto cell phones.

“They [content providers] want to at least try to shift the center of gravity away from iTunes and Apple,” says Mark Donovan, a senior analyst with mobile research firm M:Metrics.

Two of the world’s largest music labels - Universal Music Group and Sony BMG - have already committed to “Comes with Music,” and the company expects more will sign on before the new service launches in the second half of this year.

Nokia won’t disclose the details of the new business model, or say how much the “Comes With Music” devices will cost. Some media reports have suggested the phonemaker is paying $35 to Universal alone for each handset it sells. With more labels expected to join the partnership, that could end up cutting into Nokia’s profit margins, though M:Metrics’ Donovan says he believes the company has figured out a model “that has legs.”

“The idea that they would pay Universal $35 a handset doesn’t smell good to me at all,” says Donovan. “But of course the devil will be in the details.”

Schimel, head of Nokia’s music business, says the company put a lot of energy into crafting a model that makes sense for everyone involved - the music labels, customers, carriers and Nokia itself. The result, she says, will be able to compete with lots of players on the marketplace, including Apple.

“The mobile industry as a whole has enormous potential in digital music but up until now it’s only been unlocked to a limited extent,” says Schimel, who would not disclose the specifics of the “Comes With Music” business model.

One thing Nokia has been clear about is that music and other services are an important part of its overall strategy. In 2006 the company acquired digital music player Loudeye, which enabled it to launch a pay-per-track mobile music store (similar to what’s currently available on the iPhone), now available in nine countries.

But it’s Nokia’s “Comes With Music” service that has the potential to disrupt the prevalent iTunes way of selling digital music - at least when it comes to mobile downloads.

Despite Apple’s dominance in MP3 player sales, Nokia’s got a global headstart when it comes to the mobile phone market. It’s got 40% of the global handset market and is especially strong in regions that have been quick to embrace mobile content, including China and Europe.

Of course, providing a viable competitor to Apple’s iTunes means succeeding in the U.S. market as well. Currently, Nokia has just 7% market share in the United States, and its total North America sales accounted for only 2.6% of its overall, global revenues.

Nokia’s Schimel says although it won’t be one of the launch markets Nokia has every intention of eventually bringing its “Comes With Music” service to the United States.

But it’s possible Apple will be pressured into change its tune — and offering a subscription-based iTunes service — long before that happens.

By Scott Moritz

Comcast (CMCSA) has raised $2 billion through a bond sale as the company explores its wireless broadband options, among other things.

The Philadelphia cable giant was able to increase its planned debt offering of $1.5 billion to $2 billion on strong demand for the note, according to Bloomberg News. The news comes a day after the company posted solid first quarter earnings and said it was still planning to move ahead in wireless data.

On the earnings conference call with analysts, Comcast executives said they would take action to to preserve its credit rating.

“We are going to be very disciplined in our capital structures, and do things that make a lot of sense,” Comcast executives said Thursday.

As of March 31, Comcast’s total debt was $37.4 billion, according to a regulatory filing.

Some analysts says the financing move is a good sign that Comcast is getting closer to reaching some sort of agreement on a proposed WiMax joint venture between Sprint (S) and Clearwire (CLWR). Other players that have been involved in those discussions include Time Warner Cable (TWC), Intel (INTC) and Google (GOOG).

Comcast has a big role in the fate of a national WiMax network. If the joint venture fails to find enough funding or participants, the so-called 4G wireless technology faces falling behind the long term evolution or LTE technology that AT&T (T) and Verizon Wireless (VZ) have already committed to.