"Although no deal was announced, we believe that the companies continue to negotiate terms of an agreement," wrote Cohen, referring to CBS chief Leslie Moonves keynote Tuesday at the Consumer Electronics Show in Las Vegas. The sticking points could revolve around control of advertising sales and the size of a revenue guarantee that Google would pay to CBS for being able to monetize its television content through YouTube and other Google sites."

In terms of the advertising sales arrangement, Merrill Lynch speculated that it would primarily involve CBS' radio inventory and would not likely include any network or local TV station time.

Google has recently stepped up efforts to expand its presence in offline media, especially radio and print media. The online search firm acquired radio ad sales rep dMarc more than a year ago and has conducted a number of tests to extend the reach of its online search advertisers into both radio and print, and is expected to tackle TV ad sales soon.

"We would expect a deal to include low quality radio inventory for use with Google's dMarc service, but do not believe a deal for CBS's television network or TV station advertising time is likely," Cohen speculated, adding, that the deal would be "incrementally positive" for CBS but that it would not fundamentally change CBS' business.

Cohen estimated that a Google deal to sell 10% of CBS Radio's advertising inventory would generate approximately $200 million in revenues and that the upside for CBS would be two-fold: "1) attracting new (likely smaller) advertisers to its platforms a la Google's experience with search, and 2) creating a more efficient sales model that reduces the friction/cost of selling advertising."

Such a deal would not be without consequences for Madison Avenue, which has been expressing a considerable amount of angst over the growing presence of its "frienemy" Google into offline media sales.

"This could involve disintermediation of traditional advertising buyers over time," wrote Cohen.

A CBS/Google ad agreement would likely exacerbate Madison Avenue's Google angst, and would come as a group of major advertisers is poised to conduct a test early this year of an online media buying exchange via eBay. That test, which initially was championed by former controversial marketing diva Julie Roehm, has caused a stir among both buyers and sellers of media, who fear it could create an auction-like model driving down the value of media.

"The largest risk, in our view, from a potential Google deal is commoditization of advertising time and related pricing pressure," cautioned Cohen. "Given the proliferation of advertising-supported media, we are not particularly worried by incremental commoditization of advertising inventory - advertisers already have a significant amount of alternatives for their advertising dollars."

This news story is important. I recommend that everyone read it.