• by Wendy Davis , Staff Writer @wendyndavis, October 19, 2005

Yahoo!'s third quarter earnings report, showing a 42 percent net revenue increase, provided yet more evidence that the resurgence in online advertising continues going strong. But more than the Internet ad comeback, Yahoo!'s numbers also show that the company benefits from its vast trove of entertainment-related offerings, including, surprisingly, paid content.

In a note issued this morning, Merrill Lynch research analyst Lauren Rich Fine wrote that one reason the financial services company prefers Yahoo! to Google is because of Yahoo!'s more diverse offerings. "While Google has a higher share of search queries and revenues, Yahoo! has much better user engagement that is being monetized through branded and fee revenues," Fine wrote.

In fact, fee revenues rose by 54 percent year-over-year. While one portion of that came from fees for broadband access bundled with content, other increases came from subscriber fees for music, small business, and fantasy sports--particularly football.

In other words, Yahoo!--long known as a free portal--is not only growing its ad-supported content business, but also its subscriber revenues. This development indicates that consumers are willing to pay for premium content--or, at least, for the fun stuff. As in the offline world, enough consumers seem willing to shell out dollars for escapist offerings--whether it's fantasy football on Yahoo! or "The Sopranos" on HBO--that subscriber revenues appear to be a viable source of support for some online programming.

Yahoo!'s success with content--both premium and free--also highlights why other Internet companies suddenly want a piece of America Online. As of today, rumored suitors for AOL include News Corp., MSN, Google, Comcast and Yahoo! itself.

While AOL continues to bleed subscribers--in fact, just this week the company laid off 700, mainly from its dial-up division--its free programming remains a plus. With AOL's original content, and presumed access to content from fellow Time Warner companies, whoever acquires a piece of AOL will end up with a wealth of online entertainment--valued these days by both consumers and advertisers.