It’s being widely reported that Yahoo (YHOO) and News Corp. (NWS) are back in talks to combine Yahoo with MySpace and other properties that make up Fox Interactive Media, News Corp.’s online arm. The companies held what I’m told were very preliminary talks along a similar vein last year. The deal would have three main components: 1) News Corp. would contribute FIM to Yahoo; 2) News Corp. would invest in Yahoo; 3) a private-equity partner would inject yet more cash into Yahoo. The goal, in theory, would be to raise Yahoo’s value with the cash investments, thus obviating the need for Yahoo to sell to Microsoft (MSFT).

Here’s the problem. Or, rather, the problems. It’s going to be tricky to value MySpace, which will be the linchpin of the value of what News Corp. is contributing. If whatever News and Yahoo were to assemble didn’t add up to Microsoft’s current offer ($31), or counter-offer, the board of directors at Yahoo would be in a pickle.

Couldn’t they just accept a lower bid with the argument that Yahoo is worth more independent than selling out? Sure. Then they’d get sued. They’ve got to be able to best Microsoft’s offer in a reasonable timeframe, or they’re not doing their fiduciary duty.

There’s more. In a note to clients Wednesday, UBS analyst Ben Schachter (who had a buy rating on Yahoo at $19, when many of his competitors had lost faith, because he figured Yahoo’s falling price would provoke a sale, or at least a bid) reasons that the only way for a YahooSpace to achieve necessary profits would be do a search outsourcing deal with Google (GOOG). That’d bring the companies back to the same regulatory conundrum they’ve already been grappling with: Google’s search share is too big. There’s also the question of whether Yahoo needs MySpace. After all, “Yahoo’s problem has not been a lack of inventory, ” writes Schacter, meaning that it already has a huge audience. It’s problem, he writes is “its poor execution on optimizing monetization.” That means Yahoo isn’t so good at making money from its 500-million-plus audience. Schacter has a $34 price target on Yahoo because he thinks Microsoft will raise its bid.

So is Yahoo wasting its time talking to News Corp.? Of course not. Its stock traded over $30 Wednesday, closing at $29.88. To the point of my earlier post, that’s a sign investors expect a higher bid from Microsoft, not that it’s overly impressed with a News Corp.-Yahoo tie-up.

I sat down Tuesday afternoon in Mountain View, Calif., with Dan Nye, the newish CEO (he joined earlier this year) of LinkedIn. That’s the company that is like Facebook for grownups, a businessperson’s social networking site. Nye’s looking for press because LinkedIn plans to unveil some nifty new features on Dec. 10. (I got a look, but agreed not to divulge anything yet.) I was interested in hearing what he had to say, in part because of the rumors flying around that LinkedIn plans to sell the company early next year to News Corp. (NWS)

The buyout gossip began with an item last week in the UK version of TechCrunch. Never mind that LinkedIn founder Reid Hoffman (a made man in the PayPal mafia and a buddy of mine) categorically denied the rumor in the Daily Telegraph. Anything that suggests that Rupert Murdoch would expand his social-networking empire is sure to set tongues wagging. Breakingviews.com wrote an intelligent summary of why a LinkedIn acquisition would make sense, largely because of the opportunities to leverage LinkedIn’s tools with the Wall Street Journal readership.

Not surprisingly, Nye didn’t deny that News Corp. made an offer for his company. Instead, he said that when he joined the company he told the board — comprised of Hoffman, Sequoia’s Mark Kvamme and Greylock’s David Sze — that he was only interested in taking the job if the goal was to “go long.” But is he selling out anyway? “We’re excited about building this company,” said Nye. “It would take a helluva lot to get us off that path.” Does that mean $1 billion? “A lot more than that,” said Nye, who worked at Procter & Gamble (PG), Intuit (INTU) and Advent Software (ADVS) before joining LinkedIn.

LinkedIn clearly is playing to win. The company has mushroomed from 60 employees when Nye joined in February to almost 200 today. At the time, LinkedIn had 9 million members; today it has nearly 17 million. Nye predicted revenues will range from $75 million to $100 million next year.

LinkedIn has the virtue of having survived adversity. Before Facebook and MySpace existed — back when Friendster was hot — LinkedIn was just getting going. It’s still going. Independent or part of News Corp., it’s fun watching this plucky company succeed.

It’s become cliche for people in the know to say that MySpace, the News Corp. (NWS)-owned Internet company, isn’t cool anymore. Facebook is the site that’s got the momentum, these people say.

An recent interesting throwaway line in a really fascinating article shed some light on this debate:

The kids all said that a) no one listens to the radio anymore, b) they mostly steal music, but they don’t consider it stealing, and c) they get most of their music from iTunes on their iPod. They told us that MySpace is over, it’s just not cool anymore; Facebook is still cool, but that might not last much longer; and the biggest thing in their life is word of mouth. That’s how they hear about music, bands, everything.

That’s a quote from Mark DiDia, head of operations for Columbia Records, which is owned by Sony (SNR). It comes from an article in last weekend’s New York Times Magazine, “The Music Man,” about Rick Rubin, the guru-like record producer that Sony hopes will save its slowing dying business. The “kids” DiDia refers to are recent college grads in a focus group. I’m certain that the management team at MySpace and Facebook will tell you a million reasons why the kids are wrong and that their business story will continue for years. Still, the thing about focus groups is that they don’t lie.

For what it’s worth, the kids may think Facebook is about to become uncool, but the oldsters are just discovering it. When I returned from a weeklong vacation I had 23 “friends” requests at Facebook, 9 from people I actually consider my friends or meaningful acquaintances. I go to Facebook about once every three weeks just to see who has asked to be my friend. I quickly leave, however, and suspect most of the 30-year-old-plus people who are now finding out about Facebook will do the same.

The writing was on the wall for this one since the moment last October that Google (GOOG) agreed to buy YouTube. Jennifer Feikin, the director and chief businesswoman of Google Video, is leaving the company. I’ve wondered ever since the deal was announced how Google Video and YouTube would co-exist inside the same company. YouTube so thoroughly vanquished Google Video, an also-ran product in terms of traffic, that Google was compelled to buy YouTube, if only to keep it out of the hands of Yahoo (YHOO), Microsoft (MSFT) or one of the several broadcast networks that should have bought it. Feikin, at least, has something of an answer to the question: She’s not sticking around to find out.

A four-year-veteran at Google (yes, typical stock-option grants take four years to vest), Feikin was cut from a different cloth than other Googlers. Her glittering resume includes stints at Time Warner’s AOL unit (TWX), News Corp.’s (NWS) 20th Century Fox and the consulting giant McKinsey. (No slouch: She’s Harvard Law and Duke undergrad to boot.) Google Video’s relative lack of traction compared with YouTube shows that on the Internet even a well funded product guided by an experienced and savvy strategist doesn’t always win.

In an email to her peeps Feikin reflected on her “amazing years” at Google, which included the “launch and phenomenal growth of a once-tiny product called Google Video.” She said she’s leaving for “new adventures.” She shouldn’t have any trouble finding them.

At first glance, there’s not much new about today’s report in the New York Post that Microsoft (MSFT) has formally re-approached Yahoo (YHOO) about a merger. The article reads like banker talk: Investment bankers on one side or the other (or, better, a banker who couldn’t get a seat at the table) chatting up a deal to get things moving. It’s also not new news. A desperation merger between the two weaker online advertising players has been in the rumor mill for more than a year. Tim Arango and I speculated on such a move (among others) last October, for example, and UBS analyst Ben Schacter has justified a bullish call on Yahoo’s stock for quite a while predicated on Microsoft buying Yahoo if it got too cheap.

Does a deal make sense? Absolutely. Yahoo effectively could become MSN on steroids. The two search-advertising also-rans finally would be able to push serious traffic through their ad-search delivery platforms. Microsoft would bring major financial resources to Yahoo, which because of its underperformance in search has been cost-cutting elsewhere. (An Internet business cost-cutting during an advertising boom is a sad thing to see.) A tie-up also might explain why Yahoo CEO Terry Semel is still around. Everyone assumed he’d be gone by now. But Semel is a dealmaker, and this is an enormous deal.

Having said that, every time I’ve discussed a Microsoft-Yahoo merger with people who know the two companies well, they remark on what a disaster it would be. Those ad-search platforms, for example: each company has spent a fortune developing their own. It’d be a bitter pill to ditch one. Microsoft remains light years behind in truly understanding the Internet, at least compared with Google’s mastery. Google (GOOG) would love this deal, at least for a couple years, in the same way Dell (DELL) was ecstatic when HP (HPQ) bought Compaq. (Dell squandered an opportunity by not taking that deal seriously enough, but I digress.)

The market, of course, takes this report extremely seriously. Investors don’t care if a banker is trying to pump up a deal or if this talk is old or new. Yahoo’s stock was up 19% by late morning. Like the response to News Corp.’s (NWS) bid for Dow Jones (DJ) , the market’s reaction might make this deal a reality.

I interviewed Rupert Murdoch a couple years ago in his expansive West Coast office on the historic Fox lot in Los Angeles for an article about his Internet ambitions. This was after the MySpace acquisition but before the rest of the world realized that Murdoch has gotten it right this time. As we wrapped up the interview — Murdoch graciously apologized for cutting things off, but he had to scoot for his regular physical at UCLA’s hospital — he stood to shake my hand and said, “Hope you got some good copy.”

Right there I was reminded why journalists are so smitten with Murdoch, even the ones who disagree passionately with his politics. The guy loves journalism. I mean, he really loves the give and take, the analysis, the insight, the nasty fights and so on. The same stuff journalists love. He’s also passionate about business, which is why he never has made a secret about coveting The Wall Street Journal, in his — and everyone else’s view — the class act of daily business journalism in the English language. He has watched the Journal maintain its greatness, even as it demeans itself with a smaller size and endless lifestyle stories. Not that Murdoch judges. His papers publish the lowest of the low and the highest of the high. The Journal would find its place at the top of the News Corp. (NWS) heap. (My bias should be noted. I write day and night for Fortune Magazine, but I’m also a regular commentator on the Fox News Channel, a News Corp. property.)

Will the Bancroft family sell? The market has an opinion on the answer to that question. It bid up shares of Dow Jones (DJ) by 57% moments after Dow Jones disclosed Murdoch’s offer. Who else might jump in? When one of the greatest properties around is up for grabs, everyone needs to look. That will include the Washington Post Company (WPO), Gannett (GCI) and Pearson (PSO). Goldman Sachs (GS) just raised a new $20 billion investment fund. Who knows? Maybe Goldman dreams of better coverage in the Wall Street Journal.

A final note. Shares of News Corp. have been on fire for a while now. Since the acquisition of MySpace parent Intermix, actually. And the market approves of its bold move today, initially sending the shares down less than 3%. People forget, however, that for years Wall Street punished News Corp. with a “Murdoch discount.” Investors worried about the downside of a long-term-focused chief executive who periodically makes giant bets that don’t always pay off. An example: The Wall Street Journal recently highlighted the bizarre story (subscription required) of Gemstar (GMST) CEO Henry Yuen, in which News Corp. invested and ended up taking $6 billion in writedowns. The Journal called that move “a low point in Mr. Murdoch’s career as an investor.”

I’m guessing the Journal’s reporters and editors — and investors — won’t view Murdoch’s latest gambit as a low point of any kind.