All Things Digital

When I was in Los Angeles recently, I stopped by the Santa Monica offices of Demand Media, the network of social networking sites and apps maker, because of the rumors that I had heard swirling around that Yahoo was looking to purchase it for up to $2 billion.

Such a major deal seemed to me to be a rash one for Yahoo (YHOO) to make at this point, due to its current turmoil, as it seeks to find ways to socialize its massive content and communications assets more quickly.

As it turned out, reports of that possibility were greatly exaggerated, mostly due to a dinner that top Yahoo execs Hilary Schneider and Scott Moore had with its founder and CEO Richard Rosenblatt the very night I was visiting, which was not treated like a secret in any way whatsoever.

(I called Moore and Schneider, in fact, to tell them Rosenblatt would be late due to our interview, and I am guessing they would not have picked up for me if they were in the midst of prepping a big offer.)

Rosenblatt played down the idea of any Yahoo offer on the record, noting he was not interested in selling at this point anyway.

“There is a lot of potential here and I want to build a big company for the long-term,” said Rosenblatt, who has sold several. And while IPO plans are not in the near future, one imagines Demand could work toward that.

And Yahoo sources confirm that there has been no offer floated.

But there is no question that Schneider, who just took over all U.S. operations at Yahoo, is very interested in partnering in a significant way with Demand, because it has built a profitable company that creates a plethora of ad-impression-generating social networks of all kinds.

The bigger Demand sites are eHow, and Livestrong, a health-oriented site in partnership with famous cyclist Lance Armstrong.

The company also has a major domain registry business and recently acquired Pluck, which powers social networking features on many other sites, such as the Washington Post.

So far, gold-plated investors like Goldman Sachs (GS), Oak Investment Partners–and even a private investment from major Yahoo investor Gordon Crawford–have poured almost $400 million into the company.

Nonetheless, some wonder whether the patchwork of sites–many of which get content from other Demand sites, along with its many other disparate businesses–adds up to a multi-billion-dollar valuation quite yet.

Still, at some point when it is not in the free fall it is currently in, Yahoo might make a great purchase for Demand.

And it could certainly use the dose of energy from the ebullient Rosenblatt–who came from a paparazzi-clogged lunch with Armstrong, his latest squeeze Kate Hudson and her mother, Goldie Hawn, right before our chat.

And, in fact, Rosenblatt, who was former CEO of Intermix, which owned MySpace (Rosenblatt was chairman) and sold it to to News Corp. (NWS)–the owner of Dow Jones and All Things Digital–might indeed be the kind of bold, swing-for-the-fences exec Yahoo needs to reinvent itself.

But, as you will see in this long video interview below, he has some interesting ideas about where he can take the start-up first.

Here’s the video: