In an interesting and innovative move compared to what has typically been less-than-hip online programming over the years, Microsoft’s MSN service is debuting a slick new celebrity site called Wonderwall today–created, designed and produced by a Hollywood company run by former Yahoo media chief and well-known television exec Lloyd Braun.

Using an unusual horizontal design with a scrolling “wall,” a plethora of pictures and a deeply visual sensibility, it’s definitely a laudable risk for Microsoft as the company seeks to continue to push itself into the online content business, despite a lackluster record.

The site, by BermanBraun Interactive, which is being launched right before the Grammy Awards, will aggregate content from a variety of partners, but also use a small staff of editors to differentiate it and give it “voice.” BermanBraun will operate Wonderwall for MSN.

Last week, in yet another sign that it is upping the content ante at MSN, Microsoft hired Yahoo’s most recent media head Scott Moore, who used to work at Microsoft (MSFT).

“We are investing more than ever in content,” said MSN GM Rob Bennett. “With Wonderwall, we are creating an offering to attract and retain new audiences, using content that is already at the core of MSN.”

But unlike other MSN sites, there is more subtle MSN branding on Wonderwall, although Microsoft’s search will be an important part of the site. MSN will promote Wonderwall across the service and will also give it an external marketing push.

To make money, Microsoft and BermanBraun are jointly selling the advertising for Wonderwall, which also has a partnership with MediaVest, to bring major brands to the site.

One obstacle is the huge amount of competition in the Internet space, from AOL-backed TMZ to Perez Hilton to omg! from Yahoo (YHOO), which is currently the most-trafficked celebrity site (and, ironically, was pushed through Yahoo by Braun and Moore).

But the interest in this pop culture category is obvious–celeb-focused online programming has grown strongly.

Celeb news-obsessed BoomTown accounts for much of that traffic (How much do we love following the hijinks of Britney? Much!).

So, I hightailed it to the Santa Monica offices of BermanBraun yesterday to have a look-see at Wonderwall and do some video interviews.

Overall, I was struck by the site’s arresting visual design, particularly the easily interactive wall, which has what I can only call an “iPhone” feel combined with a flipping-through-a-magazine tone (see above; click on image to make it larger).

With more touchscreen technology moving to personal computers, you can easily see Wonderwall being manipulated by hand.

And it makes great use of linking out, another plus, without excessively pointing to only Microsoft sites.

One problem: No true ability for users to interact on Wonderwall, via comments or other social-networking tools, which Braun said are coming soon, along with videos being able to be played in the main wall.

But overall, it raises the stakes in the celeb market and gives users a new interface without straying too far.

Here’s my video interview with Braun, along with another below it with his partner, former Fox and Paramount exec Gail Berman, and also Wonderwall’s top creators–all talking about Wonderwall.

(And, as an added bonus at the bottom, Oasis singing their hit, “Wonderwall.”)

Lloyd Braun:

Gail Berman and Wonderwall Staff:

Oasis:

As has been copiously reported here and all over, Yahoo and AOL have been engaged in never-ending talks about a possible deal to merge their flagging Internet businesses.

Now, sources tell me, the circle of executives at both companies interfacing with each other has been widened, for purposes of due diligence.

That chit-chatting includes Yahoo CEO Jerry Yang, who has been in New York several times recently [UPDATE: But not yesterday, in a story I had previously linked to here]–where AOL parent, Time Warner, is located–to meet once with its CEO, Jeff Bewkes, and see if they can actually complete the merger.

Now, all this frantic activity does not mean a deal will necessarily be struck. In fact, in typical Yahoo style, it is going very slowly and that is never a good thing in dealmaking.

But it is this kind of ramped-up blabbery that has many at both companies predicting–hoping, really–that a deal will go through, sooner or later, as soon as Time Warner and Yahoo can agree on a price.

Or, more precisely, a percentage, since Yahoo’s stock price has been falling like a particularly sharp knife of late.

Sources said Yahoo does not want Time Warner (TWX) to have any more than 25 percent of the new company in a trade for AOL’s assets–although that figure would be slightly more if the media giant throws in some of that “Harry Potter”-generated cash into the deal kitty.

Yahoo (YHOO) management, sources said, also think its assets are of significantly better quality than AOL’s, and it still has that powerful–although declining–share in the lucrative search market.

Thus, it does not want to pay the $8 to $10 billion price Time Warner wants, and it should not either. (Here is a good analysis on the price issue by Silicon Alley Insider’s Henry Blodget.)

But Yahoo shares closed yesterday at a troubling $14.58, down 73 cents, or almost five percent.

That means its market valuation also declined by many billion dollars very quickly. It is now at $20.2 billion.

These profound stock drops, said several sources, could spur Yahoo to act before it gets even worse, which is why talks have been more frequent in recent weeks.

While not the best state of mind, panic is always a good motivator, and both companies are surely desperate to turbocharge themselves in the face of tough competition and avoidable management mishaps in recent years.

The hope? That together the pair can do better than they have separately–by combining their advertising, content and communications assets, which are among the largest in the world.

In addition, the “new” Yahoo would be able to make massive cost cuts, including layoffs, under the cover of integration and starting off with a clean slate.

So who would emerge more powerful in a new set-up–AOL or Yahoo?

Here’s a short cheat list:

Content:

AOL and Yahoo have a similar range of content assets, with big sites in all the classic categories, like news, financial, sports and lifestyles. Yahoo’s content head is Scott Moore, while AOL’s is Bill Wilson (both pictured here, left to right).

As I wrote yesterday, I expect that the more dominant Yahoo will rule, slashing and burning most of the AOL-branded properties, keeping only interesting newer brands like sports blog FanHouse, celeb blog TMZ and the Engadget, Tuaw and JoyStiq tech blogs.

And while former Microsoftie Moore is the likely head of this behemoth, don’t count on the very adept Wilson, who is known as a skilled corporate player at AOL, to stick around without a big role in this arena.

Communications:

Again, advantage Yahoo, which has bigger calendaring, email and instant messaging assets, an area once overwhelmingly dominated by AOL. That was then, of course.

Still, AOL’s communications tools are used by a huge audience worldwide and the pair together would be a powerhouse. So much so, in fact, that this might be the one major regulatory hurdle any deal would face.

Advertising:

Again, Yahoo would probably dominate, having just hired well-known former Microsoft exec Joanne Bradford to head up U.S. advertising sales. AOL’s top ad exec is Lynda Clarizio, a former lawyer who is considered dogged but much less experienced than Bradford. (Both are pictured here, right to left.)

And, Yahoo does have its search ad business, however weakening, and a stronger graphical ad business, even if the sector will be most under siege in the current down economy.

Plus, AOL’s Advertising.com, while a major ad network, is more of a business subject to bruising competition and squeezed margins.

Community:

Tapan Bhat (pictured here) now rules community at Yahoo, as well as its homepage, having just inherited it from the departing Brad Garlinghouse.

But AOL has a savvy and voluble exec in Joanna Shields, who came recently via its Bebo social-networking acquisition. While AOL woefully overpaid for Bebo and got played into thinking that other bidders were more interested than they actually were, it was Shields (pictured here) who essentially did that playing.

Sign her up for a top exec role in the combined company pronto!

In all seriousness, there is room for both in the newco, as both AOL and Yahoo seriously bite in the social-networking space. They will surely need a lot more than Bhat and Shields if they want to become true players in Web 2.0’s hottest and probably most important trend.

Engineering:

Yahoo. I do not need to explain this, do I?

Okay: AOL has always been incompetent in the technical arena, since its beginning days, compared with Silicon Valley companies like Yahoo.

All yours, Ash Patel!

Management:

Now, it is here that it gets interesting.

Most feel the push by Yang to do an AOL deal–and make no mistake, it is being pushed by him most of all–is due to increased pressure from his board, as well as major investors, who have had just about enough of his leadership.

“There is no way Jerry stays on as CEO in a newco,” said one source about Yang (pictured here). “He’ll be kicked upstairs as chairman, and I will think [President Sue] Decker will also have to go eventually, since there will be a lot of resistance if she is named CEO.”

But, said other sources, these major management changes will not happen immediately, if at all, as it is too distracting in the wake of a deal and ruins the positive “story” that both companies will surely want to spin.

And spin they will! (Go, Tricia! Go, Jill!)

And while he has a reputation for sharkish political skills, especially compared to Yahoo’s very diplomatic U.S. head, Hilary Schneider, expect AOL President Ron Grant to be an important part of the transition, since he is good–almost too good–at cutting costs.

Most expect his boss, AOL CEO Randy Falco, not to be part of the new company, thereby separating him and Grant, who are nicknamed “Smithers and Burns” at AOL, after “The Simpsons” creepy duo.

Most likely, there will be a search for a top-level CEO to take over the combined company–someone of the stature of New Corp.’s No. 2 Peter Chernin or eBay’s former leader Meg Whitman (except now, she is apparently Sen. John McCain’s pick for Treasury Secretary, if the Republican Presidential candidate were to win the election).

“If this has any chance of working out, the board has to push restart on the leadership,” said one person close to the situation, who notes that this deal is Yang’s last chance to truly impact the future of the company he co-founded and preserve its legacy. “Everyone gets that, even Jerry.”

But I think the idea that Yang would leave if there were to be a merger of Yahoo with AOL is wishful thinking on the part of his critics.

He appears tome to be very committed to seeing his vision of turning around Yahoo through.

And those who have counted him out always seem to be the ones who have been typically wrong, such as Microsoft CEO Steve Ballmer and shareholder activist Carl Icahn.

Because, for all the turmoil at Yahoo, it’s Yang still calling the shots.

Back in the first season of “Saturday Night Live,” one running catchphrase uttered by Chevy Chase would always crack the then-12-year-old BoomTown right up: “This breaking news just in: Generalissimo Francisco Franco is still dead.”

It’s that same kind of extreme déjà vu I feel with the continuing drip-drip-drip of the news-less news that Time Warner’s AOL and Yahoo are still talking about a merger.

Both Silicon Alley Insider’s (and soon-to-be AllThingsD.com blogger) Peter Kafka and I wrote extensively about the talks on in mid-September, noting that the discussions centered around merging AOL’s content, advertising and software assets with Yahoo (minus the access business).

There were the price issues–Yahoo wanted to pay between $6 and $8 billion, while Time Warner has long wanted $10 billion–as well as the worries about integration (East Coasties versus West Coasties) and email dominance monopoly problems.

As I wrote on Sept. 23, for example:

That support will be especially important if Yahoo tries to buy AOL, which it is again strongly considering as a way to bolster its ad business, international portfolio and email and content offerings.

Several sources I have spoken to recently have said that Yahoo leadership is very interested in doing such a deal, although not at the $10 billion price tag that Time Warner wants. (Think half and add a little more.)

In addition, there are some daunting regulatory and integration issues–AOL and Yahoo email and messaging combo would be a giant in the space, and the HQs of the companies are on opposite coasts.

But, the deal would give Yahoo some more experienced executives it needs and make it more attractive to others who might not consider going to Yahoo in its present state.

Yang had been pinging a lot of execs over the last year and has had little uptake.

But a stronger and more flexible Yahoo–i.e., it knows it has to change dramatically–would surely be more enticing, especially in a down economy.”

Now comes yet another story yesterday from TechCrunch that the talks are–wait for it–still on.

The story recounted similar details and added even older ideas from previously reported AOL-Yahoo talks (some multi-billion-dollar cash infusion from Time Warner, for example).

And, said TechCrunch, it could happen this month!

Good gracious–October is, like, a really long month. And, if not October, I guess November is good or maybe December. Hey, what about 2009?

Actually, what everyone really would like to know is what the heck is taking Time Warner (TWX) and Yahoo (YHOO) so long, hashing over the same issues (price mostly), especially if it is such a stellar idea?

And, with the economy crashing all around and Yahoo’s and Time Warner’s stock hitting five-year lows, one has to wonder what, exactly, the pair are waiting for?

A more fortuitous reading of the entrails? A sign from the heavens? Better winds?

Well, I hate to inform Time Warner CEO Jeff Bewkes and Yahoo CEO Jerry Yang, but the tide is not turning anytime soon, and both their companies are getting weaker by the minute.

I once called the pairing of AOL and Yahoo a little like leaning two drunks against each other to keep them from toppling over.

Looking back, I will admit that was a little harsh.

Given the stakes now, though–and especially if Yahoo has to abandon its controversial search ad outsourcing deal with Google (GOOG)–it makes sense to combine forces.

In the online ad space, for example, Yahoo and AOL mostly complement each other. The same is true in email and communications tools. And, while Bebo is not the prize Time Warner touted it as, despite paying a king’s ransom for it, Yahoo has no social-networking property.

The only area of true overlap is in content. Here, based on many sources, I would imagine if a deal is ever struck that Yahoo will slash and burn most of AOL-branded properties, keeping only interesting newer brands like sports blog FanHouse, celeb blog TMZ and the Engadget, Tuaw and JoyStiq tech blogs.

And, in fact, if the pair even gets its act together–this or next week would be great for us–it will give them the much-needed impetus to start making the massive cuts needed at both Web outfits for a long time now.

In that regard, look for an AOL exec like its President Ron Grant to be buttonholed to swing that particular ax.

Yahoo, with its less confrontational culture, has never been good at that kind of thing. For all its many flaws, it is a talent AOL will surely bring to the party.

If, of course, Yahoo and AOL ever manage to throw one before they become too much like Generalissimo Franco.

You know: Still dead.

Yesterday, BoomTown was hanging in Hollywood at ContentNext’s EconCeleb’s conference, where I did an onstage interview with legendary editor Bonnie Fuller about the massive impact of the Internet on celebrity journalism.

With its instant ability to deliver news, video and more, sites like TMZ, PerezHilton, The Superficial and Yahoo’s (YHOO) omg! have become massive drivers of traffic on the Internet and–despite the saturation–the arena is still growing fast, especially among women users.

But for those not in the know about Fuller’s impact on how celebrity journalism has developed to its current power, she is the reason–more than any other modern editor–humanity now knows every move made by the unholy trio of Paris, Lindsay and, most of all, Britney.

As founding editor of US Weekly (with stints at Cosmopolitan, Marie Claire and other mags), and as the editorial director of the parent company of Star magazine, Fuller’s various editorial innovations–celebrities are just like us!–are now commonplace.

And like a lot of old media stars, Fuller is now working on her own new celeb-focused digital and media company, which she says is aimed at women 20 to 40 years old, plunging headlong into the Web arena.

Here’s my video interview with her in an alcove of the Roosevelt Hotel on Hollywood Boulevard, where we discuss what she is up to and where online celebrity coverage is going (Britney 24-7!):

But–as many readers have requested–they will all be available in their entirety over the next weeks in this column.

Here’s Part 1 of 4 of an interview I did with Time Warner’s CEO, Jeff Bewkes.

(I will be posting one video part of the discussion with Bewkes every day this week through Thursday.)

As you will see, Bewkes is a live wire, sassing me about the hard time I was giving him about the rough road AOL has had as a Time Warner (TWX) property.

This video of the interview opens with a very funny spoof video Bewkes brought along using Time Warner’s TMZ unit, followed by his remarks on the continued impact of the rocky merger with AOL, the purchase of the Bebo social-networking site and how to best use content online.

Everybody remain calm.

While it might have looked like it was the rapture for major Internet players yesterday–what with everyone and his mother getting sucked up into the Yahoo-Microsoft takeover tussle and disappearing into the ether of confusion that now reigns over the situation–it is best to keep moving toward the light of harsh reality for illumination.

And the reality in three parts, addressing the trifecta of big news yesterday, is:

I DO NOT LIKE MONOPOLIES, I DO NOT LIKE THEM, JERRY-I-AM

Google (GOOG) and Yahoo (YHOO) will not and, more importantly, cannot make any significant search-ad deal in any way longer than the two-week test they announced to terrific fanfare yesterday.

It is a regulatory no-no of such an obvious nature, that Microsoft (MSFT) has to prove almost nothing to win on the merits of the fact that Google dominates the arena with such power that it cannot be linked with anyone else.

But it is a nice image of one Silicon Valley company coming to the rescue of another, helping to show how Yahoo could be better monetized and, therefore, be worth more.

(Although irony-alert: Outside of Yahoo’s own self-inflicted wounds, it is Google that is most responsible for knocking Yahoo’s teeth out in the search and search ad game.)

So, any further hook-up between the two seems sure to become the Justice Department Lawyer Employment Act of 2008, the likes of which we have not seen since Microsoft got its turn at being deservedly whacked for being a monopolist back in the last century.

Let’s face it, outside of those who cannot seem to shake the annoying Kumbaya mentality over at Google, a Yahoo-Google partnership is simply fantastical, like some out-of-control Dr. Seuss ditty.

They could not, would not with a goat. They would not, could not on a boat. They will not share an algorithm, they will not, will not, Jerry-I-Am.

TROUBLE AHEAD, TROUBLE BEHIND

In a post I did just before the heating up of the AOL-Yahoo talks was reported yesterday, I had written:

“Yahoo is still ferreting away with execs from Time Warner and its AOL unit–you know, that rat’s-nest of a deal in which AOL, Time Warner investment dollars and, oh, some old fishing rod of former exec Don Logan’s is thrown into Yahoo for a 20% stake, along with perhaps a dollop of Google involvement for added complexity.”

And, maybe it is just me, or–except for the fine fishing rod–is anyone else a little worried about the potential disaster of an AOL-Yahoo mashup?

As someone who wrote two–count ‘em, two!–books on AOL, including a very detailed narrative of the horrific AOL merger with Time Warner (TWX) a few years back, a union from which both sides have never adequately recovered, I am plenty worried.

From a Time Warner perspective, I get it. It allows the company to unload the lodestone of AOL from around its neck and finally give it some value.

I might point out that Time Warner had ample opportunity to so do over the years (more on that, tomorrow!).

And its inability to make much of the online unit must be disappointing to its new CEO Jeff Bewkes, who hated the original AOL merger more than most.

While Time Warner and AOL like to point to the success of Advertising.com, and there are some various bright spots here and there (Truveo, TMZ, Userplane), its online ad business is still not dominant enough and other parts woefully behind the efforts of others.

And its recent $850 million cash purchase of the very nice, but distant-third Bebo social-networking site reeked of desperation rather than the aspiration it was meant to be. With MySpace and Facebook battling for the big numbers, only help from a large traffic site like Yahoo might work.

That’s not to say that some of its deeply underutilized assets, like AIM, would not be a good add to Yahoo. But the benefit to Yahoo–except as a way to try to escape from or shake down Microsoft for more money–seems negligible.

Lastly, given that it would be a stock transaction without the need for a shareholder vote, I cannot imagine that a large number of them would not freak out at the uncertainty of an AOL-Yahoo merger versus a solid number from Microsoft.

RUPE-A-DOPE

How jaw-dropping are the rascally wiles of Rupert Murdoch of News Corp. (owner of this site)?

First, he cozies up to Yahoo CEO Jerry Yang like a White Knight, but gets caught up in the fact that Yahoo does not want him to have too much power.

Then, Murdoch heads on up to Redmond to play footsie with Microsoft CEO Steve Ballmer, intrigued by the possibility of offloading MySpace and getting a better trade for it.

You just know he’s going to end up with the whole thing and Yang and Ballmer will be left scratching their heads over what just happened.

But, seriously, I am not entirely clear why Microsoft is also adding this level of complexity, even if it would give it a partner to add more money and assets to the deal.

I get the addition of MySpace might be nice. And so would some investment dollars from News Corp. (NWS).

And, most of all, I see how delicious it might be for Microsoft to be able to fire Google as News Corp.’s ad partner for MySpace (a firing, I suspect, Google might actually welcome, given its public complaints about the difficulty of monetizing social networking).

But I am not sure why Microsoft won’t just man-up and fork over a few more dollars to its original offer, which would end this circus pretty quickly.

My guess is that the deal-making fervor has gone to its head and it cannot just be seen as giving in to Yahoo’s exertions to show it really, truly could be worth more.

Ballmer should just deliver that need from Yahoo and do the deal.

And, for good measure, he might just consult Proverbs 16:18: “Pride goes before destruction, a haughty spirit before a fall.”

GETTING READY FOR THE RAPTURE

Finally, for those who want to rock out on the rapture, here is singer-songwriter Jill Sobule, singing about it onstage at D5 last May:

Please see this disclosure related to me and Google.

No longer a “popwreck,” as the TMZ (TWX) celebrity site calls her so lovingly, her first words on the show are: “Can we have sex and then go shopping?” BoomTown loves poetic irony.

Here’s another snippet:

I had previously posted a piece about the site in May, because I consider it one of the really great content sites on the Internet–using a nice blend of text, video, audio and a laser focus on intense reporting on its topic to yield a whole new kind of media that is Web born and bred.

Here’s my tour of TMZ’s new studio on Sunset Boulevard in West Hollywood, right across from the trendy Hyde club (of course!):

Sure, that topic is to chronicle All Things Britney, Lindsay and Paris, but who cares? What TMZ proves, with its ever-growing audience of millions and millions, is that the Internet requires much more than simply porting of offline content online to succeed.

That kind of stuff has been simply lazy on the part of Hollywood and, really, all traditional media, which still have a very hard time creating new kinds of online content of any lasting kind.

TMZ, to my mind, should be a road map for what works well.

And now, in an interesting move, TMZ’s fare is also on television, with a recently launched syndicated show–heading backward into old media from new media.

Entering the crowded celebrity entertainment television field will doubtlessly be a tougher challenge, and the jury is still out on its success. But I like the chutzpah of TMZ’s efforts.

The brainchild of Harvey Levin and Jim Paratore, who came to the Web from longtime television backgrounds, the site made its bones by breaking stories about the antics of naughty celebs like Mel Gibson, Alec Baldwin and all those girls behaving badly.

Rather than kissing up to the celebrity culture, TMZ’s tougher stance has, well, distinguished it from a lot of others.

TMZ.com is owned by Time Warner. It was launched in 2005 jointly by its Telepictures and AOL units in an unusual–for Time Warner, at least–cooperative effort.

I did video interviews with Levin and Paratore too.

I will be traveling south to Los Angeles Sunday afternoon to do a few days reporting there.

That will include visits to the offices of JibJab, Userplane, Disney’s Internet Group, as well as some catching up with newly minted investor Ross Levinsohn and Joost CEO Mike Volpi.

We’ll be headed that way again a week later to go to Rafat Ali’s “iPhone & Beyond” one-day conference, and to see the new studios of TMZ, the execs at Move.com, Veoh and perhaps visit MySpace, Yahoo in Santa Monica, Helio and also meet the new head of Hulu.

Also on the agenda, DEMOfall and a lunch with blogger Paul Kedrosky in San Diego.

As you can see, a wide range of companies and people, which is why if you’re going to be a tech reporter going forward, you must school yourself quickly on what is happening in the digital arena in Southern California.

I have an even longer list of people and companies I want to meet there, so I expect to get there more often over the next year, rather than just sticking to the 101/280 corridor here in Northern California.

In fact, I have been wading deeply especially into the entertainment industry for a long time now, because the intersection of that industry and tech is one of the more important stories going forward. It’s a canard that Silicon Valley and Hollywood are at odds. While they will be fighting, of course, their fates are now inextricably combined and even aligned.

Case in point: A post I did this past week on the appalling instance of an ingenue singer being “discovered” on YouTube, when it turns out she was being secretly groomed by Hollywood Records to seem like an amateur phenom.

An amazing story, which is all about how marketing, entertainment, content and distribution of information are shifting quickly and with great chaos.

So, I will just say, as Randy Newman sings below (a video someone ripped onto YouTube, of course), I love L.A. Considering the stakes, it would be foolish not to.