The last time Rupert Murdoch fell for the internet it was a sell signal. Long a sceptic, he relented in late 1999, investing in a limited number of dotcom ventures shortly before the bubble burst. With News Corporation executives again gathering to discuss an internet strategy, what should investors think?

The runaway success of internet stocks such as Google and Yahoo has been hard for traditional media companies to ignore. Valuations again look stretched. But this time it is based on more than just hype about the future. Both companies generate more than $3bn of annual advertising revenue and enjoy mouthwatering margins. Advertising dollars are starting to follow audiences as they shift from traditional outlets such as newspapers and spend more time on the web. Media conglomerates cannot sit by and watch. They must adapt their powerful brands to take full advantage of online opportunities.

Ironically, the best-positioned media group is the one that made the most catastrophic blunder of the internet era. Time Warner gave away more than half the company to a massively inflated AOL. While the internet arm still has structural problems, these are being addressed. Time Warner must take the financial pain of converting AOL from a largely subscription business into a mainstream portal. Assuming it does, it will be the only media giant with real potential to challenge Google and Yahoo.