Microsoft could be about to take a stake in Time Warner's internet unit AOL, the New York Times has reported.
Bill Gates has said AOL's advertising presence is attractive to Microsoft
Microsoft hopes to merge its internet service with AOL but questions remain over how the venture would be governed.
But the software giant still faces competition for AOL from Google, News Corporation and Yahoo, the paper added.
Investors have been pushing Time Warner to boost its share price performance in recent months and a deal with Microsoft could silence the critics, experts say.
Both Time Warner and Microsoft declined to comment.
Shares in the two firms rose slightly on the US market on Monday following the report - Microsoft rose 13 cents to $26.79 while Time Warner moved four cents higher to $17.65.
The two groups have been at the centre of merger speculation since September when reports emerged that they were in talks about how they could work more closely together.
But any deal would face potential pitfalls.
Sources close to the talks told the New York Times that Time Warner would not cede control of AOL unless it receives a "very rich offer".
Other questions remain over whether bringing in a new partner to the Time Warner-AOL media empire would deliver any benefits after five tough years.
Time Warner has seen 70% knocked off the value of its stock since 2000 and investors, including billionaire corporate raider Carl Icahn, have been turning up the heat on chief executive Richard Parsons to shake things up.
Analysts claim a tie-up would make sense - Time Warner has been losing internet subscribers while Microsoft may be interested in getting access to AOL's market leading instant messaging service.
And if Microsoft replaced Google as AOL's internet search service, it would increase its profile and benefit from the sale of adverts that appear next to search results.
Microsoft chairman Bill Gates admitted recently that the group's interest in AOL was down to Microsoft's aim of playing a bigger part in the future of online advertising.