How Is MSN Losing $1 Billion A Year?

According to Henry Blodget (I know, I know, Henry Blodget on a Web company losing money -- insert irony here), Microsoft's MSN is losing $1 billion a year. That's right, $1 billion.How on earth is MSN burning cash like this? Here's a look:

If you follow Blodget's link to his handy-dandy Google Spreadsheet, you can see that MSN was profitable just two years ago. Then in 2006, it jumped the shark into the red and hasn't looked back. At its current rate, MSN could well lose $1 billion this year.

Given the explosion of the online ad market, this is insane. Given that Google will make $4.4 billion on $16 billion and that Yahoo will make $750 million on $7 billion, it's even crazier.

What I find really interesting about this post is that it reveals the disconnect between the business realities of MSN and the blogosphere. If you were to ask most bloggers which of these three businesses -- Google, Yahoo, or MSN -- should be scrapped, most would answer Yahoo (I base this estimate on the amount of anecdotal feedback I have received every time I ask this question to a well-intentioned Webhead). But based on these numbers, MSN is clearly the business that's most in trouble and in need of an intervention of a sell off.

What's scarier is that Microsoft doesn't seem to have any kind of clue about how to save MSN. I guess this explains why Microsoft hasn't been competing with Google or Yahoo on the acquisition front these days. How can you justify buying a company to add to an operation that loses this kind of money?

How can Microsoft continue to throw money down the drain that is MSN? Should the company just call it quits and sell off the assets? Or should it focus on running a profitable business and leave the rat race to Google and Yahoo? What do you think?