Yahoo is looking to expand its reach to young consumers through the acquisition of the company, which generates more than 3 billion monthly views on Google Inc's YouTube.
Yahoo faces competition from private investment firm Chernin for control of the California-based company, Sky quoted insiders as saying.
Chernin is already a shareholder in Fullscreen, having bought a stake in June last year along with the world's largest advertising group, WPP and Comcast Ventures.
Chernin, owned by former News Corp executive Peter Chernin, is understood to have the right to buy Fullscreen at a previously-agreed price if other bidders do not offer at least $300 million, Sky reported.
Fullscreen was founded in 2011 by George Strompolos, a former Google executive.