News Corp. sells Myspace for $35 million

Myspace was once the Internet’s equivalent of the hottest nightclub in town. In its heyday, the world’s dominant social network attracted some 3 million bands, 8,000 comedians and countless filmmakers and wannabes who came to see and be seen.

Now, Myspace is seemingly no place — a digital castoff that corporate parent News Corp. sold for $35 million in cash and equity to an Orange County digital media firm specializing in online advertising. That’s a fraction of the $580 million that the media giant controlled by Rupert Murdoch paid to acquire the site a scant six years ago, and well shy of its one-time $65-billion valuation.

Its dramatic fall is both a consequence of the fickle nature of today’s Internet generation as it is a tale of mismanagement, missed opportunities and miscalculations. Myspace’s decline — hastened by its failure to match the innovations of its chief rival, Facebook, speaks to what can happen when a mainstream media company seeks to capture technological lightning in a bottle.

“It’s a struggle for large media companies like News Corp. to acquire a company like Myspace and continue to have it innovate at the pace that’s necessary,� said Lou Kerner, vice president of equity research at Wedbush Securities.

When News Corp. acquired Myspace in 2005, it was the fifth-most-popular destination on the Internet, a place where hot musical acts like Fall Out Boy went to connect with fans and release new albums.

The decision to acquire the hot social networking site landed Murdoch on the cover of Wired magazine, where he was lauded for embracing the Internet ahead of his old-media rivals, although critics ridiculed him for overpaying.

But, the acquisition seemed to pay instant dividends to News Crop. One year later, Google Inc. agreed to pay $900 million for the exclusive right to provide a search function on Myspace and sell advertising associated with the results. By 2007, Myspace was the leading social network, attracting nearly 100 million monthly users around the globe. It had grown so influential that Barack Obama and other 2008 presidential candidates created campaign pages on the site.

But Myspace’s red-hot success was short-lived.

The number of monthly visitors in the United States peaked in October 2008 at 76.3 million, according to measurement firm ComScore Digital Analytix. Over the last two years, the social network has shed an average of 1 million users a month, and its monthly traffic had dwindled to about 35 million users by May.

As Myspace’s users headed for the exits, so did the advertisers. Researcher EMarketer projects Myspace’s ad revenue at $184 million this year, down from $470 million in 2009. Myspace proved a drag on News Corp.’s earnings, with the division that includes the social network posting a profit only once in the last six years.

News Corp. attempted to reverse Myspace’s slide; replacing co-founders Chris DeWolfe and Tom Anderson with a top executive from its chief competitor Facebook, Owen Van Natta. But Van Natta departed in less than a year, as did one of the two men named to succeed him as co-presidents, MTV veteran Jason Hirschhorn.

A lack of a single, unified vision for Myspace hampered the social network, which was slow to respond to the rapidly evolving technological landscape.

“The reason Facebook has consistently [drubbed Myspace] is [Facebook Chief Executive] Mark Zuckerberg owns product strategy,� said Mark Suster of GRP Partners, a leading venture capital firm in Southern California. “When the company needs to turn on a dime, they’re able to do so. You don’t get this quagmire of bureaucracy.�

Myspace’s management turmoil delayed the promised relaunch of the struggling site, which continued to hemorrhage users and advertisers and lose money. The inability to stop the slide set the stage for Tuesday’s sale to Specific Media, a little-known advertising network in Irvine.

Michael Birch, the founder of the Bebo social network, said News Corp. remained focused on monetizing the site instead of constantly innovating to become a huge social network.

“The problem with Myspace was that it was never as strong a product as it needed to be,� Birch said. “It left itself vulnerable to competition. It was only a matter of time before someone created something bigger.�

Myspace’s new owners hope to find a way to reinvigorate the flagging site, which continues to attract a sizable online audience.

To cut overhead in anticipation of the sale, Myspace began laying off about half of its 500 or so employees Wednesday. The company’s chief executive, Mike Jones, informed his staff that he would step down immediately but would remain an advisor until late August to help with the transition. News Corp. is taking a 5% stake in Specific Media.

Irvine-based Specific Media, founded in 1999 by Tim Vanderhook and his brothers Chris and Russell, has built a digital business around helping marketers buy ads on websites, mobile devices and Internet TV. Under new ownership, Myspace is expected to return the site’s focus to its musical roots. The company has recruited Grammy-winning artist Justin Timberlake to guide its new creative direction and strategy and return some star power to the site.

Timberlake, who is taking an undisclosed financial stake in Myspace, said in a statement: “There’s a need for a place where fans can go to interact with their favorite entertainers, listen to music, watch videos, share and discover cool stuff and just connect. Myspace has the potential to be that place.�

Tim Vanderhook said he hopes to marry one of the best-known brands on the Internet with Specific Media’s advertising savvy to create a business marketers will be excited about.

“Regardless of the current perception of the Myspace brand, it’s one of the small group of brands that has international prominence and a global traffic base of almost 100 million people going to it every month,� he said. “We are very focused on reinvigorating the brand. Our vision is to bring it back to what it was supposed to be originally�

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