Murdoch’s MySpace dream turns to dust

By Matthew Garrahan in Los Angeles / Financial Times  06/30/11

After a drawn-out sales process and a saga that Rupert Murdoch, its chairman, would probably rather forget, News Corp has found a buyer for MySpace, agreeing to sell the loss-making social network to Specific Media in a $35m deal.

The move, first reported by News Corp’s All Things D website, brings to an end a turbulent episode that initially reignited Mr Murdoch’s interest in the internet, with his company briefly capitalising on a website that, in its heyday, was one of the world’s hottest internet properties.

But years of management mistakes, the rise of Facebook and clashes between the News Corp hierarchy and MySpace managers led to Mr Murdoch’s dream of a dominant global social network turning to dust.

Under the terms of the deal, News Corp will receive a small cash payment and a minority stake in Specific Media in return for MySpace, which it acquired in 2005 for $580m. Specific Media, a California-based online advertising network founded by the Vanderhook brothers, will control the company.

MySpace had been steadily losing money in the period leading up to the sale: the site will cost News Corp close to $500m in operating losses this fiscal year, according to people familiar with the situation. That did not deter Specific Media, which enlisted Justin Timberlake to back its bid.

Actor Timberlake joins new cast

Justin TimberlakeJustin Timberlake, the star of the film The Social Network, is one of the new owners of MySpace, having struck a deal with Specific Media, which acquired the site from News Corp.

Specific Media and Mr Timberlake said they planned to turn the social media platform into the “premiere digital destination for original shows, video content and music”.

Mike Jones, MySpace chief executive, will leave the company following the sale. In a note to MySpace employees, he said there would be “a significant reduction in our workforce”. At its peak, MySpace employed 1,400 people but that number has fallen to 400 through waves of cost cutting: about 200 will leave the company following the sale, according to a person close to the situation.

Specific Media saw off interest from Chris DeWolfe, a former MySpace chief executive, and private equity firms, including Golden Gate Capital. But the deal’s price represents a steep loss for News Corp.

Its ownership of MySpace had started off so promisingly in 2005.

The purchase of a fast-growing company with genuine cachet among young internet users re-invented Mr Murdoch as a 21st century new media mogul.

Shortly after the acquisition, MySpace struck a $900m three-year advertising deal with Google, which depended on strict traffic targets being met. MySpace revenues leapt from $1m a month to $50m a month, and Mr Murdoch confidently predicted the site would generate $1bn in advertising revenues by the end of 2008.

But then things took a turn for the worse. MySpace became cluttered with unappealing ads, Mr DeWolfe departed after clashes with News Corp management and users began to leave in droves.

A move by MySpace and other News Corp digital businesses into the biggest new office development in Los Angeles was scrapped – after the $350m, 12-year lease had been signed – leaving the company paying more than $1m a month for an empty building.

The site shed users while Facebook was adding them in their millions. MySpace then revealed it had missed its Google targets and the management turmoil continued with two other chief executives leaving.

Mr Murdoch’s frustration about the site’s performance was evident. Relaunches of MySpace failed, culminating in the decision to seek a buyer.

Mr Murdoch, who is spending more of his time these days looking at opportunities in the education industry, did not comment on the sale – and it is unclear whether he still has the same enthusiasm he once did for online social networking.

As Richard Rosenblatt, the former chief executive of Intermix, MySpace’s original parent company, told the Financial Times two years ago: “There was no question that [Mr Murdoch] was enthusiastic … We were all arm-in-arm to change the world.”

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