Back in July 2005, it seemed like News Corp. (NYSE: NWS) was getting a bargain by spending $580 million on eUniverse, the corporate owners of social network MySpace. A year after the acquisition, MySpace hit 100 million registered profiles, from teenage users to movie studios leveraging the website to push summer blockbusters directly to their target audience.
In September 2006, Peter Chernin, then News Corp. COO, told the company’s investors that popular web applications like Google‘s (NASDAQ: GOOG) YouTube and Yahoo!‘s (NASDAQ: YHOO) Flickr owed their success entirely to the ubiquity of MySpace. News Corp., according to Chernin, was going to take over the Internet. “If we build adequate if not superior competitors [to YouTube and Flickr], I think we ought to be able to match them if not exceed them.” Eighteen months later, Facebook surged past Myspace’s monthly traffic. News Corp.’s $580 million social network has spent the last three years stagnating, surviving as a low cost marketing tool while losing millions in advertising revenue with each passing quarter. Traffic has fallen -20% from those 2008 heights and according to News Corp. themselves, Myspace loses about $100 million every year. Now what?
Jon Miller, News Corp.’s chief digital officer, and Myspace CEO Michael Jones unveiled a “dramatic remake” of Myspace yesterday in a final effort to try and save the floundering social network before selling it off and ceding the market to Mark Zuckerberg’s Facebook. The redesign of Myspace’s interface is long overdue, replacing the dense, text-heavy, and advertising riddled profile pages with a more sleek and streamlined interface that recalls, unsurprisingly, Facebook. With the redesign comes a renegotiation of News Corp.’s long-standing advertising contract with Google.
It was that $300 million contract that led to the over-crowding of Myspace’s pages. The contract, instituted in the middle of last decade, rewarded pages hosting Google ads based on page views and so Myspace naturally added as much of Google’s contextually generated text advertising to the site. The crowded design pushed users away contributing to the already growing migration of under-35 web users to competitor Facebook. The site’s networking tools also became increasingly awkward to use, becoming more complex as issues of privacy became talking points in media coverage. As former Myspace executive Jason Hirschorn told Bloomberg, “Myspace has no respect for user experience.”
The redesign is spearheaded by Myspace CEO Michael Jones, who has acknowledged the challenge of relaunching both the brand and enterprise but thinks the revamp should improve the site’s fortunes. Jones joined Myspace last year, coming from AOL (NYSE: AOL) where he worked as a senior vice president in the company’s social network division. During Jones’ time with AOL, when the company was still a subsidiary of Time Warner (NYSE: TWX), Myspace was a client leveraging AOL’s online chat technology. While Jones has access to greater resources through News Corp to build a stronger Myspace business than he had through Time Warner at AOL, it’s likely that he will have as much success re-growing the brand as he did with AOL. News Corp. investors should encourage the company to sell off Myspace and focus efforts in the social network market elsewhere.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
