A billion dollars or so can certainly boost one's ambitions. Even for someone like Rupert Murdoch. On Aug. 8, Murdoch's News Corp. unveiled a deal with Google (GOOG) in which the Net giant will pay $900 million to take over the search engine for the social networking site MySpace, which is part of News Corp.'s Fox Interactive Media.
Now, Fox Interactive Media (FIM) is redoubling its efforts to grow MySpace and its other Internet properties. The next major step is just weeks away, BusinessWeek.com has learned. MySpace, which already operates in Australia and Britain, plans to launch a site for France by the end of the month, FIM president Ross Levinsohn said in an interview. Two more national markets are scheduled for launch in September, he said. They likely will include one market in Europe and one in Asia.
ROOM TO GROW. FIM also is bulking up its staff overseas, according to Levinsohn. It has hired a managing director for Europe, David Fischer, a veteran of AOL (TWX). Fischer, an American, has lived in London for more than a decade, Levinsohn says.
In addition, FIM is planning to boost its investments in online video, in a direct assault on the wildly popular YouTube. The company plans to boost staffing for MySpace Video and add more video content from News Corp. as well as from other contributors. "YouTube gets all the buzz," says Levinsohn. "But MySpace video is 60% to 70% of the size of YouTube. Nobody recognizes that." (See BusinessWeek.com, 4/10/06, "YouTube: Way Beyond Home Videos.")
MySpace certainly has plenty of room to grow overseas. MySpace had 54.5 million monthly unique visitors in the U.S. as of July 5, according to Michael Rubin, an analyst at comScore Media Metrix. But MySpace had only 8.8 million monthly unique visitors in Europe, including about half a million in France. It had 3.6 million in the Asia-Pacific region.
YAHOO REVERSAL. News Corp.'s agreement with Google took months of negotiation and lots of management time. But Levinsohn said it was worth the effort and will help FIM move forward. "I think this brings us great clarity," he says. "It was the most important decision we were going to make strategically and financially. It gives us the clarity to move forward with the expansion of our business."
Google beat out current MySpace search partner Yahoo! (YHOO), as well as Microsoft's (MSFT) MSN and IAC/InterActive's (IACI) Ask.com (see BusinessWeek.com, 8/8/06, "Google Gets Back into MySpace"). As part of handling the search engine for FIM, Google will place text ads alongside the search results generated by MySpace users. Separately, Google has signed a deal with Viacom's (VIA) MTV to pair customized advertisements with the media company's videos as they're distributed on the Web (see BusinessWeek.com, 8/7/06, "Google's Duet with MTV").
Yahoo executives were quoted Monday as saying the MySpace deal didn't make financial sense for them. Levinsohn expressed a bit of pique with Yahoo, noting that Yahoo CEO Terry Semel personally pitched a search deal to News Corp. executives last week at their corporate retreat and strategy session in Pebble Beach, Calif. Google co-founder Sergey Brin pitched there as well. "Some of the things that are coming from Yahoo today are pretty surprising, given how serious they were about wanting the deal. Semel was at Pebble Beach. They are in trench warfare and the other side just got reinforcements," he said (see BusinessWeek.com, 8/09/06, "Yahoo's Lost Bid Doesn't Spell Doom").
BACK TO THE CORE. News Corp.'s search agreement with Google has confounded critics who were skeptical that the company could make a viable business out of MySpace and other Web properties. The deal provides FIM with a minimum of $900 million in revenue over the next four years provided that FIM hits certain undisclosed traffic targets. The all-cash deal helps FIM become a source of meaningful revenue and profit for the media giant controlled by billionaire Rupert Murdoch. "Fox Interactive Media's agreement with Google illustrates how MySpace (and social networking more generally) has become a 'real' business," analyst Richard Greenfield of Pali Research said in an Aug. 8 report. Greenfield, who has a "buy" rating on News Corp., expects that MySpace alone will generate $300 million of revenue in fiscal year 2007 and at least $450 million in fiscal '08. More than $200 million in 2008 revenue will come from Google, Greenfield says.
The Google deal may be just the beginning of FIM's ramp-up. As Greenfield notes, there are plenty of potential revenue sources that aren't covered by the Google deal. The deal includes text ads on searches generated by MySpace users. It doesn't include display advertising, video advertising, or ads on key MySpace destinations such as the homepage, the main music page, or the main comedy page, he says.
Levinsohn says FIM realized that it couldn't develop its own search engine and advertising network and expect it to match the capabilities of Google, Yahoo, or the other bidders. Now that it has a first-rate partner in those areas, FIM can focus on its core areas. "We have got to go back to developing content and tools for consumers and expanding our network," he said.
BIG BOOST. Levinsohn says that a key part of that effort will be in MySpace Video. The operation has achieved its current size with just "a product manager and a half, and they are doing great," he says. He knows the company needs to boost that staffing so it can get to the next level.
MySpace Video will get an infusion of more content, too. FIM already has started to beef up the video site with professionally produced video from News Corp., and that will continue. MySpace Video will also work with video producers from outside News Corp., from other major media companies, or even from film school students.
Murdoch on Tuesday expressed confidence in the Internet acquisitions the company has made. "We leveraged our strong balance sheet by investing in businesses uniquely positioned in the expanding digital world," he said in a statement that accompanied News Corp.'s quarterly earnings report. He said, however, that no additional major Internet acquisitions were planned. News Corp. reported earnings on Aug. 8 after the market closed. Earnings for the quarter ended in June rose 19%, to $852 million, and revenues rose 11%, to $6.78 billion. The company doesn't break out results for FIM. But Merrill Lynch research analyst Jessica Reif Cohen said in a report Tuesday that FIM "could contribute 15% (or more) of News Corp.'s growth over the next three to five years."
There's still plenty of risk ahead for MySpace and FIM. A powerful rival could come out of nowhere, just as MySpace did two years ago. The process of turning MySpace into a big business could alienate users. But so far, Murdoch's big bet on the Internet appears to be paying off.
Rosenbush is a senior writer for BusinessWeek Online, based in New York
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