2011-06-30 12:40:19
NEW YORK (Reuters) - News Corp has sold Myspace for $35 million, a fraction of
what it paid for the once-hot social media site even as a new generation of
Web-based start-ups is enjoying sky-high valuations.
Advertising company Specific Media will team with the singer Justin Timberlake
to acquire Myspace in a deal that caps a tumultuous period of ownership under
Rupert Murdoch's News Corp, which swooped in to buy Myspace for $580 million in
2005.
At the time, Myspace was among the world's most popular websites, and News
Corp's success in beating out rival Viacom Inc in a bidding war was viewed as a
major victory for Murdoch. Since then, however, Facebook has eclipsed Myspace
in popularity, and the deal has become a hard lesson in what can happen when a
traditional media company imposes its will on a start-up.
It also shows how quickly audience -- and investor -- tastes can shift in the
world of social networking. Indeed, Wednesday's deal contrasts sharply with the
current frenzy over social media companies, including LinkedIn, Twitter and
Groupon, among investors looking for the next big thing.
Another of the hot start-ups, Zynga, an online social game company, plans to
raise up to $2 billion in an initial public offering that could be filed by
Thursday, valuing the company at $20 billion
"This is a mistake that will repeat itself," James McQuivey, an analyst with
Forrester Research, said of the Myspace saga. "I'm not sure that someone being
pushed on by early round investors, someone reading their own press, which is
praising them, will stop and say, 'Wait, is this a one-year fad, a two-year
fad? Or is this a five-year to ten-year change in the way things are done?'"
The Myspace transaction calls for News Corp to retain a minority stake in the
website, the companies said in a statement, confirming a deal that was reported
earlier.
Specific Media, which specializes in digital advertising, did not disclose
financial terms. It announced, however, that Timberlake -- who happens to have
played Facebook adviser and investor Sean Parker in the movie "The Social
Network" -- would take an ownership stake and serve a "major role" in
developing a strategy for Myspace.
A source familiar with the transaction said the deal is worth $35 million and
is a mix of cash and stock. News Corp will retain about 5 percent, the source
said.
Additionally, more than half of Myspace's 500-strong workforce is expected to
be laid off because of the sale, the source said.
The deal comes after a four-month bidding process in which a number of
different possible buyers surfaced, including other social networking sites and
private equity firms. The auction had been expected to fetch in the
neighborhood of $100 million.
In the end, the sale serves as the latest example of what can happen to a once
coveted company with a rocket-like trajectory that quickly loses its luster as
competitors zoom past it in popularity.
Founded in August 2003 by Chris De Wolfe and Tom Anderson, Myspace was
conceived as a way for friends and fans to connect with one another as well as
with their favorite bands and artists.
Myspace, a kind of musical version of pioneer social network site Friendster,
fast became wildly popular with teenagers and young adults, who spent hours
designing their own pages with their favorite digital wallpaper, posting photos
and adding friends.
At its peak in 2008, Myspace attracted nearly 80 million people in the United
States, almost double that of Facebook.
The growth was too fast and Myspace had trouble scaling the number of users who
were flocking to the site. Meanwhile Facebook had opened up its platform to
third-party developers, such as Zynga and its popular FarmVille game. That
attracted more people and kept them on the site.
By 2011, the number of U.S. visitors to Myspace fell to about 40 million while
those visiting Facebook totaled about 150 million, according to online
measurement firm comScore.
For the quarter ended March 2011, News Corp reported a segment operating loss
of $165 million, mainly due to declines at Myspace.
(Additional reporting by Paul Thomasch; Editing by Bernard Orr, Steve Orlofsky
and Matthew Lewis)