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How MySpace Blew It
Bryan Charlton / AP Photo
In 2005, Rupert Murdoch was hailed as a visionary for snapping up MySpace. Today, as Facebook and Twitter fuel a historic uprising, MySpace announced its second round of layoffs in a week. Lloyd Grove on what went wrong.
Last week, as Iranian reform candidate Mir Hossein Mousavi was blasting out messages through Facebook—and Twitter was becoming a tool of the revolution—MySpace took a different tack: It slashed nearly a third of its staff. Today the site announced the elimination of two-thirds of its international staff and the closing of four offices outside of the United States.
The move represents a remarkable reversal of fortune since the titanic struggle between Viacom and News Corp., barely four years ago, over who would win ownership of MySpace, then considered a glittering prize.
Barely four years later, it looks like Viacom dodged a bullet—and News Corp. seems to be hemorrhaging money from the deal.
In the summer of 2005, News Corp. mogul Rupert Murdoch, the victor, was hailed as a swashbuckling visionary for stealing this supposed diamond in the rough from under the nose of Viacom’s controlling stockholder, Sumner Redstone. The $580 million price tag was aggressive but entirely justified, so went the conventional wisdom, as the deal gave Murdoch’s media conglomerate a valuable foothold in the brave new world of online monetization.
Barely four years later, it looks like Viacom dodged a bullet—and News Corp. seems to be hemorrhaging money from the deal.
Hollywood screenwriter William Goldman once famously remarked about the entertainment industry: “Nobody knows anything.” It turns out the axiom applies to the Internet, as well. The brief history of the World Wide Web—and mankind’s valiant efforts to wring profits out of same—is replete with confirming evidence of Goldman’s axiom, a kind of unified field theory of cluelessness that has yet to be disproved.
The landscape is littered with the casualties of cyber-capitalism, starting with the disastrous merger of AOL and Time Warner, which vaporized an estimated $120 billion in shareholder equity. There have been countless other miscalculations—for instance, Yahoo’s disastrous rejection of a $47.5 billion bid from Microsoft. Two years later, Yahoo’s market capitalization is less than half that sum—a piece of good news for Microsoft, which itself is reportedly losing an alarming $2 billion a year from its online businesses. Time Warner splurged $850 million for the European social networking site Bebo—and even CEO Jeff Bewkes didn’t defend that price when I interviewed him last year.
Arguably, CBS Corp., the other public company that Redstone controls, vastly overpaid when it splurged $1.8 billion last year for CNET, a collection of Web sites that have yet to unleash their value.
The latest proof of Goldman’s axiom is the sad story of MySpace. In 2005, it was acclaimed as the planet’s hottest social-networking site. Today it is widely considered an ailing property, having slashed overhead to confront the new reality in which it will no longer have Google to prop up cash flow: The search giant is pulling the plug on a reported $300 million in annual payments for the privilege of using MySpace as an advertising platform.
Recent reports cite ominous stats showing that fast-growing Facebook, with more than 70 million monthly visitors domestically, has finally overtaken its older rival, which is coping with a shrinking user base and page views, declining revenue, and no obvious strategy to reverse a slide into the abyss.
It has been, to be sure, a dizzying drop from “hot” to “on life support.” And yet neither diagnosis might be correct—or, for that matter, both of them might be. Because nobody knows anything.
Back in 2005, the proud and blustery Redstone was, by his own account, deeply embarrassed by Murdoch’s supposed triumph—which he publicly blamed on the alleged timidity of Viacom’s chief operating officer, Tom Freston. A few months after Murdoch’s acquisition, the eightysomething Redstone punished Freston by promoting him to Viacom’s top job, CEO.
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philipkd
I don't think if Redstone bought Facebook back then it would be as successful as it is today. Since then, Facebook has had maybe 5-10 dramatic changes that held existential risks for the site, and could have driven the company to where MySpace is now. At the same time, if those risks had not been taken, it could also have led it down the MySpace route. I doubt Facebook would have done anything like that, and instead, the suits would have just said, "more of the same!" and "let's make money!"
Margot62
Beyond the nuts and bolts, from a consumerist level, MySpace failed to change with the times. As a 40-something mother, I can attest to the fact that all of my high school and college friends have Facebook accounts. Adults are becoming as big a share of users of Facebook than students.
JoshAus
But therein lies the future death of Facebook too Margot. How many teenagers do you think are rushing to sign up to Facebook when their parents are using it? Worse than that, I know a lot of teenagers that are abandoning any real activity on Facebook because their parents have basically forced them to add them as "friends" making planning a social life out of their parent's eyes next to impossible. They of course maintain their Facebook site to keep mummy and daddy happy, but their real onlife activities are elsewhere.
bryanlevi
That is a really good point re: parents. In the last couple weeks I have seen a sudden surge of people's parents on FB, including an attempt by mine... and I am no teenager, btw.
This upsurge of parents on FB is definitely sucking some of the fun out of it. I am sure something will replace FB eventually...
squiggy
Facebook and twitter represent the howl of the human soul that government, religion and society have tamped down. If Murdoch wishes to charge for this service he will find a way but rest assured people will find another outlet which conventional wisdom tells them buying hardware, software and internet connectivity are payment enough.
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Rdschenkel
Myspace has been very buggy lately, this layoff may explain why.
souffrantfleur
Above and beyond all the issues on MySpace, Ruppert Murdoch himself was the kiss of death for the site. Well- that, and all those e-mails from Tom.
pooba007
Exactly. The man runs Fixed News. Enough said.
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mikefromArlington
The quality of everything Murdock touches turns into garbage. Fox News..garbage. New Yorker, WSJ...garbage garbage.
Murdock has a way of turning everything he touches into tabloid trash. Murdock is trash himself.
I'm not surprised.
oldpunk
Yep it could not of happened to a nicer guy lol
kcbrady
Don't get too excited ... Facebook isn't making money either. Murdoch is a trashman, but he's not the reason MySpace is tanking.
mredder4
MySpace started as a social-networking site and devolved into a pure advertising platform. I initially had MySpace, then got Facebook. I didn't enjoy FB, because MyS (not to confuse it with Microsoft) had more things that I wanted at the time. That changed. My post-college friends and family all ended up on FB, and then MyS was purchased. Slowly but surely, ads crept in, taking up more and more space. This culminated in the "complete ad page" style that started popping up. It wasn't enough to drop an ad in the header or the sidebar, it had to consume the whole page, including the background, whether you wanted it to or not. No choice and obnoxious advertising shoved in your face? I'm no businessman, but I am a young consumer. That isht doesn't fly with people my age. So now I left MyS and use FB exclusively. (I'm not vain or vapid enough to get on Twitter)
Murdoch tried to wring every dollar he could out of MySpace, and he did. I just bet that he assumed he would be able to do it for longer.
Mike-Hartley
Wasn't it only his own publications that hailed him 'as a swashbuckling visionary'? It's easy to get good press when you own it. MySpace always looked like the trash it is proving to be.
Old Media strategically trashed online, devalued it, then tried to jump in, having trashed their future, only to find they had no idea what they were doing and someone had trashed it.
When Old Media write articles about what's happening to the media, they don't see this (being Old Media). So we'll probably get more articles in the future about the online genius of lets say Si Newhouse and Anna Wintour. Then we'll get articles that they have failed, even though they had failed before they started.
Murdoch's acquisition of MySpace looked like desperation at the time and looks even more that way now. The only surprise is anyone ever truly thought he 'was a swashbuckling visionary'.
snidleywhiplash
Lloyd Grove?!?! Seriously? The architect of a shockingly dumb plan to turn Yahoo in to a major entertainment and media powerhouse, and ended up spending hundreds of millions on fancy Hollywood offices and *zero* revenue-generating content. This is the guy who's going to 'splain how MySpace went off the rails? Dr. Oblivious, heal thyself!
citivas
I completely agree that MySpace has proven a disappointment and long ago lost momentum to Facebook. Personally I never got the hype - it was just the latest in a series of personal home page sites that had come and gone since the mid-90's and just happened to hit at the right moment versus its predecessors. More importantly, when News Corp bought it there was no clear definition of how they were going to integrate it to make it better as part of News Corp than it could be on its own.
All that said, I have several issues with this story. First, it completely leaves out the fact that shortly after acquiring it News Corp made a deal with Google that guaranteed it revenue over a few years that is a multiple to its purchase price. Typically companies are valued on multiple years worth of earnings, and internet companies often on 20 years of earnings. So to get a billion dollar contract from Google after just paying $500 million was a major bonanza, regardless of whether the company later lived up to that potential. Redstone's interview with Rose was after this deal and that's why he was trying to distance himself from the decision not to buy it - because the Google deal made it an instance good buy on that basis alone.
Second, the article leaves out that while Facebook and Twitter have traffic momentum, MySpace still makes more money than they do combined. Facebook has yet to demonstrate that it can convert traffic into decent revenue and Twitter has even farther to go to demonstrate this. MySpace on the other hand has a clear monetization model.
Third, it was never credible that Redstone could have acquired Facebook for $2 billion so its disingenuous to report that only to add to the character of the piece. Viacom was in line with many other big players including Microsoft who aggressively tried to acquire Facebook several years ago but it was not for sale. There was lots of press about the possibility but no credible evidence that Facebook and its backers were ever on the verge of accepting a deal.
Again, I am not a defender of MySpace, simply pointing out that it is crazy to paint the deal as a financial disaster. The real story is about MySpace as an example of how virtually every dot-com that is acquired by a mega-company ends up losing momentum. Even Microsoft and Google often stifle their acquisitions. Facebook is the exceptional start-up that said no to all suiters and has grown the fastest since.
ginsushark
Myspace is over run by robots and spam. The ads burn my eyes. There are no humans on that site any more. the only 3rd party software on that site are the spambots.
Facebook won a generation with its restricted (school only email addresses) access. Parents bought into it and it became the defacto page for high school kids. And then college kids as they grew up. the rest followed.
Josh-Narins
That sorta was it, wasn't it? Restricted access to real people.
I have never needed to "block" anyone on Facebook, as far as I can recall.
Unlike the Daily Beast, which won't let me filter out those voices I know I will never, ever need to hear.
pegster6
I'm in my mid-50s and never wanted any social networking site membership. Call me one of the privacy obsessed. Now my favorite conservative bloggers all have Facebook (and Twitter) contacts and to be politically connected up to the minute you have to succumb to an extent. I'm familiar with MySpace and it leaves me cold.
I'm actually looking to join whatever the government cannot control. Hopefully there will always be something.
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