Murdoch sells MySpace for massive loss
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 companies 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 paid $580 million for MySpace in its 2005 pomp.
At the time, MySpace was among the world’s most popular websites, and News Corp’s success in beating rival Viacom in a bidding war was viewed as a major victory for Murdoch.
In 2007 it was valued at $12 billion, but Facebook has eclipsed it 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.
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?
It also shows how quickly audience tastes can shift in the world of social networking.
Indeed, the deal contrasts sharply with the current frenzy over social media companies, including Facebook LinkedIn, Twitter and Groupon, which have been valued at tens of billions of dollars recently.
“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’?”
Staff layoffs ahead
Specific Media, which specialises in digital advertising, did not disclose financial terms, but said Timberlake – who played Facebook investor Sean Parker in the The Social Network – would take an ownership stake and serve a “major role” in developing a strategy.
A source familiar with the transaction said the deal was worth $35 million and was a mix of cash and stock. News Corp will retain about 5%, the source said.
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 between other social networking sites and private equity firms. The auction had been expected to fetch some $100 million.