News Corp. lost a quarter of a billion dollars on MySpace sale

By Mike Flacy August 11, 2011

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During a conference call today concerning the News Corp. fiscal fourth quarter earnings report, it was reported that the news giant lost $254 million on the sale of MySpace to Specific Media on June 29. This loss pushed net income for the company down by 22 percent. Murdoch purchased MySpace in 2005 for $580 million, but watched the investment rapidly lose value as MySpace members defected to Facebook in massive numbers. Management at MySpace attempted to revitalize the image of the social network in 2010, but traffic continued to plummet through early 2011.

News Corp. put the social network up for sale in early 2011, but struggled to find a buyer for the minimum price of $100 million. Amazingly, News Corp.s still valued MySpace at being worth $300 million during the sale process, even though unique visitors have plummeted by more than half since 2008 according to comScore. News Corp. finally found a buyer in the form of Justin Timberlake, possibly channeling his inner Sean Parker, and Specific Media and sold the beleaguered social network for $35 million. Timberlake’s vision for MySpace specifically focuses on showing artists the value of the site. During the height of MySpace’s reign in the social space, the site was very popular among artists in the music industry.

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After the purchase was announced in June, CEO Mike Jones issued a statement that he would be moving on. The transition timeline for Jones comes to a close at the end of August 2011. Specific Media also plans to make significant restructuring within the company and reduce the amount of people at MySpace. The company already cut nearly 50 percent of the workforce in early 2011 which resulted in layoffs of about 500 employees. Specific Media hasn’t disclosed specific financial numbers on the current condition of MySpace, but did mention that the site is profitable. The company is planning a news conference later this summer to detail changes to MySpace.

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Entertainment

Justin Timberlake buys ownership stake in MySpace

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It's not often that you hear of someone switching from Facebook to Myspace. But in a surprising instance of life imitating art (that imitates life), Justin Timberlake did just that: The actor and singer has reportedly purchased an ownership stake in MySpace, along with fellow buyer Specific Media. The former N'SNYC member, who played Facebook president and Napster co-founder Sean Parker in The Social Network, will help revamp the diminished website, which the pair just purchased for a mere $35 million from News Corp. According to the Associated Press, Timberlake will take an office at the MySpace headquarters in Beverly Hills, and have a staff of about six people working for him "around the clock," as Specific Media CEO Tim Vanderhook put it. Specific Media hopes that Timberlake's celebrity and sway in the music community can help MySpace build upon its success with musicians."When we met with Justin and we discussed what our strategy was, we hit a chord with him," Vanderhook told the AP. "One of his passions is he really enjoys helping other artists and creating a community for people to really express themselves. I think we were blown away that we were able to get someone like Justin to be so excited about what we were doing."MySpace has been on a downward spiral for years, driven deeper as Facebook skyrocketed in popularity. The $35 million deal is a bargain compared to the $580 million News Corp paid for the site in 2005. (Facebook first launched in 2004.) That's a loss of $545 million, or 94 percent of the company's investment. Despite this, News Corp will retain a 5 percent stake in MySpace. Vanderhook says that, with Timberlake's help, they can breath new life into the website by focusing on video content, including original shows. The new MySpace will also involve a major upgrade in technology, as well as the an effort to maintain the rights to music that was posted to the site through its partnership venture with major record labels, MySpace Music. "There’s a need for a place where fans can go to interact with their favorite entertainers, listen to music, watch videos, share and discover cool stuff and just connect," said Timberlake in a statement. "MySpace has the potential to be that place."

Social Media

MySpace sold from the bargain bin at $35 million

A lot can happen in six years. Back in 2005, MySpace was king. The social network was crushing competitors like Friendster while Facebook was still in its infancy. The sky seemed to be the limit, and News Corp. was quick to take notice. In July of 2005 the media giant purchased MySpace for $580 million, and by August of 2006, the 100 millionth MySpace account was created.
But then things began to go wrong. The once dominant social network began to lose users by the droves. The reasons are many, but the result was that by April of 2008, Facebook had passed MySpace in traffic, and the company has been in decline ever since. News Corp. tried several times to reinvent and reinvigorate the property, but the downward spiral continued. Now after months of offers and several potential suitors, AllThingsD is reporting that a deal has been completed for the sale of MySpace, and all that remains are the signatures.
News Corp. new it would take a loss on MySpace, and it rushed to sell the property before the end of the fiscal year on Thursday. The original asking price was said to be in the neighborhood of $100 million, but according to the report, News Corp. has accepted the offer from Specific Advertising for $35 million with the provision that News Corp. will retain a small stake in the company of less than 5-percent.
Specific Advertising was a late entrant into the bidding, emerging as the front runner just yesterday. Founded in 1999, Specific Advertising helps advertisers to buy digital ads online, through mobile devices and on TV. The company also collects user data and information to help create targeted ads. As of May, Specific now reaches roughly 79-percent of U.S. internet users.
The sale will give Specific access to the 30 million or so MySpace users’ data to use for targeted advertisements, as well as giving the company a media platform of its own from which to sell ads. It isn't clear what happens next for MySpace, but it will begin with a housecleaning, and more than half of the current 400 MySpace employees will be out, including current CEO Mike Jones and the executive staff, who will remain in an interim role briefly.

Computing

Rumor: Myspace to lay off 37.5% of workforce on Wednesday

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It is rumored that Myspace will be firing 150 of its current 400 employees Wednesday this week. More than one source within the company is saying that the cull is certain.
Gawker spoke to a Myspace veteran with friends at the company who believes many are expecting and even hoping for the cuts. He said, “I think the management owes the employees severance because of the terrible management mistakes they presided over.”
There is speculation that the layoffs are an attempt to appear more attractive to potential buyers by being less bloated with costs. Myspace has already had a huge case of bulimia in January when it cut 47 percent of its 1,100 US and international employees, but that still wasn't good enough for anyone to take the social networking site off of News Corps' hands. Since 2009, Myspace has laid of more than 1,500 employees. These latest cuts will be about 37.5 percent of their staff.
It's still not clear whether this will be happening on Tuesday or Wednesday, but Myspace's fiscal year ends on Wednesday. TechCrunch reports that their own source is confirming that layoffs will happen. The 150 employee cut may also be related to a rumor that Myspace is being sold. TechCrunch says that the sale will be signed tomorrow and will be announced at the end of the week. There's no word on who the buyer is, though Activision's CEO Bobby Kotick is a frontrunner in the speculation.
It doesn't seem like such a bad deal for all sides. NewsCorp gets to hand over a company that lost 10 million users between January and February, and was steadily being drained of it's users by 14 percent each month. Employees that get laid off (who should have easily foreseen this) will not be pushed out into the cold. They'll get to take part in a transition plan where they can work and get paid while they job hunt, though this probably only last a few weeks.