News Corp. to Sell MySpace; Good Riddance

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Media giant News Corp. (Nasdaq: NWS  ) has officially set in motion the sale of the former leading social networking site MySpace. The company has roped in the boutique investment bank Allen & Co. to handle the sale processing. Word has it Murdoch and Co. have already heard from about 20 interested parties and are expecting to hear from others in the coming weeks.

The story so far
In July 2005, News Corp., led by Rupert Murdoch, took over the reins of the then most popular American website MySpace. The company beat MTV owners Viacom (NYSE: VIA  ) to the deal by offering Intermix a whopping $580 million. During its attempted merger with Yahoo! (Nasdaq: YHOO  ) in 2007, MySpace enjoyed, albeit briefly, a sky-high valuation of $12 billion. But things pretty much went downhill from there.

New kid on the block, Facebook went on to become the social networking world's darling and MySpace became increasingly unimportant. A clear indication of MySpace's irrelevance is that its daily traffic has almost halved in six months. In December, MySpace reportedly incurred an operational loss of $156 million, increasing the hemorrhaging from the year before of $125 million. Whereas parent company News Corp. raked in revenue of $642 million in the same quarter, almost double its last quarter earnings. No surprise that management at News Corp. is seeing where the anchors on their business lie.  

A case of buyer's remorse
News Corp. had acquired MySpace at more than half a billion dollars and would be lucky to recover about $200 million from its sales proceeds. The media conglomerate has made a conscious effort to revamp the site somewhat to get a better deal out of its eventual sellout. In October, the site underwent a drastic overhaul to make it more entertainment-oriented, targeting an age group of 35 and below so it can appreciably differentiate itself from Facebook and Twitter. In doing so, the company handed almost half of its workforce pink slips to trim overall costs. But this is essentially just putting lipstick on a pig. Problems at MySpace go above and beyond cost and positioning. The winners in social media are being declared as we speak, and MySpace is nowhere to be found.

Exception to the rule
MySpace's troubles defy the recent trend in the industry. Web networking companies have witnessed sky-high valuations, a market trend I have been discussing a lot recently. The upcoming LinkedIn IPO, which values it at $2 billion, is likely to be followed by other social networking giants like Facebook and, at astounding valuations. All of them are expected to raise a lot of capital at their respective public offerings. On the other hand, MySpace seems to have completely lost its once-appealing market valuation.

Who will buy it?
Interested parties in MySpace include JNJ Mobile's social network MocoSpace. Social gaming giant Zynga is also a potential buyer. And, in fact, this might be a good match in more ways than one.

Zynga, the online gaming site, needs to spread its wings further than Facebook, and MySpace might provide that platform. With its recent handsome valuation, it is in a good position to make the purchase.

Rovio, the creator of Angry Birds, is believed to be another interested party. Venture capital and private equity firms are also expected to explore the opportunity to salvage something from the fading site. Private P/E firm Silver Lake Partners, which bought a majority stake in eBay's Skype, may just want to add the social network to its portfolio and perhaps consider reshaping the platform for more intensive peer-to-peer communication.  

The Foolish bottom line
Beyond MySpace itself, I sense that News Corp.'s decision to offload its losing acquisition is great news for those Fools who might have a stake in the larger media giant. The company does not need something to weigh down its accelerating media empire.

The company, which operates more than 27 television channels, has been making all the right moves. It has cut down on expenses and pushed up revenue. It recently launched the highly anticipated "The Daily," a publication exclusively for the growing masses on Apple's (Nasdaq: AAPL  ) iPad platform. The association with Apple provides a new channel to reach out to the market for the already well-established media company. As a Foolish investor, I'd relish the opportunity to get my hands on the company's stock, and I'd be cheering on this recent decision to lighten the portfolio of deadweight.

Aditi Baid does not own shares of any of the companies mentioned in this article. Apple is a Motley Fool Stock Advisor recommendation. Yahoo! is a Motley Fool Global Gains pick. The Fool has written puts on Apple. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 04, 2011, at 2:30 PM, bottomfisherman wrote:

    Look for Facebook to be the next social network flash in the pan disappointment within 2 years of their IPO.

  • Report this Comment On March 09, 2011, at 3:58 AM, LindsayLilHo wrote:

    Open Letter To News Corp:

    Dear Rupert, Chase, and Jonathan,

    Bet you never thought your mistakes, as well as the way you lie to people, would ever become public did you?

    I would assume it is hard to dispute the facts when there are correspondences and audio recordings of all communications that support said representations as it relates to the conduct and activities by, or on the behalf of, News Corp, MySpace, and/or its representatives.

    If Chase, Jonathan, or Rupert would personally and on behalf of News Corp and MySpace provide authorization and permission to release all correspondences and recorded telephone conversations related to this matter. We would be willing to accommodate that request by providing them to you and several media outlets, including Fox News, all related materials so that a “fair and balanced” determination could be made as to how News Corp does business.

    This shall also allow outside individuals, parties, and the pubic to determine how badly Carey and Miller, through their activities and conduct, destroyed MySpace and drove it from a success to a complete failure.

    As a result of their unwillingness further discuss and initiate a process that would have generated the stated revenues and results as referenced due to their egos and greed obstructing their ability to apply common sense and to utilize their brain matter. They have effectively destroyed MySpace and drove its value down more than any other decisions associated with the decline and eventual failure of MySpace.

    We shall see if Carey, Miller, or Murdoch is willing to let the public in on the truth, and provide authorization so that the referenced material may be released, as well as all related documentation in support of the representations that have been made as it relates to this matter.

    Here are the facts; Carey and Miller were given the opportunity to change the direction of MySpace last year with a proposal that would increase net profits of MySpace to 1.5 billion dollars by the third year.

    Based on our experience with News Corp, Carey, and Miller no one should trust any of them.

    They wanted us to disclose the plan to them without any written agreement in place. When that was refused, there were no further discussions.

    I would venture to guess anyone they claim to be offering more than 10 million dollars for MySpace would be another one of their lies.

    It is believed that the damage that Carey and Miller have done to MySpace has brought the value of MySpace down to nothing.

    Anyone willing to pay the 50 to 200 million dollars MySpace alleges would mean one of two things. EITHER THEY LIED TO MYSPACE ABOUT WHAT THEY WERE WILLING TO PAY,,,,



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