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.