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News Corp.'s Place in MySpace

By Steve Rosenbush In less than two years, MySpace has emerged as one of the hottest sites on the Web. It has more page views than Google (GOOG). And with 22 million members, and a growth rate of 2 million a month, it stands to rival MSN (MSFT), Yahoo! (YHOO) and AOL (TWX) as one of the major destinations on the Web.

With a heavy focus on music, it has become a part of daily life for teenagers and young adults nationwide. Members create highly personalized home pages loaded with message boards, blogs, photos, and streaming music and video. People use it to stay in touch with friends and meet other people. Driven by the expressiveness of its members, the social-networking site has emerged as an important channel for online advertising. TV shows and new music are often debuted on MySpace.

CAUGHT ON QUICKLY. Now it has drawn even more major attention, in the name of big bucks. On July 18, media conglomerate News Corp. (NWS) revealed that it's buying Intermix Media (MIX), the company that owns MySpace and about 30 other sites, for $580 million in cash. Los Angeles-based Intermix owns 53% of MySpace and plans to buy the rest. It will become part of News Corp.'s new Fox Interactive Media unit, which was created on July 15 and also is based in L.A.

As word spread of the acquisition, News Corp. stock was practically unchanged in trading on July 18, with shares closing down 2 cents, to $17.45. Shares of Intermix were up 9.5%, to $11.74.

"I've been in the Internet space for 12 years, and I've never seen a company grow and catch on at the rate that MySpace has," says Fox Interactive President Ross Levinsohn. The deal reflects Fox's ambitions to establish a premier presence on the Web.

REMAKING THE SHOW? MySpace has quickly beat back other social-networking sites such as Friendster. It has more than 14 million unique visitors a month, compared with Friendster's 1 million, according to market researcher comScore Media Metrix. But MySpace CEO Chris DeWolfe and President Tom Anderson have had much more in mind than just being the next Friendster. In an interview with BusinessWeek in May, they expressed a desire to become a lifestyle portal rivaling Yahoo, MSN, and AOL in size (see BW Online, 6/13/05, "Hey, Come To This Site Often?").

The News Corp. deal could help the MySpace execs realize their ambitions. Fox can contribute massive amounts of capital to the site grow. It already rivals Viacom's (VIA-B) MTV as the main distribution channel for new releases in the alternative-rock market.

It has also proven itself as an ad and marketing medium. The premier of the NBC (GE) comedy series The Office occurred on MySpace. And Billy Corgan, the singer and former leader of the rock band Smashing Pumpkins, debuted his new solo record, TheFutureEmbrace, on the site.

CALIFORNIA SCHEMING. MySpace has the potential to disrupt the ways business is usually done in media and entertainment. "Now that MySpace is here, bands don't necessarily need a label to be heard," Corgan told BusinessWeek Online in an interview in May (see BW Online, 5/31/05, "'A Way To Connect With My Fans'"). If this becomes true for musicians today, it also could be true for filmmakers tomorrow.

Why has MySpace succeeded where others have generated buzz but then failed? The answer is, partly, a matter of geography. It emerged from the L.A. music and club scene, drawing on Anderson and DeWolfe's friends for early support. It wasn't concocted byilicon Valley tech types or New York bankers. It was born in a city that's geared toward media and entertainment, not technology or finance. And like other great exports from Southern California -- such as Hollywood and surfboards -- MySpace tapped into the country's psyche.

Where other sites tried to be useful, sensible, and safe, MySpace endeavored to be exciting and fun. The early users included lots of models and musicians. As it happened, MySpace also has exploited technology to the max, making use of blogs before many rivals did. But the technology has always had a point -- allowing users to customize their sites and let their personalities shine through. And MySpace never sought to overly control the often riotous self-expression that followed.

"THEY'RE VERY SMART." Levinsohn of News Corp. is careful not to hype the potential synergies. He says he wants to let MySpace go about its business, supporting Anderson and DeWolfe as needed. If it makes sense to launch a new Fox show on MySpace, the company will do it. But it appears to not plan on shoving those synergies down anyone's throat.

Plus, News Corp. doesn't expect to shut rival networks and media companies out of MySpace, either. Perhaps the deal's greatest benefit is that it will help Fox spot the next important trend before it gets too big. "They're very smart, and we're going to let them continue to do what they do," says Levinsohn.

With this deal, Fox Interactive Media has taken a major step forward, after being overshadowed on the Web by companies such as Yahoo. Fox has a good understanding of what works and what doesn't, and it's willing to invest money and take risks. And the sheer magnitude of the all-cash deal shows that traditional media companies are figuring out that the Net is emerging as a primary channel for the distribution of news and entertainment.

Rosenbush is a senior writer for BusinessWeek Online in New York

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