News Corp. made it official on June 16 that MySpace's days as a highflier are over, at least for now. Just five weeks after naming former Facebook finance chief Owen Van Natta CEO of the social network, News Corp. (NWS) said it's cutting about 400 jobs. In doing away with 30% of his staff, Van Natta was none too charitable. "Simply put, our staffing levels were bloated and hindered our ability to be an efficient and nimble team-oriented company," the executive said in a statement.
The remarks were an apparent jab at Van Natta's predecessor, MySpace Co-Founder Chris DeWolfe, who had resigned two days before Van Natta took over. Under DeWolfe, MySpace initially flourished, becoming the world's largest social network and catching the eye of News Corp. CEO Rupert Murdoch, who bought it for $580 million in 2005.
Higher Costs, Lower Revenue
More recently, MySpace lost the No. 1 spot to Facebook and has failed to deliver the revenue boost Murdoch hoped for. DeWolfe, a marketing exec known for his pointy boots and aggressive style, pushed MySpace into such new ventures as online video production and streaming music to make the site more attractive to users and advertisers alike. Instead, the new services deepened losses at MySpace. "MySpace grew too big, considering the realities of the marketplace," Jonathan Miller, head of News Corp.'s digital media operations, acknowledged in the layoff announcement.
In its most recent quarterly report, News Corp. cited lower advertising revenue and the costs of launching the free music site, MySpace Music, as a key contributor to an $89 million loss in the unit that includes MySpace. The social network also was buffeted by an ad revenue downdraft. The $5.5 billion advertisers spent online in the first quarter was 5% lower than a year earlier, according to the Interactive Advertising Bureau and consulting firm PricewaterhouseCoopers. In 2006, MySpace clinched a three-year ad-placement agreement with Google (GOOG) worth $900 million. If extended when it expires in October, the ad deal is likely to be worth less.
DeWolfe's Fall from Grace
MySpace's descent was mirrored by a souring of relations between DeWolfe and Murdoch, who for years was DeWolfe's closest ally, according to those inside the company. Murdoch, who once saw MySpace as the key online distribution outlet for his company's TV shows, movies, and other content, brought in Miller, former chief executive of Time Warner's (TWX) AOL, as head of News Corp.'s digital media operations on Apr. 1 in what was largely seen as a repudiation of DeWolfe .
While hemorrhaging money, MySpace also was losing its long-held lead among social-network sites, which according to insiders further alarmed News Corp. executives. The fast-growing Facebook site, which last year passed MySpace in foreign markets, in May edged past the News Corp. site in the U.S. as well. According to figures released on June 15 by comScore (SCOR), Facebook's users nearly doubled in the past year, to 70.28 million, just ahead of MySpace's 70.26 million. MySpace lost 5% during that same period.
By the time the comScore numbers confirmed Myspace's decline, News Corp. executives were on their way toward cutting costs to rein in the empire that DeWolfe and fellow MySpace founder Tom Anderson envisioned. Fox Interactive Media, the unit that houses MySpace, has abandoned plans to lease a 420,000 square foot building in tony Playa Vista. The lease would have cost $350 million over 12 years.
MySpace could take other steps to cut overhead. It has aggressively pushed into foreign territories in recent months, in addition to adding content areas. Miller is no stranger to reducing bloat, having laid off 7% of AOL's workforce at one point and creating $75 million in savings. "This restructuring will help MySpace operate much more effectively both structurally and financially." The question then becomes whether a leaner MySpace can compete any better with Facebook, and resume its ascent.