Why Ross Levinsohn Is Leaving News Corp.

The executive who advised Rupert Murdoch to acquire MySpace will likely join a startup. "I like building," he says

Ross Levinsohn, the News Corp. executive who put Rupert Murdoch's media empire on the digital map, says the online market is still exploding with opportunity. Levinsohn, who conceived of News Corp.'s (NWS) acquisition of social networking phenomenon MySpace (see BusinessWeek.com, 8/9/06, "Fox to Make MySpace More Spacious"), announced his resignation late on Nov. 16. "I have some opportunities," Levinsohn, 43, told BusinessWeek.com on Nov. 17. "It's the most exciting time in the history of the business, and I like building."

He declined to elaborate on the nature or timing of his next move. But industry analysts expect he'll likely join a startup, not another major media company. "It is our understanding that he is planning to pursue earlier-stage ventures," says Merrill Lynch (MER) media analyst Jessica Reif Cohen. She called Levinsohn's departure a "slight negative" for News Corp., on which she maintains a "buy" rating. News Corp. shares fell 10 cents to $22.09 on Nov. 17.

Door Not Entirely Closed

In a strange twist, Levinsohn will be succeeded by his cousin, Peter Levinsohn, an 18-year Fox veteran with a strong background in television. He has been head of digital media at Fox Entertainment since 2004 and helped negotiate a revenue-sharing and digital-distribution deal that made Fox TV available online at MySpace and other Fox Interactive Media (FIM) sites. He also negotiated digital-distribution deals that made Fox TV shows available at Apple's (AAPL) iTunes store and other sites. Peter Levinsohn wasn't available for comment, a Fox spokeswoman said.

The departure of Ross Levinsohn surprised even many seasoned industry observers. Critics suggested last year that he had overpaid for MySpace, but News Corp. CEO Rupert Murdoch told investors this week that he believes he could now sell the business for $6 billion. Even conservative analyst estimates suggest it's worth $2 billion.

The company bid Ross Levinsohn a warm farewell and even suggested that a partnership with his new venture may be possible. "Ross has done an incredible job over the past couple of years.…His strategic vision helped us to establish a strong Internet presence in a very short time and we are enormously grateful for his many contributions. I know Ross will be successful in whatever he chooses to do next and we hope there is an opportunity for us to participate," News Corp. President Peter Chernin said in a statement.

The Other Levinsohn

Even so, there were suggestions from News Corp. that it might not be a bad time for a change in leadership. "It was a mutual decision," News Corp. spokeswoman Teri Everett said. She declined to elaborate on why News Corp. executives would want a switch. But one stock analyst said Peter Levinsohn was known as more of an operating executive.

"We view Peter Levinsohn's appointment to lead FIM as an indication that all the major puzzle pieces are in place at FIM and that no major acquisitions are forthcoming. At this point, the division is likely to focus on organic growth opportunities and operational improvements.…This shift in focus requires a different set of managerial skills.…Peter Levinsohn's operational experience makes him a natural choice," Cohen said in a report.

It's not clear, however, whether Peter Levinsohn has run anything as large as FIM, which has at least 1,200 employees. And if News Corp. wanted an executive who had run large Internet companies, it could have looked outside. Time Warner (TWX), for example, recently ousted Jonathan Miller as head of its AOL unit.

FIM's Future: Revenue Sharing

The transition of the media and entertainment business to an online model is in the early stages, however. It's not necessarily clear that News Corp. won't make further acquisitions in the market.

But there's no question Peter Levinsohn takes over at a time of transition for FIM. News Corp. doesn't disclose the division's revenues, but it's expected to break even in 2007 as it moves past the startup phase. It has already made a string of acquisitions, such as gaming site IGN, movie review site Rotten Tomatoes, and the sports news site Scout (see BusinessWeek.com, 5/2/06, "News Corp.'s New Net Bets").

Peter Levinsohn's experience building revenue-share models for the digital age could come in handy. On Nov. 17, Vivendi's Universal Music Group announced that it was suing MySpace over copyright issues. YouTube—which was recently acquired by Google (GOOG) for $1.65 billion (see BusinessWeek.com, 10/30/06, "What Comes After YouTube")—also faces the possibility of suits from content owners.

Finding a way to share revenue with content owners such as Vivendi will be crucial as MySpace and FIM continue to grow.

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