Cold Cash From A Hot Site

Can MySpace pull in revenue fast enough for Rupert?

As numbers go, this one's a whopper. Last year MySpace users called up an average of 31.5 billion unique page views per month. That's as though everyone on the planet visited the site once a week. And yet, the big kahuna of social networking racked up a paltry $90 million in ad sales. Not exactly what Rupert Murdoch had in mind when his News Corp. paid $580 million for MySpace nearly two years ago.

Now Murdoch's bet may be about to pay off. This year, if everything goes according to plan, MySpace could generate ad revenues of some $271 million, figures Merrill Lynch & Co. (MER ) analyst Jessica Reif Cohen. She also predicts that in 2008 Fox Interactive Media (FIM), of which MySpace is the largest piece, will generate its first profit, an estimated $208 million (although an ad sharing deal with Google will account for some of that).

That's not to say getting there will be easy. Though page views were up 79% last month over the previous year, growth is slowing. Plus MySpace is aging: 41% of the traffic comes from people over 35 vs. 35% a year ago, says researcher Hitwise; not ideal for youth-obsessed advertisers. Then there is the small matter of putting ads on a site whose denizens are averse to anything that clunks up the experience. "Rupert was very straightforward," says co-founder Chris DeWolfe. "Don't compromise anything, but find a way to make money."

That's why MySpace is looking for content that will appeal to its finicky customers. DeWolfe and co-founder Tom Anderson pushed hard to be part of the initiative from News Corp.'s Fox unit and NBC (GE ) that will put prime-time TV shows on the Web as early as this summer. Says News Corp. President Peter Chernin: "It's free content and a guaranteed piece of advertising sales." To augment that, MySpace aims to double the already large number of consumer- made videos on the site by adding professionally made fare that commands higher ad rates. The first venture: a series of 90-second shorts called Prom Queen from former Walt Disney Co. (DIS ) CEO Michael D. Eisner that will begin appearing Apr. 1.

To make MySpace even "stickier"--and to generate more revenues--Anderson and DeWolfe are also working on an eBay-like service that visitors can use to sell tickets and merchandise from their personal pages. Plus, they're busy signing deals with cell-phone companies like Cingular Wireless (T ) to put MySpace on handsets. The company gets 70% of the $2.99 monthly fee that Cingular charges for its MySpace service.


But really cashing in will mean reinventing the ad business for the social networking world. Right now, MySpace sells the majority of its ads at rock-bottom rates: an average of $1.50 or so per 1,000 users vs. $40 or so for video sites. One way of getting rates up is to create customized ads. The site has shown it can be good at this. One innovation: setting up MySpace accounts for the likes of Pontiac and Burger King (BKC ), which are using contests and giveaways to make "friends."

MySpace also aims to enlist users in viral campaigns. Using contests and surveys, it plans to identify MySpacers with a ton of friends and a propensity to blather about products they love. "They're influencers and power users," says Michael Barrett, chief revenue officer for FIM, which sells ads for MySpace. Barrett, a longtime AMERICA ONLINE (TWX ) sales exec, is also building a major league ad sales team--doubling its members to 80 from last year. They have plenty of useful data to help develop a stealthy viral sales pitch. As MySpace users travel the site, they leave behind a wealth of clues about their likes and dislikes. In February, Fox purchased Santa Monica (Calif.)-based Strategic Data Corp., which identifies key characteristics of users (women golfers, for instance) and then makes sure marketers get their ads on pages where those folks go.

MySpace may soon be the profit machine that Murdoch originally envisioned. But getting there involves a tricky balancing act: creating ads that don't alienate MySpacers, some of whom are already fleeing to hipper precincts.

By Ronald Grover

    Before it's here, it's on the Bloomberg Terminal.