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Tuesday, July 19, 2005

News Corp's acquisition of Intermix (MySpace) is a bad one

I've been musing over News Corp's recent acquisition of Intermix and I'm beginning to feel like News Corp made a bad move here. At the 50K ft level, it makes sense. If you've been reading this blog, you know that I've been bearish on the newspaper groups because I believe they will be severely impacted by advertising dollars flowing into Internet properties. Actually I think all media is now having to compete with the 4 1/2th estate. But online properties feel the most like newspapers and magazines to me. Add in the fact that circulation numbers are now being skeptically questioned, and you have a recipe for advertiser discontent which will result in migration to trackable online properties and/or lower print rates. But I digress. What this means is that mainstream media companies have to buy Internet media companies. It's the best move they can make. Dow Jones purchased - makes sense. News Corp purchasing Intermix - could make sense. Some are developing their own blogging outlets - check out BusinessWeek's online presence and note their post regarding how blogging is eroding newspaper revenues. So, they're on to the game now, eh?
In other words, it's clear that the future for multi-channel media companies includes Internet as a core channel. So they have to start buying Internet media companies.
But here's the rub. Many of these mainstream media companies may have waited too long and now have to pay up. Now that the future strategy is clear, they're having to pay up to get their Internet channel and it's not clear that they're necessarily paying for quality.
News Corp's acquisition of Intermix is a great illustration. Intermix is not what I would consider to be a quality Internet property. They're a collection of some so-so sites like, but the "crown jewel" is supposedly Here's the thing with MySpace: to me it "smells" like (AFF) (interesting choice of words - ed.). What do I mean by that? Well, AFF is an adult oriented personals site that obstensibly connects swingers to other swingers. However, if one reviews the "free" listings that they post, it's seems to me that some or most of the posts are of dubious origin -- i.e. they're fake. I've actually suspected that this occurs in a lot of the personals sites; so could also be critiqued here as well. Why is this important? Because if you tour around MySpace, it's clear that the main appeal of the site is it's network of numerous teen hotties. Look at this "browse our community page", it's all nubile young women and a good portion of them have posted pictures of themselves in their underwear. Yes, I said it, but trust me on this, a lot of other people are thinking it. I don't know about you, but I'm somewhat skeptical that all of MySpace's user base is, well, real. I think there is a good chance that MySpace may use the same tactics that AFF uses to garner users and traffic, namely fill the user base with a lot of fake users that are really, for lack of a better word - hot. Of course, I'm not a paid member, so it may just be a ruse to lure people into paying and once you get behind the wall, one finds out that the real user base is considerably more mundane. I think that it's recent growth is a function of people being enticed by the pseudo-sexual content. This strategy has a very short life.
Even if the users are real, what happens when all the dorky old dudes sign up hoping to become cool and hip? Right, all the teeny-boppers move on to the next big thing.
So what does this mean? Well, for News Corp it means a couple of things. One, they likely bought a website that drives a significant portion of its recent growth (MySpace) based upon sexual innuendo that may not be real. So, even if the user growth is real, buyers may figure out that the content is less than advertised and cancel as soon as it loses appeal.
We've seen the rapid rise (and fall) of similar services. Yahoo! Profiles (not Personals) started out like this until the porn companies figured out how to inundate their system with fake profiles. Yahoo! doesn't really do much with their Profiles anymore. Actually, I'm surprised they're still available. This tells me that they draw enough traffic to keep it switched on.
Other social networking sites in general also have issues with rapid rise popularity followed with rapid descents. My understanding from various industry sources is that LinkedIn and the others are experiencing hiccups in their expected growth as well.
This is why I think InterMix also accepted only a 12% premium to their stock price. Management may have taken a look and realized that getting $508MM, almost 7x their 2004 revenue numbers, reportedly based on MySpace's recent growth. BTW, there's an interesting analysis of VC returns on the deal at Bill Burnham's blog.
I think that InterMix wanted out while the getting was good and I think News Corp gave it to them. But then again, I'm nothing if not opinionated.
If anyone has news to the contrary, I'm all ears.
**Update: Another issue - how will MySpace's young & hip user base react to Fox as a parent company?
**Another update: I've read a bit about MySpace becoming the next great music promotion channel, but I'm not buyin' it.
Sorry for all of the republishing, but I'm obviously adding to the story as I find additional info...


At 10:40 PM, Anonymous Konstantin said...

No slowdown at LinkedIn: took us 15 months to get to 1 million members, 6 months to get to 2 million and just 4 months to get to 3 million. And revenues from job postings are ahead of expectations. We expect o reach proitability in 6 to 8 months.

At 9:30 AM, Anonymous Anonymous said...

This is the best article I've seen written to date on the MySpace acquisition. Totally accurate.

At 3:37 PM, Anonymous said...

as a frequent myspace user, I have to make a few defending comments...

yes, there are droves of sex-driven 17 year olds on myspace, but, as an older user (25) I can safely say most of my "friends" on myspace are using it to network and to promote events such as art shows, films, live music, etc. I do see a pretty large difference between AFF/ and Myspace, at least among the mid-twenties and over crowd. In fact, 80% or so of the people i know that use Myspace have 80% or so of their "friends lists" taken up by people they already know.

so, in short, there's two sides to myspace:
- the highschool hook-up crowd and,
- the networkers/promoters, etc

it's a valid tool if used properly.

as far as Rupert Murdoch (FOX) is concerned, not thirilled, but only from a political perspective.


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