Thursday, June 30, 2011

NewsCorp Spits Out What's Left Of Myspace

No sooner does xkcd release this cartoon:



Then this happens:
MySpace, the long-suffering Web site that the News Corporation bought six years ago for $580 million, was sold Wednesday to the advertising network Specific Media for roughly $35 million.

The News Corporation, which is controlled by Rupert Murdoch, had been trying since last winter to rid itself of the unprofitable unit, which was a casualty of changing tastes and may be a cautionary tale for social companies like Zynga and LinkedIn that are currently enjoying sky-high valuations.

News Corporation Sells MySpace for $35 Million
News Corporation, sporting one of those names that drip with Orwellian subtext, is the right-wing propaganda machine run by Rupert Murdoch. I've always thought that Internet businesses generally start out overvalued and then gradually come to earth, but that's clearly a minority opinion.

One could also blame this on the old-fashioned idea that maybe corporations shouldn't buy things that aren't in their core area, because the nearly inevitable result is that the new owners will try to make the business do something it can't, or try to run it in a way that won't work:
It is not clear whether MySpace itself was profitable for the company. The division that houses MySpace and other digital properties has turned a profit only once in the last six years. An advertising deal with Google helped the company to recoup what it spent on MySpace in the first place, but the site became a burden on the company’s earnings; by last year executives were calling the losses unacceptable. Mr. Nathanson called the site a “headache.”

News Corporation Sells MySpace for $35 Million
With a track record like that, you have to figure that they either paid too much for those businesses, or ran them badly. Of course, there's no reason to assume they didn't do both.

As the article goes on to say, Myspace tried to reinvent itself several times, with pretty much the result you expect. Despite what people might think about the Internet, when something we like and depend on keeps changing in a way that doesn't improve it, we users don't like that all that much.

Reuters adds:
At its peak in 2008, Myspace attracted nearly 80 million people in the United States, almost double that of Facebook.

The growth was too fast and Myspace had trouble scaling the number of users who were flocking to the site. Meanwhile Facebook had opened up its platform to third-party developers, such as Zynga and its popular FarmVille game. That attracted more people and kept them on the site.

News Corp Sells Myspace, Ending Six-year Saga
Now, there's not a big problem with "scaling up" if you're willing to find the network and software specialists who can make it happen, and then put money into the resources they need to solve the problem. Unfortunately, this is the sort of thing that the news business in America forgot how to do a long time ago. As I wrote regarding the trend in news back in 2009:
The same short-term, greedy behavior that's ruined much of our economy was at work on the news business, too. That reference to R & D was an apt one - reporters and their support staff represented the future of those papers. You don't just go to journalism school and know what it is to be a reporter on a beat, any more than you know how to be an engineer at a car company by getting a mechanical engineering degree. There's still an apprenticeship, followed by lots more acquisition of knowledge that makes future efforts easier or better. When the newspapers and broadcasters of America shed themselves of these people, they killed the goose that laid the golden eggs. How in the world could someone not be satisfied with a 37 percent profit? Only in America.

Why The News Is In Decline
That reference to R & D seems almost prescient right now, because what appears to have happened is that a "news" corporation bought out a technology company, then starved it of the R & D it needed to keep going.

It's hard to imagine a worse combination than a news corporation that cares more about spouting a particular point of view than providing news taking over a technology company.

In retrospect, that combination was bound to fail.

UPDATE: Since I mentioned the idea that one possible problem with the Myspace acquisition was that News Corp. paid too much for it, perhaps I should elaborate on why.

Basically, the problem is that $580 million dollars is a lot of money. Even Rupert Murdoch doesn't have that kind of cash just lying around. More than likely, he obtained some sort of financing to pay some or all of that sum. That means that the costs of that finance - the interest, points, whatever, would be considered part of the cost of the company thus acquired. The more money required, the higher the costs of that financing will be.

Since money is usually a limited commodity in business, it seems reasonable to assume that companies acquired in this way, particularly if the cost of acquiring them is more than they're really worth, will inevitably have to choose between paying off the finance costs or hiring people and acquiring resources to expand or continue the business. That could explain why Myspace didn't expand well, and its competitors like Facebook and Twitter did.

I haven't looked into how the Myspace acquisition happened, so that could all be nonsense. It's fairly typical of how things work, though, so I'd be very surprised if it wasn't at least part of the reason for Myspace's failure.

Given all that, I think I'm going to take it as a working assumption that any Internet company acquired for that kind of money is likely to be a shadow of its former self in a few years. That's another thing that seems almost inevitable in retrospect.


5 comments:

Suzan said...

They never forgot how to do this, they didn't want to do it.

Which you know.

And everyone today knows.

As we face a future of choices made for us and sold to us as moot and ours.

sort of thing that the news business in America forgot how to do a long time ago

Cujo359 said...

I really wonder, Suzan.

No doubt there are news agencies that still do that sort of thing - but the process of creating a professional news organization is knowledge, and like all knowledge that's not used very much, it could disappear.

Whether people have forgotten about it yet is probably beside the point; given enough time, they almost certainly will.

Which, I suppose, means that the the link between good journalism and something that people want to buy is also in danger of being forgotten.

Cujo359 said...

Oh, and yes, when that happens you can definitely say our futures will be made for us.

Paul Sunstone said...

Cujo: "...but the process of creating a professional news organization is knowledge, and like all knowledge that's not used very much, it could disappear."

That's the frightening thing. Once you lose the traditions, it can be near impossible to get them back.

Cujo359 said...

I think of it as knowledge, Paul, even though it's really both. And yes, this is what concerns me, too. It's just not for journalism, either. We're "forgetting" how to do manufacturing. We seem to be forgetting how to run a business in a profitable, yet sustainable way. As those of us who did it get older, and are not replaced, that knowledge is lost.

I think anyone who is concerned about the future of our society would be concerned about that.