In summer 2005, having spent the best part of four decades building a newspaper, film and television empire, Rupert Murdoch decided that the time had come to get serious about the internet. As founder and chairman of News Corporation, one of the world’s biggest and most powerful media conglomerates, Murdoch controls an eclectic portfolio of businesses ranging from The Sun newspaper to the movie studio 20th Century Fox. Yet with young people “watching less television and reading fewer newspapers”, as he observed that summer, News Corp desperately needed a bigger presence online.
The way in, it was decided after much deliberation among the News Corp top brass, was to buy Intermix, a Los Angeles-based company whose main asset was MySpace, a website that had been adding an astonishing 70,000 new users every day. MySpace was firmly at the forefront of Web 2.0, the label at that time applied to a new level of software functionality that helped internet users to interact directly with one another. As an online social network, MySpace offered a new kind of shared experience, connecting millions of users via interests in music, film and popular culture.
To say MySpace was a hot property back in 2005 is something of an understatement. Its rapidly expanding tribe of users had attracted the attention of other potential buyers. Viacom, for one, a rival media conglomerate that owns companies such as Paramount Pictures and Comedy Central, was eyeing it as a vehicle to revive its flagging MTV channel, a similarly youth-oriented brand.
But Murdoch got there first and the resulting $580m deal transformed his image at a stroke. The curmudgeonly media baron, whose achievements included breaking the Fleet Street printing unions and launching the conservative Fox News cable channel, had re-invented himself as a 21st-century internet hipster. It took Wall Street a few months to appreciate the magnitude of the deal but the purchase slowly began to imbue News Corp with an almost priceless commodity it had lacked: cool.
Millions of teenagers across the world adored MySpace, spending hours every day connecting with each other online and fine-tuning personal profile pages that reflected their tastes and personalities. News Corp had new-found cultural cachet thanks to them – and to the popularity of MySpace with new filmmakers and musicians such as the Arctic Monkeys and Lily Allen, who became sensations on the site, releasing songs to fans before their first albums appeared.
Months after the acquisition, Murdoch had another reason to feel pleased: MySpace signed a three-year advertising contract with Google worth $900m – effectively paying for News Corp’s purchase. Google bought the right to become a fixture within the MySpace site, enabling it to display its text adverts to the network’s millions of users. This prize was highly contested, with Yahoo and Microsoft falling over themselves to win the business before Google triumphed. Larry Page and Sergey Brin, the founders of the search engine, flew in by helicopter to seal the deal at a starry News Corp retreat at Pebble Beach where the guests included Bono and Tony Blair.
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| MySpace co-founder Chris DeWolfe so charmed Rupert Murdoch that he and other News Corp executives such as Ross Levinsohn largely left him and his team alone |
It was also becoming clear that, unlike many other internet sensations, MySpace could earn its keep. Within 15 months of the acquisition, revenues had leapt from about $1m a month to $50m a month: half came from advertising sold by the new sales team that News Corp had installed, the rest from the Google deal. As advertisers rushed to target the site’s rapidly expanding audience, offices were opened in Japan, South Korea, China, while a free music service was launched at considerable expense.
But by the beginning of 2008, things began to sour. Facebook, a rival social network that was simpler and easier to use, was gaining momentum and starting to grow more quickly than MySpace. Murdoch confidently told the world that MySpace would make $1bn in advertising revenues in 2008 – but the company missed its target. Users began to desert the site, which had become cluttered with unappealing ads for teeth straightening and weight-loss products. News Corp executives could hardly hide their displeasure, and in April this year, DeWolfe left, closely followed by most of his senior management team.
Since then, MySpace has shed 40 per cent of its staff, closed many of its international offices and publicly given up trying to match Facebook in the race to become the world’s biggest social network. (MySpace has more than 100 million regular users, Facebook more than 300 million.) A move by MySpace and other News Corp digital businesses into the biggest new office development in Los Angeles was scrapped – after the $350m, 12-year lease had been signed – leaving the company paying more than $1m a month for an empty building. The number of people using the site has also dropped precipitously this year: MySpace’s share of the social networking market has tumbled from 66 per cent a year ago to 30 per cent, according to the online research company Hitwise. The situation is so dire that MySpace recently revealed that it had failed to attract enough online traffic to meet targets set in its advertising deal with Google and as a result would lose $100m this year. An acquisition that had initially covered Murdoch in glory and offered so much promise was becoming an embarrassment to the News Corp chairman and a liability for his company.
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News Corp did its homework before buying MySpace. Murdoch had earmarked $2bn to spend on websites that could revive the company’s internet strategy and was considering making a $1.9bn offer for the Ask Jeeves search engine. But although his advisers were trying to sell him the merits of the Ask Jeeves deal, he was uneasy.
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| Ross Levinsohn |
Murdoch agreed, the Ask Jeeves plan was dropped and Levinsohn was dispatched to identify a worthy target. He quickly found two companies: MySpace and IGN, a computer games network. “There was so much data about each MySpace user, which Rupert got immediately,” says Levinsohn. “What would you pay to get someone’s name, age, geography? With MySpace, you would also know what car they drive, what music they listened to, their favourite movie star.”
Murdoch and Peter Chernin – News Corp’s former chief operating officer and Murdoch’s longtime second-in-command – sprang into action. With Viacom also stalking MySpace, Murdoch told his lieutenants to move quickly. After sequestering the Intermix management team at a secret location, a deal was hammered out that valued the company at $580m – an eye-popping sum for a two-year-old business with negligible revenues.
Money wasn’t the only thing that persuaded MySpace to go with Murdoch. The founders were also granted lots of autonomy. “One of the things we’d said was: ‘We’re going to leave it alone,’” says Levinsohn. “The MySpace guys were really freaked out that we were going to come in and turn it into Fox News.”
Murdoch, meanwhile, was delighted with his deal. “He spent an enormous amount of his personal time on it,” says Richard Rosenblatt, the former chief executive of Intermix, MySpace’s parent company. “There was no question that he was enthusiastic.” The MySpace team were similarly upbeat, he adds. “It was unbridled enthusiasm. We were all arm-in-arm to change the world.”
Levinsohn was promoted to run Fox Interactive Media and given responsibility for MySpace. But in a sign of the problems that lay ahead, he quickly began to clash with DeWolfe and MySpace’s co-founder, Tom Anderson, two entrepreneurs who were unused to being told what to do. “I had a vision about what I wanted to do with the company and it definitely conflicted with what Chris and Tom wanted to do. I said to Peter and Rupert: ‘If you want me to run the company, let me run the company.’ I think they felt Chris and Tom were talent – and that we should have left them alone.”
Levinsohn hired his own team to speed the integration of MySpace with News Corp. The site needed a more robust technology platform if it was to cope with the thousands of new users that it was adding every day. “It had been built pretty quickly and using sub-standard technology. So we spent a lot of money on that and shored it up. We got a lot of resistance from the MySpace guys … they felt they knew what to do.”
Chris DeWolfe declined to comment and Tom Anderson could not be reached. But one former MySpace executive confirms that there were tensions. “There was always pressure [from Levinsohn’s team] to increase the number of ads per page,” he says. “If there was any pushback from MySpace then it was over that because the user experience would suffer.”
Levinsohn also claims that the MySpace management lacked focus, with Anderson, who was in charge of the site’s product development, instructing software engineers and developers to start work on multiple products and features without proper planning. “Tom would have an idea on a Tuesday and come in and tell his team to get building it – even if they were already working on what we were doing. They would look at us and say: ‘What do those guys know? They’re just a bunch of corporate suits.’ We tried a number of ways to coerce them to agree with us but we failed every time. Every time we tried to professionalise the place they resisted.”
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As long as MySpace was growing exponentially, Murdoch and Chernin seemed happy to let Anderson and DeWolfe run it how they pleased. The MySpace team and Levinsohn continued to clash, and Levinsohn left News Corp to be replaced by his cousin, Peter, a veteran of Fox’s TV business. MySpace continued to add users at a terrific rate and was also attracting huge volumes of advertising from movie studios and consumer brands. That meant two things: one, the young team would have to learn to balance users’ and advertisers’ needs, and two, the top brass would have trouble resisting the temptation to get involved.
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| MySpace co-founders Tom Anderson and Chris DeWolfe |
Murdoch himself was responsible for dealing the company the first in a series of blows. On a 2007 News Corp earnings call, a punchy Murdoch told analysts that Fox Interactive Media would generate $1bn in revenues for the 2008 fiscal year (up from about $550m in 2007). With MySpace representing almost all of Fox Interactive’s revenues, the implication was clear: Murdoch thought MySpace’s meteoric rise would continue. There was only one problem: the MySpace management team had no idea Murdoch had set them a new target until he opened his mouth. “It came out of thin air,” says a former MySpace executive. At a stroke, the site’s free-wheeling, entrepreneurial days were over: it had to perform exactly as expected – or else.
MySpace executives have always been proud of the culture of community among the website’s 100 million users. That culture is reflected in the employees, most of whom are young, Los Angeles hipster types who like going gigging and discovering new bands. As the rivalry with Facebook intensified, MySpace staff took pride in the fact that theirs was an edgier site, with a younger demographic. One employee even had jokey stickers printed saying: “Your Mom is on Facebook”.
The company also prided itself on being able to respond quickly to the needs and demands of its community, but once Murdoch had set the $1bn revenue target, putting the MySpace community first became more difficult. According to former MySpace executives, the advertising on the site was making it less compelling for users. Meanwhile, any innovations or changes that might have cut the number of page views – and therefore advertising revenues – were likely to fall foul of News Corp.
According to several former MySpace executives interviewed by the FT, ideas for features and applications became bogged down in bureaucracy. “It became very difficult to remove pages from the site [because of the effect on revenues],” says one former senior MySpace executive. “We had to get approval for everything.”
Jim Heckman, the former chief strategy officer of Fox Interactive Media – and the architect of the MySpace-Google deal – says blaming News Corp for the site’s demise is “an anecdotal smokescreen. By that time, the jig was up … people had already started moving over to Facebook en masse.”
The allegation that News Corp hindered product development also provokes an angry response. “The suggestion that News Corp held back the product innovation at MySpace is flatly incorrect,” says a company spokeswoman. “MySpace would come to us with a list of hundreds of product requests. We simply asked them to prioritise and couch them in some sort of strategy – which probably felt foreign to them.” She adds that when MySpace was able to formulate a cohesive plan, product requests were “promptly approved”.
The two sides differ profoundly over where responsibility lies for the site’s decline. Former MySpace executives say News Corp dragged its feet over implementing Ajax, a program that allows users to send a message, an e-mail or to post a comment on their friends’ pages without having to open a new browser window. Facebook was quick to embrace Ajax but MySpace did not follow suit, partly because to do so would have reduced the number of page views the site generated and therefore its advertising revenue. “It would take five steps to post a comment or send a message, so five different pages would open,” explains another former executive. “There would be ads on each of those pages, so we were making money. We went to News Corp and said: ‘We want to change this but in the short term our revenues will drop.’ It became a long back and forth. [They] were pushing back – they wanted to make sure we weren’t going to drop our revenue numbers.”
News Corp, meanwhile, contends that the request to adopt Ajax came at the beginning of 2009 – when Facebook had already established its supremacy. In other words, it was too little, too late.
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While some former MySpace executives say the company was held back by the News Corp management, others believe responsibility lay closer to home. Anderson, the product development chief who co-founded the site with DeWolfe, is criticised by some ex-colleagues. “We moved into too many product lines,” says one. “One week we were focused on Facebook, the next we were focused on Twitter. We weren’t choosing our own way.”
One of the other tools that made Facebook so effective was an e-mail address importer that immediately sent invitations to the user’s friends to sign up to the site. Another ex-MySpace executive says Anderson waited too long to introduce a similar function on MySpace.
Facebook, which had initially been restricted to university students, launched the importer shortly after opening the site to the public. “It caused a real spike in growth,” says the executive. “But six months before they launched the importer, Bebo [a UK social network] had done the same thing. We were neck and neck with Bebo in the UK but the number of their users suddenly started spiking. We knew we had to launch something similar straight away but Tom didn’t think it would make much of a difference. He wasn’t convinced it was that important.
“We discussed it for six months but he wouldn’t focus the team on building it. It wasn’t until Facebook launched with that feature and had several months of 40 per cent growth that we started working on it. That was a judgment call and it was a mistake … it ended up costing us a lot of users that went to Facebook instead of MySpace.”
The internal wrangling over new products was exacerbated by the onset of recession. Advertising slumped and the pressure on MySpace from its parent intensified. “When the recession hit we still needed to invest in product enhancements,” complains the ex-MySpace executive. “But the word came down from News Corp that if our revenues dropped we had to offset them dollar for dollar in cost reductions. The team became focused [on] cutting costs rather than thinking about driving the business.”
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The person who might have been able to iron out the differences was Chris DeWolfe, the man who’d charmed Murdoch in the first place and seemed to have easy access to him, meaning he could skirt the corporate bureaucracy. But their friendship – and DeWolfe’s soaring personal profile – was also a source of tension at News Corp. “There were a lot of people inside News Corp that turned on Chris and didn’t like him,” says a former MySpace manager. “He was the golden child for a while and was on magazine covers in a culture where, apart from Rupert, individuals don’t get much personal attention.”
Another former executive says Peter Chernin bristled at DeWolfe’s relationship with Murdoch and the independence he enjoyed within the company. “If you hang out with Rupert too much, people sometimes get upset,” says the former executive. “Chernin wanted someone in the room – one of his guys – if [Chris] was doing deals. He and Chris had to work together and there was plenty of respect … but there was always a scepticism about Chris’s relationship with Rupert.” Chernin declined to comment.
None of this was a problem while Murdoch remained deeply interested in progress at MySpace. But in 2007, two years after buying it, the man who was DeWolfe’s biggest ally became distracted by a new deal that required much of his time and attention: News Corp’s pursuit and eventual $5bn purchase of Dow Jones, the company that owns The Wall Street Journal.
“The bureaucracy crept back in when he bought the Journal [and] Murdoch became less interested in MySpace,” says a former MySpace executive. “Then the recession hit and every finance guy at News Corp became involved in what we did so we had to spend all our time doing PowerPoint demonstrations.”
Another former executive puts it more bluntly. “Rupert took his eye off the ball on the internet. He got obsessed with Dow Jones and stopped paying attention to MySpace. That’s when all the trouble really started.”
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However distracted Murdoch became, it wasn’t until this year that he finally lost patience. In March, after weeks of speculation, he hired Jonathan Miller, the former chief executive of AOL, to a new position at News Corp with responsibility for all the company’s digital operations – including online strategy for its sprawling newspaper portfolio. The appointment sent a clear message that a new regime had begun. Within weeks Chris DeWolfe had gone.
Tom Anderson’s future was less clear. Anderson is the first “friend” MySpace users make when they open an account, and he’s seen within the company as one of the closest ties it has to its online community. More than one person told the FT that Anderson had also left the company. News Corp says he continues to work for MySpace as “an adviser”. Anderson could not be reached for comment.
Murdoch also turned to Owen Van Natta, a highly regarded veteran of several online success stories, including Amazon and Facebook. He had a ringside seat at Facebook, where, as chief operating officer, he helped manage the site’s explosive growth. Van Natta had met Murdoch in 2006 at the Allen & Company Sun Valley media conference, an annual confab of chief executives and investors. They were introduced by Donald Graham, chief executive of the Washington Post. “I ended up sitting with Rupert at breakfast one morning,” recalls Van Natta. “He is a very personable guy and we had a very engaging conversation about social networking.” Van Natta then went for a punishing run in the hills around Sun Valley with Murdoch’s eldest son, Lachlan, “which almost killed me”.
When DeWolfe left, Murdoch asked Van Natta to take his place. Murdoch, Miller and Van Natta then hired two other executives; Jason Hirschhorn, a former chief digital officer at MTV Networks, was appointed to revive the site’s moribund product development, while Michael Jones, who, like Miller, worked at AOL, was brought in as chief operating officer. “They hired three of the best executives in the business,” says Ross Levinsohn. “They will redefine what MySpace is about.”
But is it too late to reverse what looks like inexorable decline? “It’s an amazing company and an amazing asset,” argues Van Natta. He has spent the past six months streamlining the site, reducing the number of products in development and focusing on music and film. The company has also removed certain web pages that Van Natta thought were hindering the user experience. But the axed material generated all-important page views, which generate ad revenue. The result of the “self-inflicted” pain, as one executive puts it, will lead to an even more painful loss of revenue.
Van Natta and Miller, who decline to comment, are convinced MySpace must be a leaner, more appealing site that draws in users and encourages them to linger. Van Natta says the company is no longer interested in competing with Facebook – “we’re very focused on a different space” – and claims MySpace will be “the place where content gets socialised”. “If you and I had never met before but had similar tastes in music I can connect with you on MySpace and discover that you like movies and TV shows that I hadn’t discovered yet,” he says. “MySpace can foster discovery [of music, films and TV] in a way that others can’t.”
There were encouraging signs recently that the site continues to strike a chord with young users. The premiere of New Moon, the sequel to Twilight, was streamed live on MySpace and attracted close to three million viewers – far more than watched a Shakira music video that premiered on Facebook around the same time.
However, former MySpace employees are sceptical about Van Natta. “When I left, we had a solid road map of music and video,” says one. “I haven’t heard anything from him that’s new.” Van Natta’s challenge is to ensure MySpace becomes relevant and profitable again. He could also do without any more surprise statements from his boss. Like the $1bn revenue target that was the undoing of Chris DeWolfe, the recent revelation from Murdoch that MySpace had missed targets on its Google deal caught some staff on the hop.
As DeWolfe found out to his cost, Van Natta’s challenge is to ensure he keeps Rupert Murdoch’s attention and support. The boss has plenty of other worries to distract him, after all: a soft advertising market and the future of his beloved newspaper industry are just two. If MySpace is to recover and prosper, it also needs to deepen its engagement with young internet users. No one, however, matters more than a certain 78-year-old.
Matthew Garrahan is the FT’s Los Angeles correspondent
