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.
 |
| 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 |
With the News Corp share
price surfing the MySpace wave, Murdoch took to opining about the
site’s potential at media conferences. He formed a close relationship
with Chris DeWolfe, the charismatic co-founder of the social network,
and together they made an unlikely pairing at events such as the World
Economic Forum in Davos and other gatherings of the rich and powerful.
It was an incongruous sight: DeWolfe, with his jeans, long hair and
chunky silver ring, looking more like a musician or actor than a
corporate executive, next to Murdoch, an ageing billionaire who had
worn a suit all his life.
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.
. . .
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.
 |
| Ross Levinsohn |
“Rupert
called me one day, on a Friday, I think,” recalls Ross Levinsohn, who
was then running FoxSports.com within News Corp’s digital division.
Murdoch had sought out Levinsohn because he had a pedigree working for
internet companies such as AltaVista, an early search engine. “He said
he was curious about the internet and asked me for my advice. I told
him that if he really wanted to get into the internet, the downside of
Ask Jeeves was that it was the fourth or fifth-biggest player. I said:
‘If you’re going to spend $2bn, we could put together a plan for
something better.’”
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.”
. . .
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.
 |
| 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.
. . .
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.”
. . .
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.”
. . .
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
Where
postal services once delivered handsome profits to their state owners,
now they often bring problems. In recent years, many governments have
tried to have it both ways: they want an incumbent that will preserve a
universal delivery service at a price electorates will accept, but they
also want the benefits of competition. 
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