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Summary:

Robert Young, earlier this year, explained to my readers why Rupert Murdoch really bought MySpace for $583 million. He argued that we should wait for Rupert to launch a record label and a music channel that takes on MTV and knocks it off its top spot. […]

Robert Young, earlier this year, explained to my readers why Rupert Murdoch really bought MySpace for $583 million. He argued that we should wait for Rupert to launch a record label and a music channel that takes on MTV and knocks it off its top spot. Well today, both those things happened. Young has decided to update story, and has written a stirring post, that reminds Murdoch’s men to not get blinded by the Hollywood Bright Lights, or else they ruin the carefully woven fabric of My Space community. This is not the first time he has argued for handling the community with velvet gloves.

Guest Column by Robert Young

Mike Masnick over at Techdirt posted an interesting observation about Rupert Murdoch’s MySpace earlier today. And I’m glad he did because, coincidently, I was in the process of writing a piece on a related topic. While Mike questions the validity of MySpace’s popularity (in terms of pageviews), versus the revenues they are able to generate, my post will focus on the challenge that they face on the revenue side, regardless of pageviews and ad inventory.

Like all community sites that rely mostly on their users to author content, MySpace has had a very difficult time trying to secure high advertising rates. Historically, advertisers have held little trust in content that is not tightly controlled editorially and, therefore, the value they are willing to attach for ads placed next to such uncontrollable content has been very low. The result is clear… MySpace ranks higher than Google in terms of pageviews, but Google will gross $6 billion in revenues this year, while MySpace will generate about $30 million. The delta, which can be measured in orders of magnitude, is almost unbelievable. I realize the comparison is not directly apples to apples, but even so!

I bring this up because this is where Murdoch’s strategic opportunity lies… in eliminating that gap. Put another way, MySpace has a multi-billion dollar opportunity to exploit, which promises to break News Corp out of the media stock depression that it and all its fellow conglomerates have been suffering. Success on this front will demonstrate that News Corp can tap into the fastest growing segment of the advertising industry in a manner that befits Google and Yahoo!

But why would advertisers change their tune and all of a sudden attach higher value to community sites and user-authored content? One word… blogs. Blogs are proving themselves to be a powerful new medium, one that challenges traditional media for people’s time and attention. When an advertiser buys ads on Google and it gets distributed on the AdSense network, many of them are placed on blogs, without discrimination as to who authored the content. This dynamic is something new… advertisers gave up some control (where the ad is placed) in return for higher accountability. Put simply, Google changed the game, and now News Corp’s MySpace (and all other community services) can benefit.

I bring this up for another reason… with the recent news that MySpace is launching its own record label as well as the rumors that they will also start a film studio, I hope the MySpace guys aren’t getting too caught up in the bright Hollywood lights. As many know, in Hollywood, you’re either a somebody, a nobody, or you’re one of the King’s (Murdoch’s) men. It’s very easy to get blinded (e.g. worrying about a regular table at The Ivy or the studio lot commissary) and to lose focus on the fundamentals and strategic priorities. Wall Street is watching , and it is my belief that News Corp’s second entry into the Internet will be judged first and foremost on their ability to close the monetization gap between MySpace and Google, and less on their ability to venture into traditional Hollywood businesses.

Don’t get me wrong, I’m not saying that launching a label and studio is a bad thing, it’s just that such ventures won’t get the Internet multiples that the media giants are looking for.

Robert Young is a serial entrepreneur who is currently focused on http://www.weedshare.com, a P2P-enabling “superdistribution” digital media service. Previously, he was an exec at Delphi Internet Services (which he sold to Rupert Murdoch’s News Corp.), and founder/ceo of Freemark Communications (where he led the invention of free email and pay-per-click advertising).

  1. Robert , i dont understand how you think MySpace can generate the same CPM as google… As you know not all online ad inventory are the same ,its a pyramid with search ads at the top, contextual ads on non-generic niche sites in the middle and banner ads on entertainment / teen/ community sites at the bottom.

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  2. Jesse Kopelman Friday, November 4, 2005

    Where is the data to support that MySpace gets more pageviews than Google? That sounds on the order of saying that Vonage is doing more MOU than AT&T . . .

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  3. >> Where is the data to support that MySpace gets more pageviews than Google?

    I think the data is from comScore…Remember MySpace a very very sticky site (that too for the 16-25 demographic) and even if each of its 35 million or so users visit 10 pages a day its more than Google’s PageView’s

    But remember most of that traffic is close to useless for lucurative contextual type ads. So they can never ever reach the CPM of google.

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  4. Gopi, I agree with you that it would be virtually impossible for MySpace to attain the same ad rates as Google. But doing so actually wasn’t my point (and my apologizes if I miscommunicated).

    My point is that there’s a *lot* of room to lessen the gap. In my experience, I believe MySpace should be able to decrease the difference to one order of magnitude. They should also do all they can to secure News Corp’s tremendous advertising expertise and resources towards attaining higher CPMs/CPCs/sponsorships. After all, one of the reasons why Google is able to generate the ad revenues they do is because they have hundreds of dedicated experts figuring out ways to extract micro-pennies from their ad engine.

    Finally, it’s important to realize that even though MySpace is now a part of a huge conglomerate, it doesn’t mean they have a blank check without resource constraints. Murdoch is very penny-wise and budget-conscious… if he’s willing to bet his dollars, you better make damn sure you go with the initiatives that secure the high returns.

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  5. I am no expert in branding type ads maybe news corp can extract top dollars for myspace ad inventory (especially if they bundle it with their TV ad inventory).

    But i think the real monetization of that property is by exploiting the myspace brand offline, in this regard the myspace record label is a very good start.

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  6. I cancelled my account with MySpace yesterday. I think others are going to follow suit because Facebook now allows photo sharing. Their site is less corporate, more organized, and is rarely offline.

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  7. I work as a media buyer in online advertising.

    Millions of people go to the Google.com site and search from there. MySpace consists of thousands of blogs – different pages on different topics.

    Advertisers look for areas where they can find large numbers of particular people. The fact that you must register to be on MySpace means many of the impressions MySpaces see are from people who are logged into the site. This means they will be able to target advertising based on a number of different metrics.

    Targeting is usually based on Age and Gender , but we’ve recently been seeing companies offering much higher levels of targeting. I’ve recently bought media targeting 18-30 males with an interest in technology who earn more than £30,000. I am able to look at purchasing ads based on user behaviour.

    These new trends will push up the rates and allow Rupert Murdoch to get his money. However, MySpaces will never yield the utterly crazy margins that Google enjoys. People browsing blogs are not usually looking to buy things there and then, whereas Google does a pretty damn good job of funnelling potential buyers through to your site.

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  8. MySpace outsources advertising to Google’s Adsense program. Problem solved.

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  9. Hi Robert,

    First off, excellent post. I was able to parse through the fact that your post was not intended to be an apples-to-apples comparison but rather to suggest a changing of the rules for securing ad dollars and asserting that the 99.5 cent spread per ad dollar between the Google page view and the MySpace page view is poised to shrink if News Corporation stays focused and executes.

    This is a topic that is near and dear to me so I went the next step and blogged a thesis about what this means for community sites in general (as businesses) and a suggested strategy for navigating the road ahead.

    It is called, “Mega brands, online communities and ‘three walled’ gardens,” and can be found at the following URL: http://thenetworkgarden.blogs.com/weblog/2005/11/mega_brands_onl.html

    If interested in such things, check it out.

    Mark

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  10. Jesse Kopelman Monday, November 7, 2005

    “I think the data is from comScore…Remember MySpace a very very sticky site (that too for the 16-25 demographic) and even if each of its 35 million or so users visit 10 pages a day its more than Google’s PageView’s”

    Anyone who uses Google as there primary search engine easily clicks on 10 links a day and I think there are more than 35 million such users . . .

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