MySpace-Google Search Deal Income Will Fall $100 Million Short This Year

Rupert Murdoch told analysts the News Corp (NYSE: NWS). newspaper and television businesses are having a “great November” but he also added a note of caution by describing the recovery as still “a little fragile.” He barely spoke of the Digital Media Group, a bragging point back in the days when it was called Fox Interactive Media and buying MySpace was a sign of News Corp. moving ahead in digital. But when an analyst on the FYQ1 earnings call asked how the company could blame lower revenues from the group on what was supposed to be guaranteed search revenue from Google (NSDQ: GOOG), Murdoch replied: “It’s quite simple. We’ve not been making our minimum guarantees so our search revenue will not be what our revenue was.” DMG revenues were down 26 percent over the same quarter last year, while operating profit was down $22 million. (News Corp. doesn’t break out the corresponding details.)

When I asked during the press part of the call how far short of the $900 million the deal would run, Murdoch at first guessed it would come in as much as $300 million short but other News Corp. execs on the call tried to reign that in, saying more like $100 million or maybe 10 percent, which would be $90 million. Murdoch blamed the shortfall on “very high guarantees which we have not met.” The ruling after the call: this year’s payments will be $100 million short of the $300 million.

The deal cut with Google in 2006 for exclusive search and contextual ad sales called for quarterly guaranteed payments totaling $900 million from Q107 through Q210 (that’s the calendar year, not News Corp.’s fiscal year) provided Fox Interactive Media met certain traffic requirements or other guarantees. The deal calmed some analyst and investor nerves, and allowed News Corp. to claim MySpace was paid for and then some. And News Corp. still will make hundreds of millions from Google by the end of the deal — but not nearly as much as it could have.