MySpace seeks return to "startup culture"

NEW YORK (Reuters) - Wrenching job cuts at News Corp's NWSA.O MySpace are only the first steps the online hangout must take to regain its cool.

News Corp Chairman Rupert Murdoch (R) and former MySpace Chief Executive Chris DeWolfe attend the Web 2.0 summit in San Francisco, California, October 17, 2007. REUTERS/Kimberly White

Outshone by newcomers Facebook and Twitter, MySpace must reverse worrying trends in user metrics and replace a lucrative $300-million-a-year advertising deal with Google Inc GOOG.O that expires next year, or risk lining up among Friendster, AltaVista, GeoCities and other once-mighty Internet brands.

That means redefining itself as a music and entertainment site, improving returns for advertisers and maybe even finding a new home, say analysts and former employees,

“People are very fickle in social networking,” said Sanford Bernstein analyst Jeffrey Lindsay. “Unless you’ve got a way to keep them continually refreshed, you get a five-year life out of them and then after that they’re really not very good.”

Some wonder if News Corp Chief Executive Rupert Murdoch will prove as fickle, although most say a sale of MySpace is highly unlikely in these markets.

News Corp bought MySpace for $580 million in 2005, a move that made Murdoch, the man who made his fortune in newspapers, look like a Web visionary. But declining advertising revenue trends and the ascendance of Facebook means the once-reigning teenage social network is looking increasingly middle-aged.

“The problem is that banner ads (on MySpace) have not proven to be successful,” Forrester Research analyst Josh Bernoff said.

Facebook has ads that engage its users better.

“You’re going to need a bunch of smart people developing an ad format that has these clever features in it that make it work,” Bernoff said of MySpace.

MySpace has a three-year search advertising deal with Google that guarantees the social network $300 million a year. But it is unlikely Google will sign up for another round at the same terms, analysts say.

Pali Capital analyst Richard Greenfield estimated a new Google deal could be worth half as much, while some estimates say it could be 75 percent less valuable.

Instead, MySpace could try to find a Google rival looking to get a boost in the search game. Some analysts speculate that Microsoft Corp MSFT.O is a possible contender.

Microsoft is “desperate to grow their online business so they’re in a similar position,” Lindsay said. “Google is so badly burned that they’re not going to come back with anything resembling the original terms.”

MySpace, Microsoft and Google declined to comment.

MYSPACE MTV?, an online business commentary website, speculated this week that Sumner Redstone, whose Viacom Inc VIAb.N lost the MySpace bidding war to News Corp, would love to match the social network with his MTV Music Networks.

Viacom is not interested, a spokeswoman told Reuters.

Bankers and analysts say it is hard to put a price tag on MySpace when News Corp does not provide detailed financials. MySpace is part of Fox Interactive Media, which is part of News Corp’s “Other” segment that reported $1.9 billion in revenue for the nine months ended March 31, 2009. That was down from $2.2 billion in the year-ago period.

“It’s tough to value social networking sites because no clear business model has emerged yet,” said Robert Jackman, co-head of the technology, media and telecommunications mergers team at Jefferies & Co.

“Murdoch and others still have time to make this work. Any significant M&A in the space would be somewhat of a bet” until people figure out how to sustainably make money off the millions of users.

Music might be the answer. The MySpace Music service -- which lets users share and discover songs -- has performed well, analysts say, and some think the social network could recast itself as an entertainment-centric site.

That could bring in lucrative advertising contracts with studios, music labels and entertainment companies, which would have a good idea of the audience they are reaching.

Such a move could let MySpace make a dignified exit from being the older also-ran after ceding its position as the social network leader to Facebook. Facebook’s monthly unique U.S. visitor count rose to 70.278 million in May, edging ahead of MySpace’s 70.237 million. Globally, Facebook was 307.1 million in April, far ahead of MySpace’s 123.3 million.

News Corp ousted MySpace co-founder Chris DeWolfe this year and replaced him with ex-Facebooker Owen Van Natta as CEO.

Van Natta wants to return MySpace to a “startup culture” and has announced plans to cut about 700 staff in the United States and abroad, culling its workforce to about 1,150.

Jackman noted that, while all big media companies are struggling to figure out their digital strategy, News Corp is probably the most successful, despite the problems at MySpace.

“News Corp made the biggest bet ... and is the most successful of a group of largely unsuccessful traditional media,” he added.

Additional reporting by Anupreeta Das; editing by Tiffany Wu and Andre Grenon