Twilight of the media moguls? Not for this guy. With the $580 million purchase of MySpace, News Corp. chief Rupert Murdoch is betting he can transform a free social network into a colossal marketing machine.
By Spencer Reiss
Perched on the edge of a bright white power sofa on the supernaturally quiet eighth floor of the News Corporation’s global headquarters, the last thing Rupert Murdoch looks like is a fire-eyed revolutionary. Starched cuffs. Courtly manner. A month past his 75th birthday. But then he starts talking. “To find something comparable, you have to go back 500 years to the printing press, the birth of mass media – which, incidentally, is what really destroyed the old world of kings and aristocracies. Technology is shifting power away from the editors, the publishers, the establishment, the media elite. Now it’s the people who are taking control.” And he’s smiling.
Hold on a minute. Rupert Murdoch is the media elite. His Sixth Avenue office, lined with shelves devoted to dead-tree properties like London’s The Sun and muted video monitors tuned to news channels including News Corp.’s Fox and rival CNN, sits squarely within jaywalking distance of NBC, CBS, Time Warner, McGraw-Hill, and Viacom. But these days, midtown Manhattan’s valley of old media dinosaurs is besieged by a Cambrian explosion of digitally empowered life-forms: podcasters, bloggers, burners, P2P buccaneers, mashup artists, phonecam paparazzi. Viewers are vanishing, shareholders are in revolt, advertisers are Googling for the exit.
Twilight of the moguls, right? Not for the T. rex of mass culture. “We’re looking at the ultimate opportunity,” Murdoch says. “The Internet is media’s golden age.”
Of course, someone juggling $60 billion worth of TV studios, printing presses, and broadcast satellites would say that. But Murdoch has been putting his money where his mouth is – and it is his money: His family controls almost a third of News Corp.’s voting shares. Over the past year, he has spent nearly $1.5 billion on new-breed Internet companies, including online communities devoted to gaming, sports, and movies, plus a startling eruption of youthful energy known as MySpace. And he has put his lieutenants on notice: The days of top-down, force-fed, one-size-fits-all media are over. The new imperative is to deliver precisely what audiences want, when and where they want it.
How or even whether News Corp. can survive this cold dawn is an open question – Wall Street certainly has its doubts. But the man who built the world’s only truly global media company has a classically entrepreneurial answer. “We’ll figure it out,” he says, flashing his cat-that-ate-the-canary grin.
One of the great things about being a self-employed billionaire mogul – besides traveling in your own Boeing 737 and getting to play yourself on The Simpsons – is that you don’t have to talk like a management consultant. News Corp. culture is famously seat-of-the-pants; managers who can’t live by their wits quickly fall by the wayside. But more than that, Murdoch revels in spotting unfilled gaps and unmet needs. “Everything we’ve ever done is about giving people choices,” he says. “The Net has a billion people looking for news, sports, and entertainment. Another billion are on mobile phones, and another couple of billion are coming up behind those. That’s a hell of a lot more people making choices.”
Right, but how do you keep News Corp. at the center of their decisions? How do you produce planetary hits in a world of umpteen million YouTube videos? How do you find the next Bart Simpson if he’s being drawn in someone’s garage?
That’s where the Internet comes in, specifically MySpace and the millions of young trendsetters who make it the most disruptive force to hit pop culture since MTV. This nonstop global block party of music, video, and hookups is starting to look like the most powerful mass-media launching pad ever invented. To take advantage of that power, though, Murdoch’s crew faces two challenges. The most immediate is to avoid doing anything that might interfere with the runaway growth that has already made MySpace the biggest aggregation of people on the Web. But that’s just step one. Step two is to turn MySpace’s teeming masses into a wholly new kind of media entity, an advertising, marketing, and distribution vehicle that gives News Corp. a hand on the steering wheel of popular culture worldwide.
“Hi, this is Rupert Murdoch.” Ross Levinsohn answered the phone, heard those words, and thought it must be a joke. It was January 2005, and Levinsohn, a 41-year-old veteran of CBS SportsLine.com and AltaVista who was running Fox Sports’ online operations, had never actually met with the big boss. “Got time for a chat?” Murdoch asked. Sure. When? “How about now?”
An hour later, Levinsohn had rustled up a shirt with a collar and was sitting across a table from Murdoch at an employee café on the old Fox movie lot in Los Angeles, doing a core dump about new media. Levinsohn wondered whether he was about to be fired. Instead, two months later, Murdoch offered him an amazing new gig: Take whoever you want, go wherever you need, and come back with a strategy for making News Corp. a serious presence on the Net.
Murdoch had ventured online before, but those forays were mostly unhappy, including the near-debacle of a failed $450 million bid for PointCast, poster child for the late 1990s push-media craze. Chastened – “We’re not a technology company,” Murdoch says, “we don’t need to be early” – he focused on building satellite broadcast networks, a bold bet on the future of hi-def TV and a hedge in an ongoing cold war with his cable distribution partners (read: Liberty Media chair John Malone). But by early 2005, with the skies under control, the Net loomed once again on Murdoch’s radar. Apple’s iTunes was exploding. Broadband was splashing video – a core News Corp. interest – across a growing number of computer screens. Search engines and P2P networks were ringing alarm bells for traditional broadcast network command-and-control. And online ad revenue had swollen to $10 billion annually, sweeping away doubters, filling war chests at Google and Yahoo, and bleeding old media Goliaths dry.
Over two months in spring 2005, Levinsohn and a handpicked team hammered out an 80-page strategy document. A Yahoo- or MSN-style portal was out, they determined: Fast connections and search engines made aggregating content superfluous. Broadband-ready “aggressive vertical categories” were in, pegged to sports, news, and entertainment – areas where News Corp. had mountains of content, standout stars, and demographic expertise. Above all, the report concluded, speed was critical. M&A, not the company’s customary homegrown approach, was the fastest path forward.
Presented to Murdoch and the board just over a year ago, Levinsohn’s report included a short list of eight companies for potential purchase. They narrowed it down to two. One was IGN, a subscription-based gamer site that tapped one of News Corp.’s favorite demographics: young males. The other was a shady LA-based online marketing shop called Intermix, whose crown jewel – the riotous social network MySpace – had become the Net’s premier teen hangout. Murdoch loved it. “You could see this was life,” he says. “This was real.”
MySpace was big: 20 million people had signed up, and 100,000 more were arriving every day. And it was busy: 6.2 billion pageviews a month made it the fifth-most-visited site in the US from a standing start 18 months earlier. Added bonus: totally viral marketing and zero content costs.
When Levinsohn had earlier balked at choosing one company, Peter Chernin, News Corp.’s president and Murdoch’s second in command, proposed buying both. “It’s a couple of percent of our market cap,” he told Levinsohn. “Either we’re serious about this or we’re not.” The only obstacle was archrival Viacom, which was already deep in negotiations for MySpace, a perfect online mate for MTV. “They were pulling fingernails over the last $50 million,” says one News Corp. exec. Over a frantic weekend, Levinsohn trumped Viacom with a $580 million bid.
When the smoke cleared, Levinsohn and his team owned the biggest mall-cum-nightclub-cum-7-Eleven parking lot ever created. They also got the hottest pair of Web magic-spinners since Googlemeisters Sergey Brin and Larry Page. And they had a problem: how to turn this upwelling of teen spirit into big numbers at the bottom of News Corp.’s balance sheet.
MySpace cofounders Tom Anderson and Chris DeWolfe have the look and feel of a couple of guys who’ve just been shot out of a cannon. They’re sitting in a local latte dispensary a few blocks from their offices in a former Santa Monica ad agency. Anderson’s sneakers peek through ragged tears in the cuffs of his jeans. DeWolfe, huddled in a mock-Edwardian jacket, sports crocodile loafers. Did either of them ever imagine they’d be working for Rupert Murdoch? They just laugh. Back in 2003, half of the VCs in Silicon Valley were chasing the idea that the Web could connect people to one another, rather than to information. It took a couple of Los Angeles hipsters to give that abstraction – dubbed online social networking – a seriously viral form. Anderson and DeWolfe gradually cobbled together the ultimate Web-services mashup. It was a free-for-all of blogging, instant messaging, phonecam uploads, MP3s, video clips, and anything new that came along, all stewing in a broth of hot bands, hit movies, and teenage lovelies.
Like other social networks, MySpace is organized around free personal homepages, or profiles. People who designate each other as “friends” can link and post messages to one another’s pages. But MySpace profiles can also be transformed – “pimped” – by digging into their HTML code. And they can link to the rest of the Web, jacking the site into something that Silicon Valley, unlike News Corp., knows little about: pop culture. “MySpace is the site I wanted to be on,” says Anderson, the now-famous “Tom” who automatically becomes every new user’s first friend.
MySpace fits into an old media portfolio like a skateboard in a Manhattan boardroom. Even though News Corp. has a reputation for edgy content – The Simpsons, 24, American Idol, even Fox News – its business model is as old-fashioned as they come. The company earns its daily bread by luring people with carefully crafted content and selling their eyeballs to advertisers. MySpace, on the other hand, is out of control. Indeed, its core value is that users rule. They write what they like, stream their choice of music, link to their favorite sites, turn their profiles into HTML Niagaras of cascading style sheets. Hence the question: How do you manage MySpace without ruining the site’s irresistible free-for-all?
Silicon Valley has a practiced drill for dealing with hot young acquisitions: Thank the visionary founders, replace them with a SWAT team of grizzled industry vets, and start monetizing the asset. “That’s not News Corp.’s style,” Levinsohn says. “A media company depends on people with creative vision.” So instead of golden handshakes, Anderson and DeWolfe got Wall Street-size bonuses – reportedly in the multimillions – to stick around. And, other than a slew of Murdoch parody profiles and occasional avalanches of ads for Fox movies, there’s not a pixel of News Corp. presence on MySpace. “Obviously MySpace is a world unto itself,” says corporate president Chernin. “There’s never been a second when we said, ‘How do we put our stamp on it?’ We’d be crazy to interfere.”
More to the point, you don’t fire the pied pipers. MySpace’s membership has more than quadrupled since the News Corp. deal one year ago, confounding predictions that the new management would send members stampeding for the door. And the growth continues, adding a mind-boggling 280,000 new users every day – the circulation of a big-city US newspaper. Daily pageviews have passed the billion mark, second only to Yahoo. All without a shred of marketing.
To keep the juggernaut rolling, News Corp. has put $20 million into staff and infrastructure, starting with the site’s creaky servers and balky code, problems that crippled erstwhile rival Friendster just as it started to lift off. A hotline is now open for reporting online bullies and suspected cyberstalkers. A team of content monitors systematically removes overtly risqué images and obviously underage users. New features are in the works, including a drag-and-drop profile editor known as the Shuffler and an RSS desktop widget that makes it easy to post photos. In anticipation of depleting the supply of American recruits, MySpace scouts have visited China, while the new London office is organizing promotional concerts for 1.5 million UK members.
For all the monster numbers, though, MySpace is a flabby giant boxing well beneath its weight. Chernin and Levinsohn boast that monthly revenue, estimated to have been in the single-digit millions at the time of the acquisition, is doubling every quarter. But even at that rate, the newly bulked-up sales team will be lucky to pull in $200 million this year, less than 5 percent of Yahoo’s take. MySpace clearly isn’t the Net’s next great cash machine – not yet, anyway.
The most obvious problem is that the millions of profiles that are MySpace’s main real estate violate just about every rule in the marketing handbook. The site’s great strength – users’ freedom to design their pages any way they like – is an advertiser’s nightmare of scrolling, blinking, browser-crashing chaos. (And that’s when it’s not patently offensive.) The most teen-centric advertisers – Circuit City, Verizon, McDonald’s – have been willing to wade into MySpace’s black lagoon. Others are happy to take their quest for eyeballs elsewhere.
But the business flaw runs even deeper. In an online advertising market increasingly dependent on the Net’s ability to precision- target ads, MySpace offers no sure way to hit the bull’s-eye. Google decides which ads to show based on search terms and page content. By contrast, a typical MySpace pageview doesn’t offer much of a clue about anything. What conclusions can you draw when kid A bounces onto kid B’s profile and leaves the message “Wazzup”? That’s why a top-priced Google ad – say, one that appears with search results for the word “refinance” – is valued in dollars per click, while a MySpace ad clocks in around a hundredth of a cent per view. In theory, all those millions of lovingly, often exhaustively detailed personal profiles ought to make it possible to deduce a user’s interests. But no one knows how to do it, certainly not on an industrial scale. That’s why Ross Levinsohn spends his days scrutinizing advanced search technologies. “Believe me,” he says, “we’re seeing every VC’s deck.”
Meanwhile, DeWolfe and Anderson are trying to make the most of “Wazzup.” They’ve zeroed in on what the industry calls immersive ad campaigns: commercial MySpace profiles that publicize movies, albums, and consumer products. These promotions get an initial push on the site’s heavily trafficked public pages and then – if all goes well – spread virally as users add the products represented to their list of friends. (By the time Fox’s X-Men: The Last Stand opened in May, its elaborately conceived MySpace profile had already attracted 1.6 million friends.)
Levinsohn, for his part, thinks one way to make the site more ad-friendly is to introduce miniportals focused on MySpace core interests – music, movies, and comedy so far – that offer advertisers “clean” (that is, professionally designed and managed) pages. Smart stuff – but again, tidy the place up enough to make American Express happy, and it won’t be MySpace anymore.
One way or another, Murdoch talks about News Corp.’s Internet investments generating $1 billion a year by the end of the decade. Ads alone may not be able to accomplish that, but as Levinsohn points out, “there are a thousand ways to make money when you have this many people.” One obvious option is to strike an exclusive deal with Google or Microsoft to replace the site’s current (generic) search function with one provided by Google or Microsoft. (That alone could be worth every penny News Corp. paid for the site.) There’s also the initiative called MySpace on Helio. Users can sign up for a branded mobile network that means they’re never more than a speed-dial away from blasting a phonecam shot to their 235 friends. And video downloads: In May, the site began offering episodes of 24 for $1.99.
As lucrative as those ideas may be, they’re based on an old media conception of audiences as consumers. But MySpace members are something different: They’re participants. The site’s greatest value isn’t connecting people to products, people to information, or eyeballs to advertisers. It’s connecting people to people. The MySpace team is light on information theorists, but DeWolfe happily quotes Metcalfe’s law: “The value of a network is proportional to the square of the number of users.” In other words, MySpace multiplies the value of each member by connecting one to another. It’s a virtual nation of people instant-messaging their friends a link to Gnarls Barkley’s new track and decorating their pages with Family Guy clips. And that’s where MySpace could strike gold: It lets News Corp. host the cultural conversation.
Down a long hall and around a few corners from Murdoch’s command post, Jeremy Philips sits in a fishbowl office looking out on midtown’s concrete canyonland. A 33-year-old Australian who previously worked at the consulting firm McKinsey, he was recently promoted to executive vice president for strategy and acquisitions – Murdoch’s digital consigliere. Philips grabs a legal pad and draws a big V.
“News Corp.’s traditional media business has two legs: content and distribution,” he says. Then he sketches a circle in between. “That’s where MySpace fits. It’s neither one nor the other, though it shares aspects of both. It’s a media platform, and a very powerful and adaptable one. Which is why it has such enormous potential.”
When Philips says “enormous potential,” he doesn’t just mean the chance to become the next Yahoo or MSN. MySpace, the unruly child of a dodgy Net marketing company, energizes every corner of the News Corp. constellation. In doing so, it could ensure the company’s survival in the new era.
Platforms have long been the key to digital power, and the Internet only extends their scope and grip. eBay built one for retail transactions. Google’s organizes information. MySpace is a platform that gives ordinary people a place on the Net to interact with one another – and provides an expanding set of tools for doing so. With enough people, it just might be the ticket to selling media in a world where audiences, not corporations, call the shots.
How? Think of MySpace as an 80 million-screen multiplex where YouTube videos are always showing. Or an infinite radio dial where the DJs spin only the records they want to play. There may not be a working band or musician left in the English-speaking world who doesn’t have a MySpace profile. Ditto comedians, artists, photographers, and anyone else trying to catch the public eye. Why is Disney promoting Pirates of the Caribbean: Dead Man’s Chest on a News Corp. site? Because that’s where the viewers are. And that’s what a platform is: the place you have to be.
MySpace is doubly important to an old media armada like News Corp. as it navigates the infinity of distribution channels created by broadband, mobile devices, and search engines. News Corp. has been spinning deals with iTunes, two-minute mobisodes of Prison Break, and download agreements with terrified local affiliates. But none of that answers the question that gnaws at Rupert Murdoch and moguls everywhere: Without the old network certainties, who or what will perform the essential function of a media company – that is, grab and hold attention on an industrial scale? MySpace offers an answer.
Which brings us to MySpace’s ultimate value to News Corp.: the power to make hits. Umair Haque, who runs the trendy London media consulting shop Bubblegeneration Strategy Lab, puts it succinctly: “MySpace’s challenge is to do for branding what Google did for ads – to create a hyperefficient form of interaction.” In plain English, audiences create hits. Make that happen more quickly, cheaply, and reliably, and you have a philosopher’s stone for media: a Net-fueled word-of-mouth machine.
“You’ll see us morphing from a content company into a marketing company,” Levinsohn says, “a youth marketing company especially, because that’s where everything starts. No one is going to be able to control the flow of content the way we used to. MySpace gives us the ability to look inside and understand how hits get created” – that is, to spot micro-niches, track early breakouts, and identify hot IM buzzwords as they bubble up.
This is why MySpace poses a real threat to big players. It’s a nuclear missile across MTV’s bow. News Corp. personnel from Murdoch on down never tire of pointing out that MySpace reaches more kids each day than Viacom’s music channel sees in a week. The site is also a nice one-up on media wannabes Google and Yahoo, both of which have fielded their own social networks to mixed results. It’s a knock on Facebook, which avoids out-of-control content like an STD. And it rubs sand in the eyes of champion AOL, which has responded with AIM Pages, an extension of its instant-messaging service.
Murdoch’s troops affect unconcern. “Music, TV, movies, friends – those are what attracted people to MySpace,” DeWolfe says. “There has never been a social network you could buy your way into.” Theory is on his side – look how network effects have entrenched eBay. Indeed, the biggest challenge to MySpace may be something that’s inconceivable in old media: runaway audience growth. Movie and TV audiences self-select, if only by switching off. But what happens when the audience is part of the show? Participation feeds on itself, cementing established users and drawing new ones. Curious colonists from other demographics are already arriving. Forget the putative horror of being owned by Rupert Murdoch – will a sudden deluge of millions of thirtysomethings send their younger siblings running in the other direction? Senior citizens? Foreigners? (Google’s attempt at social networking, Orkut, has morphed inexplicably into a hangout for teenage Brazilians.) OMG!!! Mom has a MySpace profile!!!!!
Needless to say, that’s the kind of problem Rupert Murdoch would be happy to take up to the mountaintop (or, more precisely, his $44 million Fifth Avenue apartment) and think about. “God knows what we’re going to do with MySpace,” he says, leaning back on that immaculate white sofa. “We’re just discovering what this thing can do.” This is the kind of statement that confounds his more hidebound rivals and sends nervous chills down Wall Street’s spine: What will Rupert do next?
“You want to learn from MySpace,” he muses. “Can you democratize newspapers, for instance? What does it mean for how we do sports or politics? I don’t know – no one does. I just know we’ll figure it out.” And while he’s scratching his head, MySpace will be turning chatter into buzz, casual dilettantes into adoring fans, and homespun demos into off-the-chart successes. Popular culture will become more truly popular than ever before. Murdoch won’t have to give the people what they want – they’ll get it themselves.
The News Corp. chief on Google’s arrogance, American Idol, and the power of creativity.
BROADCASTING VS. NARROWCASTING
Mass media will go on. Look at American Idol, with 35 million viewers and advertisers rushing to get on. Niches have a future, too. Look at our Speed Channel, which is mostly Nascar stuff. The middle ground – that’s where you don’t want to get caught.
THE FUTURE OF TELEVISION
The majority of viewing will continue to be in a living room on a TV screen – one that is far bigger and better than what most people have today. Sure, everyone’s going to have a small screen, too. It’s a convenience. But I don’t see people sitting on the beach and watching a movie on their telephone.
THE FUTURE OF NEWSPAPERS
Can newspapers make money online? Sure. Can they make enough to replace what’s going out? At the moment, with the Internet so competitive, so new, and so cheap, the answer is no. But don’t look at it as a newspaper – look at it as a journalistic enterprise. If you’ve got authority and trust, if you can make the news interesting, you’ll survive.
I like those guys, but there’s a bit of arrogance. They could have bought MySpace three months before we did for half the price. They thought, “It’s nothing special. We can do that.”
What you get today is not real broadband, especially if you’re talking about hi-def television. Satellites are fast enough, but they don’t give you a two-way connection. That’s why we’re looking very seriously at building out a WiMax network in the US.
CONTENT VS. DISTRIBUTION
Distribution was nearly king – you couldn’t get a cable channel going in this country without John Malone. But when real broadband arrives, owning distribution will be less and less important.
- Spencer Reiss