MySpace pays off for News Corp.
With MySpace.com, another Rupert Murdoch gamble is starting to pay off.
News Corp. on Wednesday said the social networking website that it acquired to great skepticism in 2005 had turned profitable and was bringing in revenue faster than expected.
MySpace’s sales in the latest quarter tripled from a year earlier, making the site a highlight of its parent’s earnings report.
News Corp. reported net income of $822 million in its fiscal second quarter, down from $1.08 billion a year earlier, when asset sales provided an unusual gain of $381 million.
Revenue jumped 18% to $7.84 billion, aided by the hit movie “Borat,” while rating declines at the Fox Broadcasting network and the early struggles of new network MyNetworkTV cost more than expected.
MySpace accounted for about $75 million in sales in the quarter that ended Dec. 31. But the rapid growth prompted News Corp. President Peter Chernin to tell analysts on a conference call that Fox Interactive Media, the Beverly Hills-based Internet division that MySpace dominates, would “over-deliver” on the $500 million in annual revenue projected three months ago.
Chernin said that Santa Monica-based MySpace had its first profitable month in December and would at least break even for the fiscal year that is now seven months old. When he added that the unit’s operating profit margin should top 20% in fiscal year 2008, Murdoch, News Corp.'s chairman, chief executive and controlling shareholder, called the estimate “pretty pessimistic. I think we can do a lot better than 20%.”
That kind of talk impressed such analysts as Aryeh Bourkoff of UBS, who said News Corp. could be the first mainstream media company to make the Internet a major source of profit, as Apple Inc. has done with iTunes and the iPod.
“While other media companies such as Disney are making inroads into digital, revenue and profits are growing more gradually,” he said. “At News Corp, we expect Fox Interactive Media’s revenue and profits to nearly double in 2008 versus 2007.”
Last month, MySpace started collecting money under a deal with search-engine giant Google Inc. that guarantees Fox Interactive Media at least $900 million over three years’ time. Google is selling search-related advertising on MySpace pages and giving News Corp. a cut.
MySpace is working on technology for targeting other advertising to its 150 million registered users, such as those who mention a particular brand in their blogs or have relevant hobbies. People who mention Starbucks on their MySpace pages might see coffee ads, for example, while hiking enthusiasts would get pitches for camping gear.
Executives are pushing a mobile version of MySpace for use by cellphones -- AT&T; offers it now and others in the U.S. will follow soon. A European service from Vodafone also was announced Wednesday.
In addition, MySpace is negotiating to establish a system for its users to sell things to each other. That system could use technology from Google, auction giant EBay Inc. or some combination of the two, according to people briefed on the talks.
“I see tremendous growth” in MySpace, Murdoch said, “and it being a very big profit driver for the overall company in the coming years if we get it right and keep it right.”
Fox Interactive Media also includes IGN websites for video game enthusiasts, FoxSports.com and other sites.
In its larger business lines, Murdoch and Chernin said they had installed new managers at MyNetworkTV who were backing away from an initial focus on telenovelas. They plan to instead add prime-time movies and other less-expensive fare in hope of a better response from viewers and advertisers.
Operating profit in News Corp.'s television business fell to $112 million from $183 million, hurt both by MyNetworkTV and Fox Broadcasting, where profit dropped 36%. Chernin said the return of the hit shows “American Idol” and “24" would turn things around in the spring. The film division more than made up for that shortfall, taking in $470 million compared with $299 million a year earlier.
Murdoch confirmed his interest in making a small investment in a takeover bid by California’s Chandler family for Tribune Co., the Los Angeles Times’ parent. He said the goal would be to combine some operations at News Corp.'s New York Post with those of Tribune’s Newsday, the Long Island, N.Y., daily.
The News Corp. executives stuck with their earlier projections of a full-year increase in operating profit of 14% to 16%.