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Breaking Views

Viacom's second shot at MySpace

As its ad deal with Google winds up, the News Corp unit increasingly looks like a target for Viacom to fulfill its ambition of marrying MTV with MySpace.

By Rob Cox and Yoree Koh, breakingviews.com

(breakingviews.com) -- By his own admission, Sumner Redstone has long coveted MySpace, the online social network his rival Rupert Murdoch stole from under his nose. Yet while Redstone's Viacom media conglomerate missed out on grabbing the internet company four years ago, it could get a second bite at the cherry.

That's because MySpace's future looks shaky. Murdoch acquired the business for $580 million in 2005 as social networking took off. That allowed News Corp (NWS, Fortune 500) to ink a deal with Google (GOOG, Fortune 500) that guaranteed $300 million in advertising revenue annually until next year.

The trouble is, MySpace's chief rival, Facebook, has been the greater beneficiary of the medium's boom. And even Facebook is struggling to make money from its success. With user traffic slowing and all those guaranteed dollars evaporating from Google, MySpace looks strategically stuck.

Last month, UBS analysts questioned whether MySpace would ever grow its revenue any further. In preparation for the termination of its Google deal, MySpace has embarked on a massive cost-cutting drive. It's slashing 30% of its U.S. staff and two-thirds of its international ranks.

Enter Redstone. The Viacom (VIA) chairman admitted firing chief executive Tom Freston for prevaricating on a purchase of MySpace when he figured he could have had it for $500 million. Losing to Murdoch was "a humiliating experience", Redstone told Charlie Rose in a 2006 interview.

But the reason Viacom should have wanted MySpace was not for social networking. The fit was actually better with Viacom's existing franchises -- specifically the MTV music networks -- than anything inside News Corp's empire.

From the start, one of MySpace's greatest attributes was its ability to showcase music for established bands and up-and-comers. Pairing MTV with MySpace, therefore, would offer obvious content synergies.

Murdoch isn't likely to part with MySpace at a loss. Redstone once figured the business was worth $1.5 billion. Without the Google deal, that looks optimistic. But split the difference with what Murdoch paid, and Redstone could own his musical quarry for a mere $1 billion. Maybe it's not always so bad to lose an auction the first time around. To top of page

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