Ross Levinsohn's wheeling and dealing to get News Corp. back in the Web game has been ridiculed by many as profligate and late. But he may yet prove them all wrong.
(Business 2.0 Magazine) -- Halfway through the most important presentation of his career, with media baron Rupert Murdoch sitting in judgment, Ross Levinsohn had the troubling sensation that he was about to blow it.
It was May 5, 2005. Levinsohn, 41 at the time, was head of Foxsports.com, one of the few online properties in Murdoch's News Corp. empire that wasn't flailing. Murdoch had been seething about News Corp.'s generally lousy history of capitalizing on the rise of the Internet and was sick of watching the likes of Google (Charts) and Yahoo ring up stupefying profits. He had ordered his underlings to come up with a new plan of attack for the Web - and it fell to Levinsohn to deliver it that day in a News Corp. (Charts) conference room in Los Angeles. He'd hardly slept in 48 hours.
An hour into the presentation, as Levinsohn sketched out the details of one of his central proposals, another high-ranking News Corp. executive harrumphed, "You can't do that!" Levinsohn felt his stomach drop and his knees wobble. And then Murdoch slapped his hand on the table. "Of course we can," he said.
Things haven't been the same for Levinsohn since. Shortly after that meeting, he was put in charge of revitalizing News Corp.'s Web efforts--and given $2 billion to do it. There was a fair amount of "You can't do that" chatter about his ascension at the time; some of his own Fox colleagues thought he was too green for the job.
The doubt grew when Levinsohn, now the president of Fox Interactive Media (FIM), started making his moves. The $580 million he doled out for social-networking website MySpace was derided by critics as an indefensibly extravagant sum to pay for a company that seemed less likely to be the next Google-like giant than the next Friendster-like fad.
The additional $700 million he has subsequently spent on various Web entities that were largely unknown outside geek circles amplified the criticism. "There were some very smart people," says a former Fox executive, "who thought Ross would never be able to make these deals pay off."
That skepticism is beginning to seem a little less warranted now. Because some of the mystery is beginning to lift from how Levinsohn hopes to deploy Fox's Internet properties and adapt his company to the user-centric, highly interactive environment that's come to be known as Web 2.0.
He has surprised some erstwhile critics by coming up with clever ways to marry content - where Fox has a built-in advantage over the Googles and Yahoos of the world - with the company's surging Internet traffic to home in on the Web's exploding population of 18- to 34-year-olds, the golden demographic that advertisers crave.
Every competitor, from the new-media luminaries like Yahoo (Charts) to traditional giants like Time Warner (Charts) and Viacom (Charts) is shooting for the same target. But "Fox is cornering the 18- to 34-year-olds on the Web," says Ron Conway, a prominent Silicon Valley angel investor who specializes in Web 2.0 startups.
Advertisers, many of whom were initially deeply leery of wild-and-woolly social networks as ad forums, are starting to come around, and they're giving Levinsohn props for being out front in the scramble to capitalize on a new era of Internet marketing that combines social networking, viral marketing, interactivity, wireless advertising, and Web video. "Fox could redefine online advertising," says Nick Pahade, head of Denuo, an online advertising consultancy owned by giant ad agency Publicis Groupe (Charts).
The main driver is MySpace, which has turned out to be far more of a traffic-generating monster than anyone - including Levinsohn - imagined. The site now has 80 million registered users, up 364 percent since Fox bought it, and its growth is still accelerating.
It received more than 19 billion pageviews in March, more than either Google or Microsoft (Charts). Analysts say MySpace should generate about $200 million in revenue this calendar year, a fourfold increase over last year's figure. Other, less noticed Levinsohn plays are chipping in as well. All told, News Corp.'s Web properties now account for a whopping 6 percent of all U.S. Web traffic, second only to Yahoo.
FIM will have total revenue of roughly $300 million this year, compared with last year's $47 million. With MySpace roaring and other Levinsohn initiatives beginning to bubble, some analysts think FIM's revenue could soar in 2007. "It's quite amazing what Fox has been able to do in a year," says Bill Tancer, general manager for Hitwise, a research firm that tracks how consumers use the Web.
Levinsohn readily acknowledges that much of what he's doing qualifies as experimentation, and a lot could still go haywire. FIM won't disclose profit figures, but Levinsohn is almost certainly spending more than he's making, given that he's building FIM so fast - it has gone from seven employees to 1,200 in a year.
Even MySpace isn't making much money right now because Fox has had to spend heavily to beef up its infrastructure and because it has so much available ad inventory that FIM can't yet charge market rates. "We've scored six runs in the first," Levinsohn says, dropping into the sports lingo that often peppers his talk. "But it's a nine-inning game." Still, for the moment, Fox seems to be on an unexpected hitting streak. And Levinsohn still has hundreds of millions of dollars to play with, which makes him the man everyone in Silicon Valley wants to know.
Getting the Web
Levinsohn got the Internet early on. He grew up in New Jersey - "Tony Soprano country," he calls it - and got his start at HBO. In 1994 he crafted a deal that would promote HBO on America Online and Prodigy, then two of the fastest-growing online services. After stints at CBS SportsLine and AltaVista, he joined Fox in 2000, at a time when News Corp.'s Web initiatives were going nowhere. (News Corp. blew about $1 billion on those efforts.)
Levinsohn soon took over Foxsports.com and started to make a name for himself. He shut down the site, reworking it to increase its offerings of sports stats and video clips from the Fox Sports Network. When it relaunched in 2001, traffic surged, and in July 2004, Levinsohn sealed a deal for Fox to become the default sports content provider for MSN, acing out ESPN. Foxsports.com is now the third-largest sports site on the Web, behind ESPN and Yahoo.
During this time, Levinsohn remained an avid student and heavy user of the Web. But it wasn't until he was interviewing a 20-something woman who was applying for an entry-level administrative position in 2004 that he began to get a handle on how Fox could bolster its online position. When he asked her what her typical day was like, she told him about the hours she spent online checking out then-embryonic social-networking sites, swapping photos, trading music, communing with like-minded people. She didn't watch TV, didn't read newspapers. Levinsohn didn't hire her, but he did begin researching some of the websites she'd described. Ultimately he encountered an up-and-comer called MySpace.
His timing was perfect. MySpace was reportedly adding fewer than 125,000 users a month when FIM bought it, but it was about to blow up. With a simple format that allows users to set up personal pages, blend in pictures, video, and music - much of it material they create themselves - and link to their friends' personal pages, the site is now adding 270,000 registered users a day. "We got a little lucky, no question," Levinsohn says.
Levinsohn also perfectly caught a major shift in the whole Web economy. Web advertising has essentially gone through three stages (four, if you count the "It'll never work" stage). Banner ads and pop-ups, moderately effective at best, gave way to more effective text-based ads, triggering a cascade of ad dollars onto the Web and converting Google and Yahoo into goliaths. But thanks largely to broadband and new tools for enabling interactivity, a new stage of Web advertising is dawning, variously described as the era of "deep media" or "behavioral marketing."
It's a reaction to the fact that young consumers today, bombarded as they have been by relentless marketing their entire lives, remain resistant to ads, including the prior staples of Web advertising. Behavioral marketing seeks to deploy mechanisms like Web video and interactivity to reach an increasingly fragmented audience with messages that are at once entertaining enough to penetrate young consumers' ad immunity but not so in-your-face that those consumers instantly recoil.
A central tactic is "cross-platform" advertising, which allows marketers to reach their elusive target with a unified campaign that stretches across, say, television, a social-networking site, iPods, and cell phones. "We're moving to a digital universe where things are measurable and quantifiable, and audiences can be better segmented and targeted," says Brian McAndrews, CEO of aQuantive, a Seattle-based ad company that focuses exclusively on digital campaigns. "But you have to execute very creatively to nail it."
Levinsohn's plan is to make MySpace the hub of a behavioral-marketing approach supported by all of Fox's other weapons--its massive amount of content and its constellation of other Web properties. The approach carries many challenges.
For starters, the Wild West nature of social-networking sites raises concerns among some advertisers that they won't be able to control their messages as rigorously as they're accustomed to doing; at the same time, the youthful, independent, and sometimes anticommercial bent of some sites, MySpace in particular, means that both Levinsohn and advertisers have to exquisitely calibrate how much advertising they hit users with to avoid alienating them.
The outline of just how Levinsohn intends to meet those challenges can be seen in the handful of behavioral campaigns FIM and its ad clients have rolled out, with generally encouraging results.
Wendy's recently created a MySpace page featuring a four-sided white smiley face called Square (the shape of Wendy's burgers). In the space of a few weeks, the page attracted 87,000 users - "friends" in MySpace lingo. Similarly, Dodge recently created a MySpace page for its new Caliber sportster, a model targeted at the youth and college markets. The "Anything But Cute" page, which also featured cartoon characters (Pig and Bear), rang up 8,500 friends in a week, many of whom downloaded Caliber computer screensavers and posted comments.
Mark Kingdon, CEO of Organic, Dodge's agency for the experimental campaign, says the response was impressive, and Dodge is considering how to further exploit MySpace - by, say, inviting its new friends for a Caliber test drive. "Every other medium is polluted with advertising messages," he says. "Social networks are a virgin territory."
New audiences for Fox content
Of course, one of the most potent ways FIM can utilize its Web properties is to create symbiotic relationships that benefit advertisers - and find new audiences and revenue streams for Fox's own content. In early May, Burger King set up a special "Have It Your Way" MySpace page with tie-ins to Fox's megahit action drama, 24.
For both Burger King and Fox, the allure of a 24 tie-in is self-evident: In the physical world, the show has an avid audience of about 15.7 million people per episode, and it pulled in an estimated $70 million in ads in the first quarter of 2006 alone. In its first 16 days, the "Have It Your Way" page drew 35,000 friends.
Both companies are trying to leverage that enthusiasm. Users can gather at the site to discuss superspy Jack Bauer's latest derring-do or suggest alternate plotlines. They can get free downloads of two episodes.
Burger King will also offer access to its site over cell phones, but Fox will get paid for episodes downloaded by phone. Levinsohn foresees being able to draw other advertisers interested in the 24 crowd; for instance, GM might want to pitch its Hummer, or the military or intelligence services might want to run recruiting spots.
In another effort to exploit existing Fox content, Levinsohn set up a MySpace page in early May to pump Fox's X-Men 3: The Last Stand. That page got more than a million hits and doubtless played a role in making the film's May opening weekend a $120 million bonanza. "I'm very focused on the core brands because right now that's where News Corp.'s bread is buttered," Levinsohn says. "We're additive to the mix. FIM is not yet the core."
MySpace is such a phenomenon that it tends to overshadow other Levinsohn initiatives. Some of them, analysts and ad execs say, have the look of sleeper hits.
In April, Levinsohn bought a website called kSolo, based in New York, for a few million dollars. Cheesy? Sure. But Nimrod Lev, kSolo's founder, says Levinsohn immediately conjured a much larger vision for the site. "He looked at this in a very entrepreneurial way," Lev says. Levinsohn hopes to make kSolo the foundation of a new online version of the Fox TV colossus American Idol. At kSolo's site, users can call up the lyrics and a digital file of a favorite song, sing along, and record their version using a PC's built-in condenser microphone. The song can then be shipped to friends, posted on a MySpace page, or opened up to a virtually unlimited online body of wannabe Simon Cowells who can vote on the tunes. "Everybody can play American Idol," Levinsohn says.
The beauty is that there are no expensive sets to buy, no fancy recording gear to provide, no celebrity judges to sign to multimillion-dollar contracts. "It's cheap," Levinsohn says. "A little hardware. The users create their own content for free."
Advertisers would flock to such a site, Levinsohn believes; FIM could also make money by, for instance, signing the crowd pleasers to deals with MySpace Records, a label Fox launched in November with Interscope. FIM plans to integrate kSolo into MySpace this summer.
Newroo is another Levinsohn deal that few seem to have noticed. On the surface, Newroo looks like nothing more than a small startup news aggregator, but Levinsohn immediately saw its underlying technology as a tool to match up users with both news content and relevant advertising. Co-founder Dan Gould told him that Newroo wasn't interested in selling the whole company. "I don't like to rent," Levinsohn told him. "I like to own." Soon Gould and his team were pocketing a few million dollars; Gould now boasts of being part of "a $2 billion startup."
For all of its momentum, Levinsohn's approach has many vulnerabilities. One is the possibility - seemingly more remote by the day, but still there - that MySpace will turn out to be a fad. Not long ago nobody thought that could happen to Friendster. Once valued by VCs at more than $50 million and widely expected to be eventually worth a lot more, the social-networking pioneer recently offered to sell itself to Viacom for about $20 million, say people with knowledge of the talks. When Viacom passed, Friendster came back a few days later with a reduced price of about $5 million. Viacom passed.
A more immediate challenge is how to pump up ad rates for MySpace. Lately the site has been able to charge advertisers $1 as its CPM, or cost per 1,000 impressions (the standard measure for selling ads on websites). Google ads bring in many times that. The culprit: MySpace's page totals are rising so fast that they've created an ad-space glut.
"It has so much inventory that their salespeople have not been able to fill it up," says Jeff Lanctot, who, as vice president of Avenue A/Razorfish, the online ad-buying arm of aQuantive, counts Ford, Microsoft, and Nike among his clients. "This is the first time since the '90s that I've seen a site grow so fast."
Levinsohn argues that FIM doesn't have to overtake Google on straight CPM fees to become a Google-like gold mine. "CPM is not the main way we can make money," he says. He cites sponsorship and promotional deals like those recently struck with Victoria's Secret and Cingular, which also have MySpace pages.
People who actively seek out those pages and interact with them, the logic goes, will be far more likely to buy the product than, say, someone who by chance encounters a text or banner ad. Levinsohn also points out that he has TV content to lure users and keep them on the Fox Web properties; Google, MSN, and Yahoo are less equipped to do that.
That's not to say that Levinsohn is sanguine about how quickly he can nourish his budding Web empire's bottom line. For one thing, he's got Rupert Murdoch breathing down his neck. People who know Murdoch say the legendarily demanding 75-year-old is energized by the challenge of mastering the Web and determined to get it right this time after News Corp.'s previous stumbles. Levinsohn is in 100-hour workweek mode, obsessively combing the Valley for hidden gems. He says he has less time to spend with his family than he should - and more gray hair than he used to.
Still, Levinsohn takes comfort in the fact that, though his stratagems aren't yet pumping profit, News Corp.'s market cap is up by more than $1 billion in the past year. Analysts attribute most of that rise to excitement about FIM's Internet plays. Direct rivals like Time Warner and Viacom, which are also desperately trying to figure out the Internet, have seen their market caps barely budge lately. That helps keep his boss happy. And the $600 million still burning a hole in Levinsohn's pocket opens a lot of doors. Or, as he puts it, "I've made a lot of new friends in Silicon Valley."To send a letter to the editor about this story, click here.