How Fox Interactive got so sly
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.
SAN FRANCISCO (Business 2.0 Magazine) -- News Corp. executive Ross Levinsohn hadn't even heard of MySpace until he interviewed a 20-something woman who was applying for an entry-level administrative position with him back in 2004.
When he asked her what her typical day was like, she told him about the hours she spent online checking out social-networking sites, swapping photos, trading music, communing with like-minded people. She didn't watch TV, and she 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.
For Levinsohn, then the head of Foxsports.com, the timing was perfect. In the spring of 2005, he was put in charge of revitalizing News Corp.'s Web efforts -and given $2 billion to do it. He promptly laid out $580 million of that on MySpace, which became the core of Levinsohn's new division, Fox (Charts) Interactive Media (FIM).
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 (Charts) and Yahoo (Charts) 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.
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 rigorously; 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 avoid alienating them with too much advertising
Some help from "friends"
How Levinsohn plans to meet that challenge can be seen in some early campaigns. Wendy's recently created a MySpace page featuring a four-sided white smiley face called Square (the shape of Wendy's (Charts) 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."
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, the pioneer of social networking, which recently offered to sell itself to Viacom for about $20 million, say people with knowledge of the talks. When Viacom (Charts) passed, Friendster came back a few days later with a reduced price of about $5 million. Viacom passed.
Levinsohn is hardly 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 (Charts) 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."
This is an excerpt of a story that ran in the July issue of Business 2.0. To read the complete version, click here.
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