News Corporation Buys an Internet Company
New York Times
By RICHARD SIKLOS
Asked if spending $580 million to buy an Internet company whose chief asset was created only two years ago gave him pause, Rupert Murdoch said: "You bet."
But after announcing the transaction yesterday, Mr. Murdoch, the chief executive of the News Corporation, said he was won over after meeting the entrepreneurs who run the company, Intermix Media, and studying the surging popularity with young consumers of its prime asset, MySpace.com.
MySpace.com is a social networking site that has grown to more than 16 million monthly users, and features the equivalent of home pages created by 200,000 music groups, big and small. Its users spend hours exploring areas devoted to personal classifieds, music, blogs, video games and chat rooms.
"It swept past all the other people in this space, in particular by embracing music," Mr. Murdoch said.
Several prominent music groups - including the Black Eyed Peas, R.E.M. and Nine Inch Nails - have introduced their latest releases through MySpace. Major companies, including Procter & Gamble and Sony Pictures, have advertised on the site, and NBC previewed the comedy "The Office" there earlier this year, several days before its debut.
According to Nielsen/NetRatings, MySpace drew 12 million unique visitors in the month of June and ranked sixth among all Web sites in terms of page views, behind Yahoo, eBay, MSN, Google and AOL.
"They haven't spent a penny marketing - it's all viral," said John Tinker, an analyst with ThinkEquity Partners in New York who follows Intermix. "And they haven't spent a penny on content. It's a good model."
Intermix's other businesses include Web sites with names like grab.com and flowgo.com, which offer games, cartoons and other entertainment.
The deal for Intermix comes immediately after the formation of Fox Interactive Media, a unit within News Corporation that will include Intermix as well as sites like foxsports.com, foxnews.com, and fox.com.
The addition of Intermix to News Corporation's Web operations will nearly double the company's Web traffic in the United States to 45 million unique monthly users. Mr. Murdoch said Intermix could grow at least another 50 percent in the American market.
In buying MySpace, the company is following Mr. Murdoch's recent edict that his managers get serious about the Internet.
"This particular group of sites would appeal to young people who are watching less television and reading fewer newspapers," Mr. Murdoch said. He added that the Fox Interactive unit was working on several other acquisitions, though nothing as large as this one.
Intermix gained attention earlier this year when the New York attorney general's office filed a lawsuit accusing it of illegally planting spyware programs on the computers of people who visited its Web sites.
The company has since announced a preliminary settlement of $7.5 million.
News Corporation will pay $12 a share for Intermix, while Intermix said it would buy out minority partners who own 47 percent of MySpace.
Shares of Intermix closed at $10.72 Friday and rose 9.5 percent, or $1.02, yesterday.
MySpace was started in September 2003 by Chris DeWolfe, the chief executive, and Tom Anderson, its president.
Like other traditional news and entertainment companies, News Corporation has had a mixed experience in trying to extend its businesses online.
Part of MySpace's success has come at the expense of similarly conceived Web sites like Friendster, where the number of users has increased rapidly but then declined.
Mr. Tinker argued that MySpace has achieved a level of popularity and critical mass that will be difficult for rivals - including social networking services from online giants like Yahoo, Google and Microsoft - to beat.
Intermix reported earnings of $4.5 million on revenue of $78.9 million in the quarter ended March 31, in contrast to a loss of $12.4 million on revenue of $57.3 million in the period a year earlier.
The agreement is scheduled to close in the fourth quarter. Both Mr. DeWolfe and Intermix's chief executive, Richard Rosenblatt, are expected to stay in their positions.