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November 08, 2005  User Generated Content

A friend of mine teaches art at a high school in Orange County. He sent me an email asking about Rupert Murdoch's acquisition of MySpace so that he could have more information to include during a lecture on media.

Rupert Murdoch is the head of News Corporation, one of the world's largest media conglomerates. News Corp owns Fox, DirecTV, and now... MySpace, a social networking website. MySpace is popular with younger audiences and the site eventually lowered the age to legally join from 16 to 14 to better accommodate its target market. If you don't know what MySpace is, you are either under 12 or over 25.

This shouldn't be a surprise. The New York Times recently wrote that "according to the Pew survey, 57 percent of all teenagers between 12 and 17 who are active online - about 12 million - create digital content, from building Web pages to sharing original artwork, photos and stories to remixing content found elsewhere on the Web. Some 20 percent publish their own Web logs." The article continues: "Most teenagers online take their role as content creators as a given... [with] mounting evidence that teens are not passive consumers of media content."

Xanga, Livejournal and MySpace have become the new after school hangout, with kids turning away from traditional media distribution channels to consume content produced for and by people they know.

There are a lot of social networking and blogging sites on the Internet, so why did Rupert Murdoch decide to pay $580M for MySpace? It certainly isn't because MySpace generates a lot of revenue. Although the site is one of the fastest growing on the Internet (the site adds millions of unique visitors per month), it boasts only $30M to $40M a year in revenue. This is why the site sold for $0.58B--a large sum, but nowhere near as large as what other sites that get the amount of traffic that MySpace receives are able to generate. According to Alexa, MySpace is one of the top Internet destinations, which means that it is surrounded by companies like Google, Amazon, AOL, EBay, Microsoft and Yahoo, the multi-billion dollar titans of the Internet.

The competitors to MySpace such as Thefacebook, Friendster, and Tribe, are nowhere close to the amount of traffic and growth that MySpace is seeing. Therefore, I made the argument to my friend that the reason Rupert Murdoch wanted the company was that it was highly undervalued. It was easy to take a site like this, for a man who made his fortune on advertising, and use it to produce highly relevant, targeted ads, similar to what Google does.

I talked to Max Levchin about this and he had a more cynical view. His take was that Rupert Murdoch was not so much interested in using the site to push heavy advertising to drive revenue, but rather to use targeted brand advertising: "The people who watch Fox News today are old and will die in the coming decades. Kids today don't know who Bill O'Reilly is, or that he had a sex scandal. It's a great opportunity to influence them while they are young and impressionable. It's a long-term play."

This, then, is a bit of a sad story. It began with children turning their backs on passive media consumption and becoming active participants in the world of content production. Yet it ended with the head of News Corp purchasing the engine that fuels their creativity. But there must be a silver lining? As Max pointed out, there are only so many Rupert Murdochs. They can't buy every site like this. And some are not for sale.

Posted by johnnie at 02:04 AM | Comments (1)