MySpace Needs a Big Q4

Dismal news from yesterday’s News Corp. earnings call — but most of the bad news wasn’t at Fox Interactive Media. Revenue at that unit was up 17% year-over-year to $220 million. That’s not a bad showing compared to competitors like Yahoo!, AOL and MSN. But by other measures, it was definitely weak. 17% was the lowest y/o/y growth recorded by FIM since News Corp. started providing that data back in early 2007. Back then revenue was growing by leaps and bounds, reaching as high as 87% growth y/o/y in the fourth quarter of 2007 (News Corp.’s fiscal Q2 2008).

Now things are trending downward, and given the softness in the economy it’s certain that FIM will not see a huge bump in the calendar fourth quarter anywhere near the one it got last year. In fact, it will be lucky to match last year’s revenue in that quarter, which was $233 million.

What does this mean for MySpace revenues? News Corp. doesn’t officially break out MySpace from FIM, but my rule of thumb has been that MySpace accounts for about 80%. So far this calendar year, FIM has generated $655 million in revenue, which translates to about $525 million for MySpace, if you use the 80/20 rule.

The good news for MySpace is that it has several new revenue engines that will kick in in the calendar fourth quarter – including the MyAds self-serve ad system and the newly launched MySpace Music, which will also bring in some e-commerce dollars. But there’s only so much it can do in a dwindling worldwide economy.

Once upon a time (way back in August 2007 – an eternity ago, it seems) Rupert Murdoch had predicted that FIM would reach $1 billion and MySpace would bring in $800 million in revenue in News Corp.’s fiscal 2008 (which ended in June). It didn’t meet that target (FIM generated just $856 million in the period), and such grandiose predictions are a thing of the past at News Corp.

FIM revenue quarterly growth, calendar Q2 2006-calendar Q3 2008
Q2 06 11.6%
Q3 06 13.7%
Q4 06 20.2%
Q1 07 8.0%
Q2 07 35.6%
Q3 07 2.7%
Q4 07 23.9%
Q1 08 -9.9%
Q2 08 7.1%
Q3 08 -2.2%

Chernin on MySpace: Ad biz “above budget”

News Corp. COO Peter Chernin yesterday told the audience at Merrill Lynch’s investment conference that MySpace’s ad business was running ahead of plan, according to a Reuters article. That’s good news, but the overall picture still looks murky. Just last month Chernin said that Fox Interactive Media (MySpace’s parent unit) would grow its revenue 30% in fiscal 2009, down from 57% growth in fiscal 2008 (which ended June 30). While 30% in a down economy is nothing to sneeze at, the growth picture seems to be slowing faster than I had expected.

More on FIM Revenue Growth

I published an analysis of revenue growth at Fox Interactive Media in eMarketer’s daily newsletter today. You can view it here for a few days until it goes behind the firewall. Essentially, while revenue growth is falling at FIM, US revenue per unique visitor is trending upward, which means that monetization is improving.

Fox Interactive Media Falls Short of $900mm Revenue Mark

News Corp. said today that revenue at Fox Interactive Media rose 23% in its fiscal fourth quarter ending June 2008, to $225 million. That’s up from $183 million in the 2007 fiscal fourth quarter.  Sounds great, except that revenue at FIM grew 55% in the fiscal third quarter and 87% in the fiscal second quarter.

Fox Interactive Media Revenue – Fiscal 2008

• Fiscal 1Q 2008: $188mm (up 80% y/y)
• Fiscal 2Q 2008: $233mm (up 87% y/y)
• Fiscal 3Q 2008:$210 mm (up 55% y/y)
• Fiscal 4Q 2008: $225mm (up 23% y/y)

Adding it all up, FIM generated revenue of $856 million in fiscal 2008 — off substantially from the $1 billion target News Corp. chief Rupert Murdoch had set this time last year (and down from the $900 million News Corp. had suggested in last quarter’s earnings call).

Moreover, News Corp. indicated guidance of just 30% revenue growth for FIM in fiscal 2009 — which works out to $1.1 billion. Things are definitely slowing down over there.

News Corp. has never said publicly how much MySpace accounts for in FIM’s revenue, but the generally accepted estimate is 80%.

More summary of the earnings call at PaidContent.

MySpace Ad Revenues – What Will News Corp. Say?

News Corp. announces its fiscal yearend earnings tomorrow and I’ll be watching closely for any sign of weakness in MySpace. Last quarter NWS said that MySpace parent company wouldn’t meet its $1 billion revenue target and that led me to revise my social network ad spending forecast downward.

MySpace has been rejiggering its ad sales group, and that’s not always a good sign. TechCrunch reported last week that MySpace was letting as much as 5% of staff go — a move the company characterized as “performance-driven”. Meanwhile, several new execs have been brought in on the marketing side, with more to come.

In other MySpace ad news, today’s WSJ takes a deep dive into MySpace’s Hypertargeting, which lets advertisers target display ads based on information gleaned anonymously from MySpace users’ profiles. (The Journal quoted the social network ad spending forecast I created for eMarketer.) Launched several months ago, the hypertargeting program now offers 1,000 “buckets” (love the terminology — people as plastic) to advertisers.

I have said for some time now that I think hypertargeting makes a lot of sense for social networks like MySpace. As long as the ads don’t get too creepy (i.e., a dating service ad for someone who just changed their profile from “in a relationship” to “single”) then the better the targeting the more likely it is that people will click on the ads. And we all know that social networks need all the clicks they can get.

Downturn in Social Networking?

According to Hitwise data issued last week (while I was on vacation), the market share of visits to social networking sites fell 19% between June 2007 and June 2008. What that means is that of all sites that people in the US visit on the Internet, people were less likely to visit social network sites than they were last year at this time. As of the first week of June, 6.82% of visits to Web sites were to the social network category, according to Hitwise’s blog.

If the downward trend in market share of visits continues, and is correlated with data from other researchers (comScore, Nielsen, Compete), then there could be trouble in the waters for social network sites. I’ll be watching that data point carefully.

The good news is that average time spent on social network sites continues to climb, according to Hitwise – up 9% to 27.5 minutes per month in June 2008 vs. June 2007. MySpace was still by far the dominant social network based on market share – but things look very different in the UK, where Facebook and Bebo are more dominant.

More on Google’s MySpace Challenges

Much has been made over Sergey Brin’s comments about the monetization problems Google has been having with social networking. Many pundits have used Brin’s comments as a sign that social network advertising doesn’t work. But it’s not social network advertising that doesn’t work. It’s Google’s search advertising on social networks that’s at fault.

Eric Savitz (who worked with me at The Industry Standard back in the day) discusses this problem, citing research by Pali’s Richard Greenfield. The conclusion that Greenfield and Savitz come to: Google’s algorithms are out of whack. A people search for “Dan” returns a search link for DNA test kits. A search for “Beth” returns Pottery Barn bath products.

I have my own example: recently my MySpace home page carried a Google ad for moving trailers in Chicago IL. I haven’t lived there for more than 10 years.

And if you search for “Sergey Brin” on MySpace, you get ads for Brink’s Home Security, ADT (also home security) and Brain Health from RevolutionHealth.com. Do the same search for Sergey Brin on Google’s home page and no ads appear at all. A search for “Dan” on Google turns up an inexplicable sponsored link for “Brushes for Sweepers” from www.Sajas-Group.com.

So is Google’s philosophy on MySpace that an out-of-whack ad is better than no ad at all? Or does it just want us to laugh?

Chernin on MySpace: Growing Slower Than Expected

I was wrong – News Corp.’s Peter Chernin talked at length about MySpace and Fox Interactive Media on today’s quarterly earnings call. As expected, FIM revenue for fiscal 2008 (ending June 30) will be down about 10% from the original $1 billion projection. Revenue for the third fiscal quarter was $210 million, up 55% from a year ago but down 10% from the second fiscal quarter. For FIM to reach the new $900 million target, it needs to earn $270 million in the current quarter.

Key challenges to monetization, according to Chernin: huge quantity of ad inventory; the fact that ad models that marketers are used to (read: banners, search) don’t work as well in social media; and the difficulty of quantifying the economic value of a “friend” vs. other metrics from the TV and radio space that marketers are used to looking at.

Chernin acknowledged that growth is coming slower than expected at FIM. While he and other News Corp. execs did not explicitly say how much of FIM revenue is attributable to MySpace, in the past they have put it at about 80%, which works out to about $720 million in MySpace revenue in the current fiscal year.

MySpace Revenues – What Will News Corp. Say Today?

This afternoon News Corp. reports quarterly revenues and many people expect Rupert, Peter et al to comment on the state of things at Fox Interactive Media and MySpace. Not too long ago, the Wall Street Journal reported that FIM would fall $100 million short of the $1 billion revenue goal for fiscal 2008 that Rupert Murdoch had set last June. Since then the media has been all over the idea the social networking is failing to monetize as quickly as everyone had hoped.

In recent earnings calls NWS has been a lot more open about the finances at FIM. However, I have a sneaking suspicion that this call won’t answer many questions. NWS has one more quarter until the end of the fiscal year and I’m not sure how much they will offer in terms of guidance. A lot about FIM and MySpace is in flux, what with the ad sales reorganization and the launch of the new ad tech unit under Adam Bain. Plus, NWS has plenty else to talk about in other aspects of its business.

We’ll see in a couple of hours.

How Has Social Networking Impacted Society?

Those of you who are interested in the human side of social networking (rather than the marketing side, wink) should check this out. The New York Times’ Freakonomics blog asked several notable academics about the effect of social networking on society. Their thoughts are gathered here.