Stephen’s Posterous

Taking Helm at MySpace by Jessica E. Vascellaro, WSJ.com

When Jonathan Miller, News Corp.'s chief digital officer, phoned Owen Van Natta to finalize his appointment as chief executive of MySpace last week, Mr. Miller offered the dealmaker the sort of job he had been seeking ever since he was elbowed aside at Facebook Inc. last year, people close to him say.

As the 39-year-old Mr. Van Natta sets out to turn around MySpace, Facebook's closest competitor, he can draw on more than a decade of Internet experience, including several years at Amazon.com Inc., where he hammered out partnership deals.

But MySpace, with more than a thousand employees and flat user growth is a challenge unlike any Mr. Van Natta has seen. His mission, handed down to him by his new boss, Mr. Miller, who joined News Corp. earlier this month, is to jump-start growth and recapture some of the buzz that MySpace once generated, people familiar with the matter say.

MySpace, based in Beverly Hills, Calif., remains the largest social-networking Web site in the U.S., but the gap is closing fast. In March 2009, it attracted 70.1 million unique U.S. visitors, down 3.6% from a year earlier, according to comScore Media Metrix. Meanwhile, Facebook, which has surpassed MySpace in world-wide users, grew 72% to 61.2 million unique U.S. visitors.

Mr. Van Natta, known for a blunt style that has caused friction with co-workers, is walking into an organization that analysts, advertising executives and former executives say has lost its focus and become bloated. Pali Capital analyst Rich Greenfield predicts massive cost cuts will be needed to align MySpace with its revenue. A spokeswoman for MySpace declined to comment.

People close to Mr. Van Natta say he has just begun digging into details of the Web site's operations. They say he has been reviewing organizational charts, and has some ideas to simplify the site and place more emphasis on its technology.

Mr. Van Natta is keeping his roughly 0.5% stake in Facebook, according to people familiar with the talks, a move recruiters say is fairly common in the tech industry, where executives frequently jump from company to company. A Facebook spokesman declined to comment on Mr. Van Natta's keeping his stake.

Conscious of his lack of technical experience, Mr. Van Natta has begun narrowing the field to choose a senior product person, say people familiar with his thinking. They expect him to hunt for engineering talent within Silicon Valley, where his family will be based for now.

Mr. Van Natta isn't likely to turn MySpace into another Facebook, these people say. He views Facebook more as a communications channel and MySpace as a destination, where people come to entertain themselves by discovering music and meeting new people, they say.

The executive landed at Facebook in 2005 following an introduction by Silicon Valley investor Ron Conway, among others. At the time, the site was a small group of mostly 20-somethings seeking an experienced hand to help them negotiate partnerships. Facebook Chief Executive Mark Zuckerberg brought Mr. Van Natta on as vice president of business development, promoting him to chief operating officer five weeks later, according to people familiar with the matter.

He focused first on recruiting. He also solicited bids for the role of third-party advertising provider, helping seal a crucial alliance with Microsoft Corp. But over time, his hard-driving personal style, an asset at the negotiating table, aggravated disagreements between him and Mr. Zuckerberg, who is also know for a stubborn streak, say people familiar with the matter.

The two sparred in 2006 over Facebook's refusal of a nearly $1 billion takeover offer from Yahoo in 2006, which Mr. Van Natta had helped negotiate, according to people familiar with the matter.

Mr. Zuckerberg told Mr. Van Natta that he felt he needed to build out his management team and wanted him to take on a different role, according to two people familiar with the matter. In August 2007, Mr. Zuckerberg made him chief revenue officer and elevated several other executives to a similar rank.

Mr. Van Natta played a key role in negotiating a new round of financing in 2007. At a dinner in his Palo Alto, Calif., home with Mr. Zuckerberg and Microsoft CEO Steve Ballmer, Mr. Van Natta played hardball, say two people familiar with the meeting. Soon after, Microsoft took a 1.6% stake in the company in a deal that valued Facebook at roughly $15 billion.

Mr. Van Natta left the company in April 2008, telling friends and colleagues he was leaving because he always wanted a chief executive job and was tired of the erratic schedules of 20-somethings, according to these people.

He chilled out in Santa Cruz, grew a beard and made a few small investments in start-up companies, friends say. He turned down an opportunity to head MySpace Music, say people familiar with the matter. Instead, in November 2008, Mr. Van Natta became CEO of music-streaming site Playlist Inc.

Mr. Van Natta continued to weigh other possibilities. He interviewed with News Corp. Chairman Rupert Murdoch about the chief digital officer position, according to people familiar with the matter. Several weeks later, after Mr. Miller was named to that post, he started conversations over dinner with him about the MySpace chief executive job.

Emily Steel contributed to this article.

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Founders Step Aside at MySpace by Juia Angwin and Emily Steel, WSJ.com

The founders of MySpace are leaving the helm of the pioneering Web site that made social-networking a mainstream phenomenon, as owner News Corp. seeks to reinvigorate the once-hot property it scooped up four years ago.

The stepping aside of Chris DeWolfe and Tom Anderson, whose contracts weren't due to expire until October, represents a pivotal test for the viability of social-networking sites. While social-networking sites such as MySpace and Facebook have exploded in popularity in recent years, they have struggled to generate the kind of revenue and earnings prospects that can sustain them as businesses over the long haul.

News Corp. now aims to show that a large conglomerate, with a portfolio that includes many old-media properties including newspapers, can succeed at that task.

People familiar with the situation said News Corp., was completing a deal to name former Facebook Chief Operating Officer Owen Van Natta as chief executive to succeed Mr. DeWolfe. He would report to Jon Miller, the former AOL chief executive who was recruited to join News Corp. this month in a newly created position of chief digital officer.

Charged with all News Corp.'s stand-alone digital properties, he was particularly given the mission of shoring up MySpace. Spokeswomen for News Corp. and MySpace both declined to comment beyond a news release. Messrs. DeWolfe, Anderson and Van Natta couldn't be reached for comment.

News Corp. sees MySpace as critical in its transformation from a conglomerate of traditional television, movie and newspaper businesses to a new-media titan. But while MySpace grew quickly following News Corp.'s purchase, last year its revenue fell short of executives' targets, according to people familiar with the matter. News Corp. also owns Dow Jones & Co., publisher of The Wall Street Journal.

MySpace is still the dominant social-networking site in the U.S. But its U.S. audience has fallen this year. In March, MySpace attracted 70.1 million unique visitors, down 3.6% from a year ago, according to comScore Media Metrix.

Meanwhile, Facebook is nipping at its heels. Facebook surpassed MySpace's world-wide audience a year ago, and is growing fast in the U.S., with 61.2 million unique visitors in March, up 72% from a year earlier. Facebook also has made international expansion a priority, pressuring MySpace.

More broadly, MySpace, like other social-networking sites, still must overcome doubts about the medium's viability. Advertisers, for one, remain leery. "Advertising doesn't fit so neatly into a conversation that people are having among themselves," says Tom Bedecarre, chief executive of independent digital-ad firm AKQA. "The interruptive model of advertising hasn't been successful."

MySpace was founded in 2003 by Messrs. DeWolfe and Anderson. Their email marketing division of a Los Angeles company called eUniverse, which later renamed itself Intermix, was floundering, so they imitated a popular site at the time, Friendster.

They made two key improvements on Friendster: They allowed users to customize their profile pages, and they allowed users to create any identity they liked. Friendster, like Facebook today, encouraged members to use their real names.

But just as MySpace was taking off, fueled in large part by its popularity with musicians, it was sold to News Corp. MySpace's parent company, Intermix, negotiated the $650 million deal directly with News Corp., leaving the MySpace founders out of the loop until the last minute.

News Corp. Chairman Rupert Murdoch immediately sought to mollify the founders with lucrative two-year pay packages of $30 million each, but Messrs. DeWolfe and Anderson still chafed at the fact that MySpace ad sales were taken over by executives at Fox Interactive Media, according to people familiar with the situation.

The rank and file of MySpace was also angry that their stock options were canceled after the acquisition and that they were forced to move from Santa Monica to Beverly Hills, the people said.

Relations fell apart further. Mr. DeWolfe ignored suggestions from Fox Interactive Media President Ross Levinsohn about ways to improve the site. Mr. DeWolfe also sought to amend a $900 million advertising deal that News Corp. cut with Google Inc., delaying its implementation, the people said.

Mr. Levinsohn also clashed with Mr. Anderson, who is president of the site. Mr. Anderson controlled the product development and was criticized for not moving fast. In April 2006, MySpace bought the online karaoke service kSolo. MySpace launched the karaoke feature on its site in April 2008, two years later.

The tension between the MySpace founders and News Corp. eventually led to Mr. Levinsohn's dismissal in November 2006. He was succeeded by his distant cousin, Peter Levinsohn, who eventually gave Mr. DeWolfe control of the advertising sales at MySpace that he had sought.

All this time, Facebook was steadily gaining on MySpace. Founded by Silicon Valley computer programmers as a social network for Harvard students in 2004, Facebook expanded to other college campuses and opened to everybody in 2006. Facebook focused on building innovative features and encouraging third-party software developers to write applications to run on Facebook.

Meanwhile, MySpace, with its marketing and music background, fought back with entertainment, such as a celebrity news site and an expensive music joint venture.

Last April, Facebook edged out MySpace in terms of world-wide unique visitors and has continued to steadily gain in the U.S. Three top MySpace executives, including Amit Kapur, former chief operating officer, left the company in March to work on a start-up. MySpace has yet to name successors for those positions.

Mr. Miller began discussing the job with potential candidates including Mr. Van Natta, but hadn't finalized anything when the news of the talks leaked, according to people familiar with the situation.

Mr. Van Natta helped expand Facebook but stepped into a less prominent role as chief revenue officer as the site grew, ultimately leaving the company in February 2008. At MySpace, he could serve as a bridge between Silicon Valley and MySpace, which has struggled to match Facebook's technology prowess.

Hearing of the talks, Mr. DeWolfe offered to resign, these people said.

Jessica E. Vascellaro contributed to this article

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Three top executives from News Corp's MySpace social network will be leaving the company to start a new business. Amit Kapur, MySpace's chief operating officer, Jim Benedetto, its vice president of technology and Steve Pearman, its senior vice president of product strategy, will stay on "for the next few weeks", according to the company.

Rupert Murdoch's 2005 purchase of MySpace for $580m looked kooky at the time. But it's been a lesson in excellent timing. Even if the social network has seen its best days, as a slew of top executive defections might suggest, it’s already paid off for News Corp.

When Murdoch bought MySpace, social networking was only beginning to gain a following. MySpace had 14m monthly users. A year later its user base had grown 400% and News Corp chief operating officer Peter Chernin called it the company's single biggest growth opportunity.

Now it brings in a whopping 126m monthly visitors. But heady growth may be a thing of the past. Rival Facebook has since surpassed MySpace, and has more impressive user demographics to boot. It now has more global visitors, with 200m monthly. While MySpace's user growth has slowed, Facebook's grew 116% last year.

The company faces a tougher grind over the next few years. It has had trouble selling its advertising inventory and missed its 2008 revenue targets. Its $900m advertising deal with Google, the source of most of those revenues, ends next year. And now some top executives, including its chief operating officer, are leaving to create their own start-up. That doesn't bode well.

Of course, had News Corp flipped MySpace two years ago when social networking was red hot, it would have been an act of pure genius. At the time, Facebook was valued at $15bn. The rival now thinks it's worth $4bn at most. MySpace's theoretical price has probably followed a similar arc. A year ago MySpace might have been worth more than $5bn, that's what Sanford Bernstein thought.

Stagnating revenue growth may mean it will never attract such a valuation again. Yet MySpace brought in $1.6bn in revenues over the past three years. More importantly, it probably made close to $200m in profits last year alone, given Murdoch's expectation for the unit to garner over 20% margins on its $900m of revenues. For the price he paid, and the cash he should be able to extract, Murdoch still looks in the money.

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Rupert Murdoch has achieved a long-held ambition. It has become plausible, even tempting to investors, for him to cede the running of News Corporation to his children. This week, it feels as though he needs his offspring more than they need him. After Peter Chernin, Mr Murdoch’s long-time number two, decided to step down, both James and Elisabeth Murdoch made clear that they have no need – or desire – to leap quickly into the breach.

James Murdoch runs News Corp’s European and Asian businesses and is chairman of British Sky Broadcasting, the UK satellite broadcasting group of which he used to be chief executive. He is his father’s most likely successor but wants to avoid the same trap as Lachlan, his older brother, who was squeezed out as Mr Chernin’s deputy in 2005.

Meanwhile, Lis Murdoch turned down a board seat at News Corp in order to keep running Shine, her independent television production company. She too was treated roughly by a former Murdoch lieutenant – Sam Chisholm, her boss when he ran BSkyB in the early 1990s. The shift in the familial balance of power, however, is more than a matter of the children having got older and gained independence and authority. It also reflects their father’s own vulnerability.

News Corp has suddenly been thrust into its most testing period since its debt crisis in the recession of 1990, which almost led to banks wresting control from the Murdoch family. This time, the balance sheet is in good order but Mr Murdoch faces a crisis of credibility.

Mr Chernin’s departure has not really altered who runs News Corp. “This company is one man’s creation and it has a very simple power structure,” says one executive. But it has crystallised the doubts in investors’ minds – is a 77-year-old who loves newspapers still the right leader for a 21st-century media group?

For now, the answer is yes. But the time is coming, sooner than Mr Murdoch is willing to acknowledge, when James Murdoch would be able to run News Corp better than his father. After insisting on his children’s right to succeed for so long, Mr Murdoch must accept it.

News Corp might be better off led by a non-Murdoch. Media groups run by low-key, dispassionate managers – Jeff Bewkes at Time Warner and Bob Iger at Walt Disney – have performed better in this downturn than those in the hands of media moguls such as Mr Murdoch and his (very) old rival, Sumner Redstone.

News Corp is worth only $15bn (€11.76bn, £10.34bn), compared with a market capitalisation of $59bn at its peak two years ago, and its shares have fallen 69 per cent in the past year. Disney’s market capitalisation is $33bn and Time Warner’s $28bn, both being less exposed to print and television advertising.

But this is moot, since the Murdoch family controls News Corp through its voting shares, having seen off a raid by John Malone. The only choice investors have is Rupert, James or a triumvirate of Murdochs.

Until now, Rupert has been the best Murdoch to have in charge. He has moulded the business over decades since he took over a small Australian newspaper group from his father in 1953. He has disrupted the media industry around the world with a string of successes, such as the creation of the Fox Network in the US and BSkyB in the UK.

Two years ago, he even looked as if he had “got” the internet better than others, having bought MySpace for $580m in 2005. It was growing rapidly but its growth has peaked, and it has been overtaken by Facebook in the US (according to some data).

His big problem is Dow Jones, the company that owns The Wall Street Journal, which he acquired for $5bn in 2007. It has since become clear that he overpaid: News Corp this month took a $3bn writedown on its newspaper unit and $5.5bn of other writedowns, mostly on its local television stations, which have lost consumer advertising.

Dow Jones has stripped off the gloss he enjoyed from MySpace and made him look like an old guy with print in his veins. Like many caricatures, this is a bit unfair, since Mr Murdoch founded the satellite television businesses that James now runs, but it has enough truth to it.

Meanwhile, News Corp has started to look uncomfortably like a legacy media company. Michael Nathanson, an analyst for Bernstein Research, describes most of its assets – papers, broadcast television, book publishing and the film studio – as “bad News” and just a few parts – its satellite and cable television operations and MySpace as “good News”.

“Even when there is economic recovery, the bad parts are not going to be growing. It is very sobering and my frustration with News Corp is that Mr Murdoch is not going to change the structure of the company because he has not changed it in decades,” says Mr Nathanson.

Mr Murdoch’s best response to this simmering discontent would be to set some timetable for when 36-year-old James, who is a chip off the old block but also a talented executive who could bring fresh perspective to News Corp, will become chief executive.

There is no sign of it. Mr Murdoch becomes uncomfortable when News Corp executives mull the possibility of him stepping down even in 15 years time, which would take him past 90. He has responded to Mr Chernin’s decision by assuming oversight of the Hollywood wing of News Corp and telling staff to expect changes.

But age affects us all, even Rupert Murdoch. He will be 80 in two years (his 78th birthday is next month) and that is a good deadline for him to give News Corp’s investors a succession plan. He should know about deadlines, for he is a newspaper man.

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Peter Chernin’s departure from News Corp is a reminder that outsize pay packets spread well beyond Wall Street. The media company’s president and chief operating officer was awarded a total package of $28.8m in 2008, more than his boss Rupert Murdoch. But then Mr Chernin, who ran the Los Angeles-based Fox businesses, is acknowledged as being among the best in the industry.

The terms of Mr Chernin’s departure, agreed in 2004, are also lavish. When his contract ends in June 2008, he will enjoy a six-year production agreement with News Corp under which the company must buy two films each year from his independent outfit, on most generous terms. Other perks include use of a corporate jet and car.

News Corp’s 2004 negotiations, of course, secured Mr Chernin’s expertise for another five years. They will now get “first look” at his output and must hope that Mr Chernin proves as good a producer as he has manager. With News Corp shares down 67 per cent over the past year, economic malaise and a desperate advertising outlook are investors’ immediate concerns.

But two issues deserve consideration.

First, Mr Chernin, with his broadcast bent, was seen as a counterpoint to his boss’s newspaper fetish. As Mr Murdoch assumes the reins at Fox, he will need to lavish the same care on this more highly rated business as he does his print assets. Further streamlining of operations increases the danger of overflow in Murdoch’s in-tray.

Second, as News Corp’s leading non-Murdoch leaves, the thorny question of succession arises in earnest. Mr Chernin’s contract included a $40m pay-out should he leave mid-contract after a change at the top. It is unrealistic to expect anyone other than a Murdoch, most likely James, to take the helm eventually. Murdoch Senoir’s challenge is to placate investors by attracting more outsiders of Mr Chernin’s calibre. The top job is unavailable. But rich rewards await the right Murdoch lieutenant.

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