Murdoch's MySpace Is Probably Pretty Much Worthless

A few years ago, Rupert Murdoch was heralded as an Internet genius.

Why? Because unlike most of his digital-dunce mogul brethren, he somehow managed to buy MySpace for only $580 million!

This "steal" was cited again and again as evidence that Rupert Murdoch had something that no other mainstream media mogul (excepting possibly Barry Diller) had: Brains enough not to get taken to the cleaners when it came to buying Internet properties.

Last summer, the brilliant digital Rupert even emerged as a potential white-knight in the Microsoft-Yahoo struggle: He would merge MySpace into Yahoo and save Yahoo from Microsoft's clutches... as long as Yahoo agreed to value MySpace at something like $10 billion.

Even Yahoo wasn't that stupid.

Rupert's secret goal in that effort, it seems, was to unload MySpace before its value completely collapsed. Which, arguably, it has.

A Business Insider source suggests that MySpace did about $500-$600 million of revenue last year (fiscal year through June) and that it lost money in the process.

How much is a deeply troubled, money-losing social network that has long-since surrendered its buzz and momentum to Facebook worth?

Not much.

A glance at the financials -- shrinking revenue, losses, declining market share, loss of mojo and market leadership -- would suggest that the company might be worth 1X-2X revenue -- on the assumption that MySpace could cut costs radically and make a bit of money in the next few years. That would put the valuation at about $500 million to $1.2 billion -- with the lower end being LESS than Rupert paid for it, and the upper end being twice what he paid for it (hardly the steal of the century).

A bull might say that the new management led by Owen Van Natta and Jon Miller will kick the place into shape and get growth cranking again, in which case it might be worth 3X-4X revenue or more. This wouldn't make Rupert's purchase price a brilliant coup, but it would at least produce a good return.

But then there's a third possibility, one that history suggests is a very real one: MySpace might actually be worth next to nothing.

In the history of the Internet, the instances in which a former world-beating company has lost its mojo and then come roaring back to health are rare. Far more common is the fate of companies like Lycos, Infoseek, and Excite -- once-rich, successful, and powerful properties that are now all but forgotten.

Why are these properties all but forgotten?

Because the Internet is a winners-take-most game.

Yahoo won the portal wars--and Lycos, Infoseek, and Excite were discarded like garbage on the side of the road. Google won the search wars. Facebook is now winning the social-network wars.

Like MySpace, Lycos, Infoseek, and Excite were bought near the peak of their parabolic life-trajectories for absolutely fabulous sums by companies that should have known better:

• Infoseek went to Disney for $1+ billion
• Excite went to @Home for $8 billion
• Lycos went to Terra for, gulp, $13 billion!

How much are Lycos, Infoseek, and Excite worth now?

Next to nothing.

Now that we know how the future turned out, we also know how much Lycos, Infoseek, and Excite were really worth when they were bought out at these fantastic sums. So how much were they really worth?

Next to nothing.

Why?

Because the value of a business is the discounted value of the future cash flows it produces -- and the discounted value of the future cash flows produced by Lycos, Infoseek, and Excite turned out to be next to nothing.

So, if MySpace follows in the footsteps of these other Internet relics, how much might it actually be worth right now?

Next to nothing.

Rupert has his work cut out for him.

See also:
15 Amazing Stock-Market Charts

 

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Comments

[mrjames1]

Facebook will be worthless too also, as soon as people figure out they geotrack with your real name, and retain EVERY action, quiz, event, profile scrap, etc. ad infinitum. Won't be another two years before they offer to sell your own data back to you (for privacy) or to someone else. Ever read their TOS or hear of a cookie?

[Crass Innuendo]

MySpace has always been a hideously-designed blight on the virtual landscape.

[Just Margaret]

frankly, when Murdoch bought it, I vowed to never direct my browser to myspace again. I want nothing to do with him or his enterprises.

I don't typically seek to find joy in others misfortunes. In the case of this guy though, I don't feel too badly about feeling a little bit, "nyah-nyah" about myspace deflating.

[MrVee]

I never liked MySpace. I never even liked the name MYSPACE. It reminded me too much of GeoCities which became a testing platform for spyware, malware and developers of pop up blockers.

[ManWithBrain]

Couldn't have happened to a nicer guy.

[sixletters]

"My space is pretty much worthless"

So is Twitter

[josephebacon]

Every dollar Murdoch loses on My Space is a dollar he can't spend on Fox News.

That's a good thing!

[Vxx]

I bailed from myspace weeks after joining... its a porn/scam infested gaudy pile of crap that might only appeal to the immature (I won't insult young teens).

Facebook was originally quite a professional place but the application/privacy controversy is likely to end its utility. The games and stupid quiz apps just accelerate that likelihood.

Twitter is too balkanized and frankly *feels* isolated. It also has a frankly terrible interface and is crippled as a rich tool because it is is NOT MEANT to be anything but a sound bite medium - claiming it "replaces" email just tells me the intellect meter is diving in communications. Its great for it is *intended* for.

Basically, trying to "make money" with social network sites is destined to fail -- the commercialization kills the utility of it.

Murdoch is lunging for anything that leaves him as the "gatekeeper" for information.... I consider him a direct threat to communication.

[Indra]

And so it goes for all the social networking sites. Twitter will find the same fate etc. etc. Yes, it is amazing how amateurish those acquisitions have been. It is interesting in that it shows how much the people who bought some of these fizzles really know--next to nothing.

[Kevin Ehsani]

thank god... myspace is garbage. that site is so overplayed now after being huge like 4-5 years ago. facebook seems to be the place to go for all types of people in all kinds of demographics now. good for them.

[ladyv]

It's a combination of aesthetics - only a tiny percentage of humanity really wants their online "presence" to be inescapably hideous and tacky - and the fact that like with the iPhone, folks started designing their own Facebook apps, plus Facebook plays beautifully with Firefox.

I think the first point is overlooked, though. Plenty of people who would never even consider starting a mySpace because it was so ugly jumped right in when Facebook opened up.

[punk]

I got rich on CMGI with a 1,000 percent profit in 18 months. Thought I was the man! Boy was I wrong. Anyway, I think twitter will go the way of Lycos and MySpace. People get bored. Much of the internet is like citizens band radio in the 1970s. It will go POOF and be gone. Just give it time.

[rick91]

Well, it was kind of like Ebenezer Scrooge buying Disney.
It was bound to have depressing, tainting effect.

[LiberalBuzz]

I always got the impression that MySpace was for tweeners and those slightly older. My nieces used to be on there constantly and not they're tired of it and have moved on.

Seems to me that was the biggest audience for Myspace but what do I know compared to the Murdoch.

[Joe Moore]

When I heard the news that Newscorp bought Myspace I knew the end was near. That's when I signed up for facebook, because I saw where the trend was going. Eventually I drifted away completely and cancelled my myspace account. I don't like him, or his politics, but aside from that the ads, the emails, and the extremely slow server speeds on myspace drove me away. No longer was it 'My'-space...it became 'His' space and I lost interest.

[MichaelMcKLA]

Arrugh. I guess I might as well delete my MySpace profile and move it to Facebook. Pics. Blog entries. Email. All that stuff. So sad.