The landmark search advertising deal between Google and News Corp. is set to expire on June 30, 2010, just a little more than a year from now. The $900 million deal, announced in August 2006, has little chance of being renegotiated on similar terms, say sources close to the company. That means MySpace, which accounts for most of the revenue generated from the deal has just a year left figure out its go forward revenue strategy.
Until now the details of the contract have been kept confidential. But we’ve recently reviewed a copy of both the original agreement (a binding term sheet) as well as the amendment signed in 2007 – in fact I’m reading it right now. The guaranteed payment clauses, which lay out the dates and sizes of the payments due to News Corp., call for $300 million to be paid by Google over the final year of the agreement. Here are the revenue guarantees:
January 1, 2007 through June 30, 2007: $50 million, paid quarterly pro rata
July 1, 2007 through June 30, 2008: $250 million, paid quarterly pro rata
July 1, 2008 through June 30, 2009: $300 million, paid quarterly pro rata
July 1, 2009 through June 30, 2010: $300 million, paid quarterly pro rata
All MySpace has to do to get the guaranteed payments is make certain search page view requirements. They’ve made those page view requirements easily, says our source, mostly by destroying the user experience. Any search on MySpace by default returns Google web results, which is rarely what the user wants to see. But MySpace has a history of monetizing their site to death, damn the user experience. That may explain part of the rise of Facebook at their expense.
For their part, Google is said to be unhappy with the results. Perhaps it’s because MySpace is tricking users into doing Web queries, but click through on ads is rumored to be abysmal, and conversion on those click throughs is even worse. In other words, Google, Google advertisers and users are unhappy, but MySpace is just fine, thank you.
One part of the deal which is reportedly doing well is display advertising, which is separate from the guaranteed revenue payments. Google is able to offer display advertisers deep reach into MySpace’s tens of millions of users, our source says. But it’s not clear MySpace, which has its own sales team and self service ad product, is all that interested in Google display ads going forward.
At this point Google probably feels like it’s paying off a mortgage on a house worth half of what it paid for originally. They may be glad to just be able to walk away from it all as soon as possible.