Amidst all the excitement over the MySpace Music announcement today is another story about the fate of parent company Fox Interactive Media. FIM, the division of News Corp. that controls MySpace, IGN, Scout Media, Photobucket, Fox Sports, AmericanIdol.com and other properties, is in trouble.
The company, under President Peter Levinsohn, will miss their revenue target of $1 billion for the current fiscal year ending June 30, multiple sources say. Rupert Murdoch, Chairman of News Corp., first gave revenue guidance for their subsidiary FIM in June 2007 (further information here):
“…we are forecasting that MySpace alone will generate in excess of $800 million in revenue in fiscal ’08. Overall, FIM in fiscal ’07 generated revenues of $550 million and a profit of $10 million, even after absorbing $80 million in retention and amortization costs. We would be surprised if FIM revenues this fiscal year do not exceed $1 billion with margins well above 20%.”
Actual revenue is estimated to come in at around $900 million (2007 revenues were $550 million). And the $200 + million in expected operating margins is also likely an illusion. The division as a whole, with more than 2,500 employees, will be much closer to break even.
The impact could be far reaching for the organization. All employee stock options are tied to profits. This includes MySpace CEO Chris DeWolfe and Co-founder Tom Anderson, whose compensation is heavily weighted towards the plan. If there are no profits, there are no payouts.
Some insiders say the projections were impossible to meet. Nevertheless, News Corp. has a fall guy: Chief Revenue Officer Michael Barrett, who was hired from Time Warner in 2006, has been either terminated or was offered an inferior position and resigned. Barrett was rumored to have had a very strained relationship with DeWolfe. Jeff Berman, currently MySpace EVP of Marketing and Content and a former public affairs executive, was named head of MySpace sales and marketing.
Barrett is at least the seventh senior executive to leave FIM in recent history. Former COO Mark Jung (now CEO of Vudu), Chief Strategy Officer Jim Heckman (now CSO at Zazzle), CEO Ross Levinsohn (now a Managing Partner at Velocity Interactive), SVP Heather Harde (now CEO of TechCrunch), EVP Sales John Trimble (now EVP, Sales at Glam), and EVP Corporate Development Mitchell Chun (now at Zazzle with Heckman).
In addition, FIM is moving some assets from MySpace and other properties into two new groups:
Platform: The group will control software and services to be sold internally and to third parties.
Monetization: To be led by Adam Bain (EVP of Technology and Production). The 250 person group has already moved out of FIM headquarters in Beverly Hills to a former Yahoo building in Santa Monica. The group, which is largely built on the 2007 SDC acquisition, will sell ads into FIM properties (after Google and each entity’s direct sales group) and will also sell advertising for third parties, including MySpace platform widget providers and other web services. The entity is reportedly also close to making another acquisition in the advertising space and may take the acquired company’s name as their brand. Revenue from this group is rumored to be about $150 million in the current fiscal year.
The main FIM properties, MySpace, IGN, Scout Media and Photobucket, will remain under their current heads, and will all have direct sales groups to sell primary advertising space. Also, AmericanIdol.com, currently under FIM, may move to Fox.
FIM declined to comment on this story.
Update: This email was sent to all FIM employees at around 9 pm PST:
Since its inception nearly three years ago, FIM and its properties have experienced phenomenal growth and success as a result of your collective efforts. You have worked diligently to create the largest, most innovative content communities in the world, and, as a company, we are now prepared to take the next step in our evolution.
That next step involves two things: 1) leveraging our industry-leading advertising technologies to create an entirely new business for the company and 2) more closely aligning our products and revenue. We will achieve this alignment through a restructure of our sales and advertising groups that will begin to take effect in the coming weeks.
FIM Audience Network
First, we have created a new business unit called the FIM Audience Network. Despite the press in our industry about the challenges of monetizing social media, we have built amazing Hyper Targeting and Optimization technologies that dramatically improve our ability to provide better advertising solutions to our clients. Given these strengths, Adam Bain – who has been so instrumental in developing this capability – has been promoted to President of the new unit.
Adam’s team will be comprised of FIM’s ad technology, ad operations and performance sales groups. Their charter will be to optimize monetization across FIM’s content network and those of other third-party publishers. The merging of these groups into a single business unit will provide our family of brands and new third-party clients with the ability to extend their reach and enhance their advertising effectiveness across a vast online audience.
In addition to the creation of the FIM Audience Network, we will be integrating our branded sales teams (including client solutions, sales development, and traffic generation) into the operating businesses that they support.
This change recognizes that our individual business units have evolved to a point where it is clear they are best served by dedicated professionals who live and breathe those products alone.
For example, at MySpace we have launched our developer platform, unveiled incredible new features and functionality and, just today, announced our landmark joint venture with leaders in the music industry to form MySpace Music. In order to maximize the benefits of these events it is essential for our product and sales team to work hand in hand.
By integrating the sales teams in this way, each operating unit will be empowered to assume responsibility for its revenue, growth and profitability. Further, each operating group will be afforded greater flexibility to implement processes and programs that meet the unique needs of their respective markets.
Since the sales teams will now be integrated with their respective brands, we will no longer have a separate FIM Revenue Group. In the two years that he’s been here, Michael Barrett has built a phenomenal sales team and driven tremendous results – helping to exceed our News Corp estimates and achieve profitability as a division. His efforts have primed FIM to take this important step in the next phase of our growth, and I want to thank him for his contributions. Michael will remain with the company for the next two months to guide the transition before moving on to pursue new endeavors.
Members of affected groups will be transitioning in the next few weeks and will hear more details from their respective leaders.
This reorganization is a milestone for FIM that will create many exciting changes and opportunities for each of you, as well as for our company going forward.
I am confident that we are moving in the right direction to secure our long-term success, and I am certain that we have the right leadership team in place to take us there.
I’m very proud of all of you, and I thank you for your ongoing commitment to the organization.