Weakness At MySpace

During yesterday’s News Corp. earnings call, Rupert Murdoch and COO Peter Chernin talked a little bit about the weakness at MySpace. They expect Fox Interactive Media (which includes MySpace, Photobucket, IGN, and other properties) to miss its $1 billion revenue goal by the end of News Corp.’s fiscal year next quarter. Instead, they expect FIM to reach $900 million for the fiscal year. (No surprise there. We predicted the shortfall a month ago). And in the quarter they just reported, revenues for FIM were actually down 10 percent, from $233 million to $210 million.

The culprit: There is too much inventory, and not enough clickthroughs. As a result both brands (and, more importantly, “friends” on MySpace) remain skeptical. Dumping ads on MySpace without targeting them simply doesn’t work.

Google is also partly to blame, as its ad deal represents about a third of FIM’s revenues. Altough, Google is working on the problem. Google founder Larry Page said as much during Google’s last earnings call:

On social networking monetization, it is an area where we have tried a lot of new technologies. Demographic targeting has been successful. The challenge and the opportunity is that there is a lot of inventory. Part of it is just getting the advertising ecosystem built up and targeting in a way that makes sense. We have made some improvements but there are more improvements to be made. It takes time for advertisers to [get up to speed].

(That’s right, Larry. Blame the advertisers.)

It wasn’t all bad news coming from MySpace, though. It continues to make improvements in bringing in branded advertisers (up 21 percent), revenues per user (up 49 percent), and audience. Traffic and time spent continues to rise at a healthy clip at MySpace, MySpace TV, Foxsports.com, PhotoBucket, and IGN.

The bigger issue for MySpace is that the longer it keeps missing targets, the less incentive its top executive talent has to stick around. Compensation for top executives is tied to meeting profit targets at the business. If they don’t meet those targets, nobody gets paid any upside. And for these folks, it’s all about the upside.