The last $75 million payment on the $900 million Google/News Corp. search advertising deal will be paid to News Corp. a year from now. That deal has accounted for about a third of News Corp.’s online revenue from MySpace and some of its smaller Internet sites, and the looming end of that particular gravy train is causing more than a little consternation for new Digital Media chief Jonathan Miller and his new MySpace exec team.
Google revenue is the difference between profitability and the opposite of profitability at MySpace and its sister sites. And unless a new deal is negotiated that can bring in similar revenue after next year, MySpace is facing massive layoffs and a general downsizing of its business, we’ve heard from multiple sources close to MySpace.
Here’s the good news: Google is at the table negotiating a new deal to take over in July 2010.
Here’s the bad news: Sources say Google thinks the deal is worth, tops, $50 million – $75 million per year, significantly less than the $300 million/year they’re paying now.
Why? Sources say that while Google has gotten plenty of advertising impressions (MySpace uses any excuse to put Google search results and Google ads in front of users), those ads don’t convert well. Add to that the dramatic shrinking of MySpace page views and the predictive modeling gets ugly.
Google knows MySpace is shrinking by about 20% a year. And unlike the last time they negotiated with News Corp., they now have nearly three years of actual operating history with the company. They’ve got real data to value the deal.
Unless Microsoft or perhaps Yahoo comes in and bids very aggressively, MySpace is going to get slaughtered in the negotiations.
If rumors are correct News Corp. has brought in EVP Mike Lang to run the Google negotiations. This is the guy who led the creation and funding of Fox’s Hulu joint venture, and is considered a top notch negotiator. But News Corp. needs more than a top negotiator to save MySpace’s revenue stream. They need a miracle worker.