Another black dayfor myspace

The social networking site has seen users plunge again as its owner News Corp seeks a buyer

Could MySpace, once the rock star of social networking on the internet, be reduced to a digital arm of the world's most powerful record labels? The idea that Rupert Murdoch's website could be rolled into Vevo, a joint venture of Sony and Universal Music, is one of the plans on the table as the mogul's bankers desperately try to engineer a new strategy for MySpace and salvage some value from the site that Mr Murdoch has owned for six years without turning a profit.

But negotiations are being complicated by an accelerating plunge in the number of users that MySpace has and stories that advertisers are deserting the site.

As Mr Murdoch's June deadline for selling all or part of MySpace looms, advisers are racing to solicit some firm bids in the next few weeks. Investors say a deal cannot come a moment too soon, since the website looks set to be a substantial drain on profits at its parent company, News Corp, even after it laid off half its staff earlier this year.

"MySpace has become an unmitigated disaster for News Corp," Richard Greenfield, an analyst with BTIG equity research, said in a research note earlier this month. "Selling it for next to nothing or even giving it away is increasingly likely, so that its sizable losses disappear."

The spin yesterday was that the joint venture under discussion with Vevo is only one of more than a dozen options being pursued, and actually Vevo is not all that keen. Allen & Co, the New York investment bank hired by News Corp to sell MySpace, first approached the music company a few weeks ago suggesting it buy MySpace outright, but that was turned down. Under the revised plan, News Corp will put MySpace into a new joint venture and keep a non-controlling stake.

Vevo is the fifth most-visited website on the internet, playing pop videos and making money from the ads sold on the site or embedded before the video starts to play. It was set up in December 2009 by Vivendi-owned Universal Music, Sony Music Entertainment and Abu Dhabi Media of the United Arab Emirates.

MySpace, meanwhile, still remains a destination for many music fans, because artists stream some of their songs on their fan pages on the site. But it is all a far cry from the heady days of 2005, when the UK act Arctic Monkeys became one of the biggest bands in the world without having a record contract, merely from stoking buzz about their music on MySpace.

Chase Carey, News Corp's chief operating officer and Mr Murdoch's right-hand man, said in February that the website had attracted interest from about 20 potential buyers or partners, both from the media industry and from financial buyers. Some of the other options being explored include a management buyout, with funding from private equity, or a merger with another social networking site or an online gaming company. MySpace would not comment yesterday, nor would Vevo.

Losses at the News Corp division that includes MySpace widened to $312m in the first six months of its fiscal year, which ended in December. Mr Carey had set a deadline of June for MySpace to become profitable, but he admitted that its results in the current six months were "not going to be wildly better" than the last six.

The reason is easy to gauge from the figures coming out of ComScore, which monitors user activity on the web. Last month, MySpace clocked 63 million visitors globally, down 29 per cent just since last October, when the site was redesigned. In the US, the market with the most potential for advertising and other revenue, user figures have plunged 44 per cent in the past year. Worse, the amount of time the remaining users are spending on the site is down 59 per cent.

Inevitably, the slump has had a knock-on effect with advertisers, who are ploughing more money than ever into online marketing but increasingly bypassing MySpace in favour of other opportunities – notably Facebook.

"MySpace was always a great place for underground creative activity," says Paul Verna at the research firm eMarketer. "But News Corp's strategy has been to try to elevate it to the premium content level and attract the advertising that goes with that. It has been hampered because the interface has always been sloppy and it has always been – and still is – very hard to find content on MySpace."

It looks like a messy endgame for Rupert Murdoch's ownership of MySpace, as years of strategic errors catch up with it. No one expects News Corp to get anything like the price it paid to buy the site from Intermix in 2005. In a worst case scenario, this could be a repeat of AOL's sale last year of Bebo. AOL bought that social network in 2008 for $850m, but offloaded it for less than $10m after users numbers dived.

Mr Verna of eMarketer sounded a gloomy note for MySpace's prospects. "Frankly, perception plays a large part," he said. "Once people start to believe you are not cool anymore, it is hard to swim against that tide."

The MySpace age

August 2003

Employees at eUniverse, the Los Angeles tech firm later renamed Intermix, decide to create a rival to the then-leading social network, Friendster. Chris DeWolfe is MySpace's first chief executive.

January 2004

Site launches to the public, and Tom Anderson, the company president, who automatically becomes every new member's friend, is suddenly the most popular person on the planet.

March 2005

Special "webisodes" of the US version of The Office are made available on MySpace, foreshadowing the explosion of television on the internet.

July 2005

Rupert Murdoch wins control of MySpace – and its 20 million members – with a $580m takeover offer.

January 2006

Whatever People Say I Am, That's What I'm Not by Arctic Monkeys becomes the fastest-selling debut album in the UK, thanks to a fan base built up on MySpace.

June 2006

Launch of MySpace.co.uk.

August 2006

Google agrees to pay $900m over three years to run search results and place adverts on MySpace, a deal that is fêted for guaranteeing Mr Murdoch an instant profit on his 2005 acquisition. Except that MySpace fails to meet the performance targets that were its side of the bargain, and never receives that sum.

November 2007

Mr Murdoch derides Facebook as a "utility... like the phone book" and predicts MySpace will be much more valuable.

April 2008

Launch of MySpace Music, a joint venture with the world's biggest music labels, offering free streaming for fans – and a share of revenues from adverts, merchandise sales and concert tickets for the companies.

April 2009

News Corp parachutes in Owen Van Natta, formerly of Facebook, as MySpace chief executive, with a brief to slash costs.

February 2010

Amid management infighting and Mr Murdoch's rising frustration at poor results, Mr Van Natta is ousted.

October 2010

MySpace rebrands as My______, de-emphasising its roots as a social network, and pushes itself as a hub for online entertainment.

November 2010

Users are given the ability to share their MySpace content on Facebook.

January 2011

MySpace says it will axe half its staff.

February 2011

News Corp says MySpace is up for sale.