Pocket Change for Myspace’s 50 Million Users

News Corp. will take stake in buyer Specific Media

Not a minute before New Corp.’s fiscal year-end deadline, Myspace has sold—finally—to Specific Media, an online ad network backed by private equity firm Francisco Partners. The deal values Myspace at $35 million, a 94 percent drop from the $580 million News Corp. put up for the company six years ago.

The deal ends a six-month sale process, as well as Myspace CEO Mike Jones’ two-year tenure with the company. In an internal memo acquired by TechCrunch, Jones, an entrepreneur and former AOL employee, said he’d depart after a two-month transition period. He’s not the only one out—more than half of Myspace’s 500 employees are expected to be let go.

Investment bankers at Allen & Co. had shopped Myspace widely to more than 25 strategic and financial suitors. Final bids were due in late April but then extended to early June; deal structures became more creative as the auction process wore on. With News Corp. eager to get Myspace off its books and the fiscal year-end deadline (end of June) drawing near, News Corp. offered such sweeteners to bidders as some unusual blended debt-equity financing, or having News Corp. retain a minority stake, all the while pimping its $100 million floor price to the media. Specific Media took the company up on one such option. As part of the deal to buy Myspace, News Corp. will take a minority stake in Specific Media, a move that doesn’t strike us as at all desperate.

The $35 million deal value represents a mere 20 percent of Myspace’s 2011 revenue of $183 million (the revenue figure being an eMarketer estimate cited by The New York Times). By contrast, social network LinkedIn trades with a market cap of $8.27 billion, with just $263 million in revenue for 2010. The difference here is maturity. Myspace has only been profitable for one quarter since News Corp. acquired it. Despite its estimated 50 million to 60 million active accounts, the network has been hemorrhaging users. It’s also experienced shrinking ad revenue and traffic. Unique visitors had dropped by 49 percent year over year as of late April.

Myspace, like fellow withered social network Friendster, has become something of a joke in popular culture. It’s not profitable and plans to lose $165 million in fiscal 2011 with a 24 percent decline in revenue.

Specific Media’s plan to turn the company around is unclear. In a statement, Specific Media CEO Tim Vanderhook touted the synergies (typically corporate speak for “layoffs”) of two companies “focused on enhancing digital media experiences by fueling connections with relevance and interest.”

Francisco Partners invested $100 million in the online ad network in 2007; it touts a reach of more than 130 million U.S. monthly unique users and includes more than 450 brands. At the time, it was second to Advertising.com and ValueClick among ad network traffic.