There has been much speculation and analyses as to why Rupert Murdoch acquired MySpace. The prevailing consensus seems to be that News Corp’s motivation was to buy ad inventory targeted at the social network’s valuable young demographic (e.g. see John Battelle’s comments1.) That’s overtly simplistic. Moreover, it’s very difficult to justify a $580 million cash payment on that basis alone.
Although ad inventory was surely part of the equation, I believe there is larger strategic reason that motivated Murdoch to make such a bold move: He is planning to create a competitor to MTV.
Much like Viacom’s CBS decided to use the broadband web to bypass cable and compete against the 24-hour news networks like CNN and FoxNews (see PaidContent’s coverage here2), the acquisition of MySpace positions Murdoch to challenge the dominance of MTV in their category. I’m willing to bet that he will go even further by eventually extending the MySpace brand to include a dedicated cable & satellite network/channel. He is after all an old media guy. In fact, just a couple of weeks before News Corp. announced the deal, we all witnessed the web’s potential in this context when AOL’s webcasting audience for Live 8 outreached MTV and ABC’s ratings of the same event (details here3.) Such a data point can go a long way towards justifying a $580 million price tag.
In addition to live concerts, MySpace is an ideal platform to release music videos (which the major record labels are desperately trying to monetize), as well as other short-form reality programming (think Fox’s “American Idol”) that’s likely to attract the 22 million youngsters in the MySpace community… an audience that happens to also watch MTV.
No matter what you may think of Rupert Murdoch, he never overpays and you can’t underestimate his brilliance. After all, he challenged the 3 major TV broadcast networks by creating Fox, then he challenged CNN by launching FoxNews, and he’s currently revamping FX with a slate of edgy original programming to go against HBO. I believe he’s now going after MTV, and if indeed that was his reason for buying MySpace, not only was it another brilliant move by the media mogul, but the price he paid was a bargain.
(originally posted at http://gigaom.com/2005/08/06/why-murdoch-bought-myspace/)