MySpace in trouble on $900 million Google deal

During the News Corp (NWS) earnings call, CEO Rupert Murdoch and COO Chase Carey both mentioned that the entertainment company's deal with Google (GOOG) to deliver ad space to social network MySpace was in trouble. Murdoch said, "It's quite simple. We've not been making our minimum guarantees so our search revenue will not be what our revenue was." "We're still losing traffic," Chase Carey, chief operating officer of News Corp told the Financial Times. "It's a business in transition."

The deal with Google, which runs from the first quarter of 2007 to the second quarter of 2010, was expected to bring News Corp $900 million. Murdoch indicated that the payments might come up as much as $100 million short because of traffic shortfalls at MySpace.

MySpace, once the most popular social network, has lost that spot to Facebook. According to September figures from Comscore, Facebook is now the fifth most popular site in the U.S. with 95.5 million unique visitors. Figures for News Corp's online business Fox Interactive, which includes MySpace, were only 85.6 million. Global Comscore data from the beginning of this year showed an even wider advantage for Facebook.

The current Google deal is only part of the problem. News Corp will need to get a new search engine partner when the current deal runs out. It's unlikely that it will get anything close to the financial terms of the partnership it struck with Google, undermining Murdoch's dreams of having a great online empire.

The question still lingers as to whether social networks will ever be a good medium for advertisers. Industry experts believe that Facebook will only have revenue of $500 million this year. Targeting users on a social network is harder than it is with a portal like MSN where portals are organized by subject. Financial advertisers on portals can run in a section with financial content. Put another way, social networks may never be very big business.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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