Is MySpace a bargain?

I was doing my regular radio spot with The Illegals radio program on 3WBC in Melbourne when host George Lopez pointed out something I completely missed yesterday.

The $33 million News Corp received for MySpace was 26% less than the $45 million News Corp paid for Australia’s parenting and pregnancy portal Kidspot.com.au, and its associated SheSpot advertising network.

The difference between the two prices has had me thinking.

As I argued earlier this week, Kidspot is a brilliant business that has been able to build and monetise a community like few others in Australia.

The $45 million Kidspot purchase price appears reasonable. The price is believed to be based on a multiple of about 15 times underlying earnings and clearly the business is in growth mode, with 1.35 million unique users a month – most of whom in the valuable female 25-39 age demographic.

But consider MySpace. For $33 million, previously little-known online advertising group Specific Media, has bought a business with 35 million unique browsers, and an estimated $180 million in revenue.

Oh, and a global brand – something Kidspot is yet to build.

Could it be that Specific Media has found a massive bargain?

Upon shopping this theory around the office this morning, I was mocked, quite cruelly, by my colleagues, who pointed out quite correctly that MySpace has haemorrhaged traffic and ad revenue since May 2009, when users were about 70 million a month in the US and advertising revenue was an estimated $470 million.  MySpace has also been unprofitable in recent years. Kidspot definitely is not.

As I pointed out yesterday, once the crowd moves, it is very difficult to arrest the slide.

But if Specific Media could hold traffic at current levels, or at least keep further losses to a minimum – and yes, that’s a horribly big if – there is a chance the company can make this acquisition work.

Remember, MySpace has not been bought by some tech start-up looking to build a Facebook rival. It’s been bought by an advertising company, which is hoping to reinvigorate the brand and create a platform to make money from advertising.  

An interesting piece in the New York Observer overnight pointed out the value of the consumer data Specific Media has bought.  The company now has a database of 50 to 65 million users it has acquired for something like 50c apiece – Ben Popper of the Observer argues these could be worth $25 to $150 based on prices on a site that sells anonymous user data to advertisers.

The point is, Specific has essentially bought the ability to sell advertising in a very powerful way – its ability to target ads to MySpace users could be like nothing we’ve seen in the past.

As the company said in its statement on the MySpace buy: “By bringing its advertising technology and Fortune 500 client base to Myspace, Specific Media is creating a digital hub where consumers, content and brands connect based on mutual interest and relevance.”

If Specific’s plan to continue MySpace’s evolution into a site specifically for musicians and entertainers can keep users on board is a success (and plenty will say this is nearly impossible), and it can cut costs (already the workforce has been halved and will probably need to be cut further) improved ad targeting could push the site back towards profitability.

And if that doesn’t work, mining and selling the treasure trove of user data could just provide Specific with a handsome return on its modest-looking investment. 

It will be fascinating to see how it all pans out and I bet Rupert Murdoch is just as interested – after all, News Corp took a 5% stake in Specific.