New media moves from acquisition mode

News Corp. chief operating officer Peter Chernin on Monday laid out the next phase of the company’s digital strategy, saying this phase is what prompted a surprise executive switch last month and will also inform News Corp.’s plans to expand MySpace.

Chernin said the exec shuffle — in which Fox Interactive Media topper Ross Levinsohn was replaced by his cousin, Peter Levinsohn, head of Digital Media for the Fox Entertainment Group — was motivated by a desire to move the company at least partly out of the acquisition game.

“We’re entering a different phase that is less about deals,” Chernin told investors at the UBS confab in Gotham. “Now (it’s) about maximizing what we have.”

Ross Levinsohn was a key voice in the July 2005 purchase of MySpace, the deal that vaulted News Corp. from a new-media bystander to one of its most aggressive players, and also helped found and oversee the unit that encompassed News Corp. digital acquisitions such as IGN and Scout.

But recently, even Levinsohn had said the top tier of acquisition targets had shrunk, a notion Chernin confirmed when he said Monday that he sees few sites with huge potential and believes those that do exist come with a huge pricetag.

Chernin also said News Corp. is pursuing a three-pronged approach to growing MySpace that will include more advertising, new international sites and expansion in video.

Company is making the moves because execs are aware that some previously hot sites have turned out to be more flavor than fixture.

“I never want to be in a position where I wake up a year from now and MySpace is the same then as it is today,” Chernin said.

Site is already on the cusp of becoming a profitable investment, Chernin said, noting that MySpace will be “within a couple million dollars, plus or minus, of breakeven this year.”

And in 2007, Chernin said, MySpace will garner at least $250 million of the guaranteed $900 million from its Google advertising deal — a significant amount when added to the pricey six-figure deals the division makes with studios for front-page placement.

News Corp. is closing its first full year as owner of MySpace, and in the past few months, it’s shown a willingness to push it as a downloadable entertainment platform ahead of non-News Corp. entities.

Chernin also said the economic models for digital content would vary depending on the format of that content.

News Corp., he said, would likely see a distinction between pics and television. The former would primarily operate on a pay-per-download model, while he believes TV shows and other shortform programming would run chiefly on advertising.

Chernin also laid out a model in which old and new media will enjoy a symbiotic relationship.

While some analysts have questioned News Corp.’s heavy investment in newspapers, for instance, Chernin suggested the relatively steady cash flow from the print properties can help finance higher-risk digital investments. “Having that as a foundation makes us much more comfortable,” he said.

November proved to be a dramatic period for the conglom’s digital biz. In addition to the Levinsohn swap, Universal Music sued MySpace after they could not come to a revenue-sharing agreement. The two sides remain at a standstill; Chernin did not address the suit.

Questions also persist over how News Corp. will manage its complicated relationship with YouTube, which is both a competitor and a potential partner.

Chernin was noncommittal when asked whether MySpace would look to seal a content deal with YouTube or try to turn MySpace into a bigger user-generated video player of its own. He did say the company also had the opportunity to buy YouTube for a price similar to what Google paid ($1.5 billion) but decided it was too expensive.

Earlier reports had indicated News Corp. had made an 11th-hour attempt to buy the firm — an offer to which YouTube did not respond.

Elsewhere at News Corp., Chernin said the company was still “optimistic” about a deal with John Malone over a swap for Malone’s 19% stake in the company for News Corp.’s minority stake in DirecTV.

Chernin also spent a moment at the end of the talk flogging upcoming studio releases “Eragon” and “Night at the Museum,” the second of which he said could be a “very commercial piece of business.”

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