Do you know where your children are? The major media conglomerates are looking for them and they're willing to shell out big bucks.
Recent deals by News Corp. and Viacom Inc. for two popular social Web sites MySpace.com and NeoPets.com priced in the hundreds of millions of dollars underscore the frantic search for teens and 20-somethings who have cut back on their television time and are turning down newspapers, magazines and even radio.
"It's all part of the death of old media, and advertisers moving away into new media," said Frank Husic, chief investment officer of Husic Capital Management, which owns more than 85,000 shares of L.A.-based Intermix Media Inc., the parent of MySpace. "Everybody's scratching around for something."
While the big money being spent harkens back to the late 1990's tech boom, when Internet valuations transcended reality, there are important differences starting with the product.
MySpace's 22 million members, nearly all in their teens or early 20s, represent the Sasquatch of the advertising world elusive and hunted. People create a presence on the site through profiles that list their interests, activities, and favorite bands, books and movies. It's a wealth of information that people don't usually make available to companies or advertisers.
And it's a marketer's dream, making News Corp.'s $580 million purchase for Intermix Media Inc., parent of MySpace, worth the price in the eyes of some on Wall Street. "It's so much more than just e-mail addresses," said Scott Kessler, Internet analyst with Standard & Poor's. "You can see what kinds of activities they're engaged in and tap into trends."
Consider the ways in which the information can be used. When trying to reach potential buyers of running shoes, for example, News Corp. knows which MySpace members are joggers. Those ads could command a premium from advertisers, although they also carry a risk.
"That would likely end up in alienating the usership, depending how it's done," Kessler said. "Part of it is figuring out how quickly that is going to turn someone off."
Data to marketers?
A safer path for News Corp. is to use information that stops short of being individualized trend data about members' likes and dislikes, as well as fads that swirl around in the MySpace orbit. News Corp. is likely looking to use this information not only for online selling but television and print.
While Intermix claims it does not sell member data to marketers, News Corp. has made no such promise and the companies are not commenting on plans until the acquisition is finalized.
Generally, social sites can be divided into two categories: those designed to get a date and those designed to land a job. Both rely on friends of friends, links and introductions. MySpace tapped into the music scene, for example, offering young people a way to connect with each other over bands they liked.
"Obviously if you want to see a band, you want to take a date," said John Tinker, analyst with ThinkEquity Partners LLC in New York.
ZeroDegrees Inc., a Hollywood-based business-networking site, was purchased by Barry Diller's IAC/InterActive Corp. last year for an undisclosed sum. It's a site where people create profiles listing their professional backgrounds, skills and interests, and link to friends and colleagues in a round-robin of informational interviews and potential business partnerships.
Viacom acquired kids site NeoPets.com for $160 million in July for its Nickelodeon Film and Enterprises unit of kids programming. Though NeoPets.com's 25 million users skewed a little younger than other social networks, there were similarities. Its tween-aged members dedicate loads of time to creating an online persona in this case a virtual pet and spend hours on the Internet interacting with each other.
Knight Ridder Inc. and Washington Post Co. went in on a joint venture to invest in Tribe.net, a social networking and classifieds site in 2003.
Mountain View-based LinkedIn Inc. is another business-networking site aimed at professionals, with close to 2 million members. Still independent, the company raised more than $14 million in venture funding last year.
Straddling business and friendship networks is thefacebook.com Inc., launched by a recent Harvard graduate that allows students to connect with friends of friends at other universities. The site claims 2 million users and raised $10-$12 million in venture funding in April.
"There's a ton out there, I wouldn't know which one to pick next," Husic said. "We're just at the beginning of massive consolidation in this area."
Focus on music
One obvious risk for the buyers is that social-networking sites can disappear from the popular scene as quickly as they arrived. To some extent, this already happened to MySpace rival, Friendster Inc., an early leader in the social networking space when it signed up 1 million users in less than six months in 2003.
But its Web site couldn't handle the rapid growth, and the site was plagued with frequent breakdowns. Even Friendster's own engineers admitted that its architecture was overwhelmed. The site claims 16 million members, though it has not figured out how to generate revenues.
The company garnered $13 million in venture capital funding last year, but it went through three chief executives in 2004. Users left the party for MySpace, which had 11.3 million unique visitors in March, according to comScore Networks Inc., while Friendster had 975,000. Thefacebook, meanwhile, had 4.1 million.
Kessler attributes MySpace's success to its focus on the music area, while Friendster tried to be a generalist. Bands release songs through MySpace, radio deejays announce when songs are streaming on the site, and members share new bands and invite each other to concerts.
Now, Tinker said, "News Corp is thinking, 'How can I promote my TV shows on it?'"
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