Something Cooking

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After News Corp. bought MySpace, Josh Berman and Colin Digiaro stayed on in their executive roles. But what they really wanted to do was create a bunch of little MySpaces a mother lode of Internet riches.

So News Corp. eventually let them form an incubator within the company as they prospected for online gold. They unveiled their first nugget last month, celebrity gossip site DailyFill.

It’s the first company to be slung out of News Corp.’s Slingshot Labs, Berman and Digiaro’s Santa Monica incubator. They hope to roll out three to five companies every year.

The co-presidents cull the Internet looking for trends, then brainstorm with executives at News Corp. properties around the world to create concepts that might grow into profitable business ventures.

The idea for DailyFill came from combining two phenomena: First, Internet users want what Digiaro calls “fast content” brief clips of information designed for quick scanning, as exemplified by the surging popularity of Twitter. Second, they found the online population has a seemingly insatiable appetite for celebrity news.

Once they identified the online opportunity, Berman and Digiaro quickly started DailyFill as a company that could exploit it.

“Venture capitalists bet on entrepreneurs, but we take a different approach,” said Berman. “We see a trend on the Internet and decide what News Corp. assets we can bring to bear on it. Then we write the business plan, we hire the site developers and we build it in-house.”

Slingshot has three other ventures in the pipeline, with one set to launch next month. The plan is to build other sites by applying the DailyFill formula of fast content to sports, general news and even business professions.

DailyFill’s staff rewrites news stories from contracting media partners, with humorous headlines full of attitude.

“Rihanna’s Looking for a New House: Preferably One With a Panic Room,” one blurb announced. Another asked, “Is Nicole Richie Carrying Twins or a Fatburger?”


Full ownership

Like other incubators, Slingshot will provide its portfolio companies with core services such as accounting, HR, legal and offices. All companies will be based in the Santa Monica building, and News Corp. will own them 100 percent.

Growing companies will remain in the incubator two or three years. Berman and Digiaro plan to focus on content sites for 18- to 34-year-olds. They have no intention of buying existing companies or delving into tech startups, preferring to “let the VCs handle that stuff,” as Digiaro put it.

Azita Arvani, president of Arvani Group Inc., a consulting firm in Santa Monica, has set up in-house incubators for Xerox and other corporations. She said Slingshot shows that News Corp. is hunting for big game.

“Strategic considerations are very important; otherwise News Corp. could give the money to an experienced venture capitalist and just collect returns,” Arvani said.

Specifically, News Corp. wants Slingshot to produce companies that can work in concert with the conglomerate’s media empire.

Berman explained that unlike most entrepreneurs and venture capitalists, he won’t be satisfied with companies that only generate a few million dollars in profits.

“We aren’t looking for small wins,” he said. “We’re going big with the expectation that each venture will become a leader in its category.”

News Corp. is putting $15 million into Slingshot for its first two years. It cost less than a half-million to start DailyFill, but Berman said future ventures could require investments as high as $1 million, comparable with the seed money or first-round financing provided by venture capital firms.

Berman and Digiaro were early employees at MySpace, as chief operating officer and senior vice-president of sales, respectively. When News Corp. bought the social networking site in 2005 for $580 million, Berman and Digiaro stayed with MySpace in its new identity as a subsidiary.

But after two years of corporate life, they wanted to return to the entrepreneurial trenches.

“We noticed other Web companies starting up like YouTube and PhotoBucket, and we thought we could create value for News Corp. in the digital space,” Berman recalled.

They put together a proposal for Slingshot and received the blessing of the News Corp. board in February 2008.

The next year went into renting space, and assembling a team of accountants and administrative staff who will service all Slingshot companies.


Funny bites

The launch of DailyFill will serve as a model for future ventures. What differentiates the celebrity news site from the competition is its style of taking stories from other sources and editing them into short, funny bites.

To execute the strategy, Berman and Digiaro made content deals to get first glimpse at stories in the New York Post, US Weekly and Elle. They also hired Editor Chris Case, a former TVcomedy writer with credits on “Spin City” and Bill Maher’s “Politically Incorrect.”

“We started with gossip an avid market to test our theory,” said Digiaro. “We like the fast-read concept a lot and think it can work in a lot of content categories.”

DailyFill currently has about 3.7 million unique visitors a month, far less than celeb gossip behemoths such as Time Warner’s People.com (13 million unique monthly visitors). But it’s not far behind TMZ.com (4 million) and Yahoo’s OMG (6.3 million).

However, the site’s business model depends entirely on advertising revenue, and so far DailyFill has yet to display its first banner ad.

The site targets females in the 18 to 34 age bracket and Digiaro hopes to attract the usual advertisers seeking that audience beauty product makers, car companies and the movie studios. He expects that the first ads will appear in a few weeks.

Incubators concentrate on starting companies, but larger questions loom when it comes time for those companies to leave the nest.

“The biggest challenge for an in-house incubator is to bridge the gap between the startup mentality and the big corporate culture,” said Arvani, the consultant. “The question becomes: How do you bring the innovation back to the parent corporation? The large company can be a good channel for distribution, but you don’t want it to squash the startup.”

Berman responded that News Corp. is “a unique media company” that understands innovation and the need for different corporate cultures. He noted that most of the MySpace founders remain employees at News Corp.

Another challenge for Slingshot is the inevitable failure of some portfolio companies.

Digiaro foresees three possible outcomes for a Slingshot venture: It can be absorbed into a News Corp. division, it can remain a separate company or it can go kerplunk.

If a site flops, Digiaro plans to move staff to other projects rather than fire them. Currently, Slingshot has 42 employees, with six devoted to DailyFill. About 80 percent of the workers are technical types who could be shifted from one Web site to another.

Digiaro emphasized that no Slingshot venture would be sold to outside interests.

“If we decide to shut down a project, it will be within the first six months and there won’t be many assets to sell,” Digiaro explained. “It’s not a traditional wind-down where a VC is looking to get pennies on the dollar.”

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