News Corp (NWS) Finds Out Social Networks Are Bad Businesses

April 4, 2008 by Douglas A. McIntyre

News Corp (NWS) is likely to miss revenue targets at its internet division, Fox Interactive. According to TechCruch, the company may be short as much as $100 million on its $1 billion forecast for the current fiscal year. The unit may only break-even.

News Corp will re-organize the operation and push out a number of the executives who handle revenue. But, that does very little for the company. What they have discovered is that social networks like their MySpace operation, have very, very limited revenue potential.

Social networks, especially the larger ones like Facebook and MySpace, have tens of millions of users and billions of pageviews. But, the visitors to the sites cannot be broken into simple categories. Which of the people who have a profile on MySpace are big investors? Which ones play golf? Who is going to buy a new car or take out a mortgage? The answer is that there is no effective system to organize social network users into discrete groups.

While companies like Yahoo! (YHOO) and Time Warner’s (TWX) AOL may be having some problems, they at least can organize their content so that marketers can put their messages in front of people who are likely to be interested in their services. Yahoo! and AOL both have financial sections with millions of visitors a month. They have classified sections for jobs and cars, and sections for sports, news, and games.

What is most telling about the News Corp numbers is that MySpace, which has an audience of well over 80 million unique visitors a month, draws will under $1 billion in revenue. Yahoo!, with 136 million monthly visitors, will bring in over $7 billion in revenue this year.

Social networks are not a good business. The internet is not likely to be a large operation at News Corp if it is built around MySpace. And, Facebook is not worth the $15 billion value which investors recently gave it in a recent round of investment.

Period.

Douglas A. McIntyre

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