MySpace getting a facelift in effort to turn popularity into wealth

NEW YORK: When News Corp. added MySpace to its portfolio nearly three years ago, it expected that if its base of 20 million users kept growing - and kept each interested by adding friends, sharing photos and swapping flirty messages - the advertising dollars would roll in.

The social networking site has indeed grown - to 118 million registered users - and the flirty messages have not stopped. But the cash is not coming quite as quickly as the company had hoped.

In the fiscal year that ends in two weeks, the News. Corp unit that encompasses MySpace will miss its $1 billion revenue target. When News Corp. announced the projected shortfall in April, several analysts downgraded the company, sending shares down 5 percent.

With an eye toward profits, MySpace is being redesigned, beginning this Wednesday, with a new home page that will be less cluttered and more hospitable to advertising. (The new home page will also feature a "takeover" by an ad for the new Batman movie.) The six-month redesign will eventually include a new navigation bar, search tool and video player.

The redesign is intended to address one of the persistent problems of social networking sites: that many user pages have been designed with the aesthetic appeal of a 14-year-old's high-school locker. But there are still many unanswered questions about the advertising value of social networks.

In the past few months, the bloom has come off the social networking rose. MySpace and its chief competitors Facebook and Bebo all have bold plans to make money, but insufficient proof that the plans are working, some analysts say.

"The jury's still out on MySpace's ability to monetize," said Michael Nathanson, an analyst at Sanford C. Bernstein & Co.

On their face, the sites seem appealing to advertisers. MySpace has a U.S. audience of 73 million, and Facebook counts 36 million, according to comScore. Worldwide, Facebook tied MySpace for the first time in April, with about 115 million users for each. Users spend hours on the sites, looking up friends and sharing content.

But because MySpace commands a majority of all the money spent on social networking, it is seen as a bellwether for the nascent industry.

During a conference call last month, the News Corp. chief operating officer, Peter Chernin, moderated the once-grandiose expectations for social networking advertising and acknowledged that selling spots on profile and group pages was far from easy.

If the balloon of unrealistic and unrealized expectations has not quite popped yet, it is at least losing air. The attitude change was first detectable at the end of January when, one year into its $900 million pact with MySpace, Google said social networking inventory was not making money as well as expected. More recently, it has said the situation is improving.

The new conventional wisdom was cemented in April when MySpace's parent unit, Fox Interactive Media, confirmed it would miss its revenue goal.

Nathanson said MySpace's moves have been frustrating. "We don't have much conviction in the long-term ability to grow this business, based on what we've seen lately," he said.

Other analysts have a more bullish view. Anthony DiClemente of Lehman Brothers recommended News Corp. stock on Friday partly due to MySpace's 25 percent to 30 percent year-over-year revenue growth.

MySpace, naturally, agrees with the more optimistic view.

"We're seeing the dollars come in," said Jeff Berman, who was promoted to president of sales and marketing for MySpace in April amid the rearranging of Fox Interactive Media's sales force. Revenue per user is said to be up 50 percent over last year, but the site is still pulling in only about $6 per user per year, given that it expects to make $755 million this year and has 118 million active users per month. Facebook is estimated to earn $265 million in ad revenue.

The companies are acting swiftly to solve the social networking riddle. MySpace is keen on hyper-targeting, which places users into "buckets" based on their interests and delivers ads accordingly.

Close to a third of buys on MySpace are hyper-targeted now, the company says, and 250 staffers are assigned to the technology.

Facebook has a similar targeting system, called social ads. Advertisers choose an audience. Want to reach Florida college students who watch "Sportscenter" on ESPN? There are 10,680 on Facebook. Then, create a simple ad and set a budget. It takes a matter of minutes. MySpace's version, called SelfServe, is being tested.

Bebo, the social network born in Britain and now the third largest in the United States, was purchased by AOL, a unit of Time Warner, last month. The company has vaguely said it will use Platform A, AOL's advertising entity, to monetize the site.

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