Does Murdoch Miss MySpace? Nah, He's Got Another Internet Loser
News Corp. (NWS) CEO Rupert Murdoch has a reputation of being a brilliant businessman. Maybe so -- though you have to wonder, at least on the Internet front. (Or anything these days involving government investigations.) First he sold MySpace for $35 million after paying $580 million a few years ago, the net effect of which was to cause a 22 percent drop in last quarter's earnings.
And now? A relatively new investment, digital music start-up Beyond Oblivion, plans to launch an online music streaming downloading service later this year in the U.S. All signs so far point to a likely failure, though it may not be quite as sensational as the MySpace flameout.
Boincing for fun and profit
Beyond Oblivion -- a telling name itself -- picked a real winner for its service: Boinc. Someone in marketing probably said, "Hey, we can call it Boinc and the customers can all say they're being Boinced!" and everyone's face lit up and cheered before the poor man or woman could get out the "Just kidding!" part.
Going up against Spotify, which certainly has the head start in promotion, use, and even some paying customers, Boinc plans to partner with smartphone and PC manufacturers. Get $50 to $70 wrapped into the price of the device and users get to listen for the lifetime of the device. News Corp was part of a $77 million investment round in March.
Just a few problems, of course. That amount of extra cost is enormous even in the PC market, which runs on thin margins. The manufacturers won't go for it. As for smartphones, did the company ever hear that Google (GOOG) and Apple (AAPL) currently have a big majority of the market sewn up? You can see it now. Either Steve Jobs suddenly thinks that losing all those media sales would be a good idea, or vendors that produce Android phones suddenly decide that they wouldn't make enemies with Google by supporting a third-party music source.
That's to say nothing about the licensing realities:
As is the customary practice, large record labels have demanded (and received) large up-front payments: 40 per cent, apparently. The labels have also secured a minimum 70 per cent of total annual revenue in royalties. Boinc has secured a royalty ceiling of 92 per cent. That doesn't leave a lot to market and operate the service. Or, more importantly, much of an incentive for other investors to think, "What a brilliant idea, maybe we could do this even better."Maybe all the critics will be shown up in short term, but this seems like one capital-L loser of an idea.
There could be a silver lining, though. Given its experience in choosing Internet businesses, maybe News Corp could open a consulting arm. It picks what companies and technologies to invest in and the clients pick anything else.
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Image: Beyond Oblivion