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News Corp. May Never Profit from MySpace

Don't look for News Corp. (NWS)'s redesign of MySpace to attract advertisers and make its web operations profitable: That may never happen, if the trendlines in the company's annual report are to be believed. The business units that have housed MySpace have only once showed a profit in the last six years.

In its 2010 fiscal report, News Corp. said that revenues from its "Other" segment, where MySpace lives, were down 36 percent to $1.5 billion. The segment booked a loss of $575 million, greater than the year before when it lost $212 million.

Facebook, by contrast, just doubled its ad revenues to $1.3 billion. (We don't know if Facebook's advertising sales are profitable, but failing to make a profit on a 100 percent revenue increase would be unusual indeed.)

Put that together with the news that MySpace never made a profit before News bought it for $580 million in 2005 -- even though its creators at Demand Media repeatedly said that it was profitable -- and you have a business that may, structurally, be unable to ever see black ink on its books again.

Here's the historic revenues and profit from News Corp.'s "Other" section:

  • News Corp.'s "Other" financials:
    Year, Revenues, profit / (loss)
  • 2004: $834 million, ($128 million)
  • 2005: $1.1 billion, ($177 million)
  • 2006: $1.4 billion, ($150 million)
  • 2007: $2.9 billion, ($193 million)
  • 2008: $2.3 billion, $42 million
  • 2009: $2.4 billion, ($212 million)
  • 2010: $1.5 billion, ($575 million)
Note that revenue jumped in 2005 following News' acquisition of MySpace. These were MySpace's glory years. Revenue at MySpace may have reached $600 million in 2008, but has declined since then as users have migrated to Facebook.

The other big revenue jump occurred in 2007 after News did a deal in which Google (GOOG) paid News a guaranteed $900 million fee over several years in return for supplying News' web advertising needs. That deal is set to expire in August. If News brings on a new search partner, it will not likely get $900 million again.

Only in 2008 did News Corp's online properties show a profit, just $42 million on revenues of $2.3 billion. Currently, News' "Other" revenues are back to roughly the same level hey were at immediately after MySpace was acquired. If it's the case that MySpace can't top revenues of $600 million, and the business unit it's in makes a loss of $575 million, then it's hard to see MySpace ever becoming a profit generator for News Corp.

If you accept the alternative explanation -- that MySpace is currently profitable, but that's disguised by the losses pouring out of all News's other web sites -- then News has the same problem in reverse: It's running a web advertising operation that is more of a charity than a business.

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Image by Flickr user purpleslog, CC.
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