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What's Inside MySpace.com?

Murdoch's Latest Media Marvel May Be His Biggest Yet

By Martin H. Bosworth
ConsumerAffairs.com

April 8, 2005

• Facebook Agrees to Upgrade Safety Measures • Hanna Montana Photo Flap Part of a Trend • New Jersey Investigating College Gossip Site • No Easy Remedy for Imposter Postings on Social Networking Sites • Social Networking Sites Not the Biggest Danger for Teens? • Keeping Teens Safe Online • MySpace Agrees To Toughen Security For Young Users • MySpace Harassment Case Takes Odd Turn • Texas Sues Kids' Web Sites • States Keep the Heat on Facebook, MySpace • Texas Rounds Up 14 Sex Offenders on MySpace • New Jersey Subpoenas Facebook • Predator Who Used MySpace Gets Seven-Year Sentence • Facebook Has 'A Long Way to Go,' Investigators Say • Cuomo Charges Facebook Ignores Sexual Predators • MySpace Deletes More Sex Offenders • New Jersey Targets Sex Offenders With MySpace Profiles • States To Get MySpace Sex Offender Data • MySpace Deletes Thousands Of Sex Offenders • States Press MySpace For Data On Sex Offenders • Survey Finds Teen Behaviors Linked with Victimization • New MySpace Security Measures May Be Too Late • MySpace Builds Database to Target Predators • Pittsburgh Man Arrested in MySpace Sex Case • New Scam Targets MySpace Users • States Cracking Down on Dating Sites • MySpace Glitch Gives Hackers Teen Data • FTC "Concerned" About MySpace & Other Networking Sites • Texas Teen Sues MySpace for $30 Million • MySpace Debuts $1.99 Video Downloads • Massachusetts Puts Heat on MySpace.com • MySpace Names Security Czar • Connecticut Asks MySpace to Provide Blocking Software to Parents • What's Inside MySpace.com? • Connecticut Opens MySpace.Com Probe --- • MySpace Complaints • Facebook Complaints

What started out as a "place for friends" has grown into the definitive social-networking phenomenon.

The MySpace Web site hosts millions of pages, with new users signing up in droves. One industry poll claimed that MySpace had 12 billion unique page views in Oct. 2005, twice that of Google's 6.6 billion.

MySpace is the hot spot for teens and young adults, and a powerful new tool for music and media artists to market their wares to a hungry audience with lots of disposable income.

The company is fueled by advertisers eager to reach the teens and young adults who are the most prized demographic in the advertising universe, resulting in huge profits for company founders Tom Anderson and Chris DeWolfe. It seems to be the perfect model for making money off the Web in a post-tech boom world.

But where did it come from? How did MySpace go from being virtually unknown to a buyout opportunity for Rupert Murdoch's NewsCorp? What's the story behind the meteoric rise of the company?

From Boom To Bust And Back Again

MySpace's story began in 1999, with Anderson and DeWolfe meeting while working for Xdrive, a start-up company that provided free online storage space for photos, music, and files.

In 2001, with the tech bubble bursting and their fortunes failing, Anderson and DeWolfe left to form their own company, ResponseBase, an "e-mail list broker" that sold lists of e-mail subscribers to other companies for marketing purposes.

ResponseBase built its lists primarily from the e-mail addresses of current and former Xdrive users. The "MySpace" name seems to have evolved from "freediskspace.com," similar to Xdrive's initial business plan.

The ResponseBase messages were often considered spam, with many domains and list managers blocking the mailings when users complained about receiving advertisements without their permission.

Even worse, the emergence of tough new anti-spam laws in California (where ResponseBase was located) and on the federal level, ResponseBase's revenue was in jeopardy. DeWolfe and Anderson needed a new source of cash.

Enter Brad Greenspan, Internet "boy wonder" and then-CEO of eUniverse, an online "entertainment network."

Greenspan excelled in utilizing online advertising -- including what many critics called extensive adware and spyware programs -- to get his content onto users' computers. It seemed like a match made in Heaven, and eUniverse agreed to purchase the ResponseBase assets in Sept. 2002.

But by 2003, Greenspan would be out of the picture, and his former company's troubles would be just beginning.

In The Intermix

On Oct. 31st, 2003, Greenspan suddenly resigned from eUniverse after the company was forced to restate its earnings for most of 2002 and 2003. SEC filings from that year show that Greenspan was even asked to repay a bonus of $42,500 he received when the company's earnings goals were revised.

In 2004, eUniverse renamed itself as "Intermix Media," and MySpace reemerged as a "social networking site," complete with DeWolfe as CEO.

The company experienced explosive growth, due largely to the immense popularity of MySpace, and Intermix's experience with targeted online advertising, which often took the form of downloads and adware that showed up on users' computers.

The usage of adware would come back to haunt Intermix in 2005, when New York state attorney general Elliot Spitzer launched a high-profile lawsuit against the company for deceptive advertising practices, including installing new programs without a user's consent, and making them extremely difficult to remove.

Intermix agreed to settle the lawsuit without admitting fault, to the tune of $7.5 million. Greenspan himself ponied up $750,000 to settle charges that he had directed Intermix employees to ensure the adware downloads were hard to remove from computers.

Murdoch Enters the Space

Meanwhile, Greenspan's former company had attracted the attention of media mogul Rupert Murdoch.

The huge amount of advertising potential in MySpace and Intermix's other media sites was too much for the news baron to resist, and he bought out Intermix for $580 million in cash in July of 2005.

"We see a great opportunity to combine the popularity of Intermix's sites, particularly MySpace, with our existing online assets to provide a richer experience for today's internet users," Murdoch said at the time.

Greenspan promptly fired back, claiming that Intermix's principal stockholders had rushed to dump their shares during the course of Spitzer's investigation, and then sold Intermix to Murdoch's NewsCorp at a much lower price, all while pocketing millions of dollars in stock options.

Greenspan's Web site, "Intermixedup.com," is full of charges of insider trading and shady business on the part of Intermix and NewsCorp. Greenspan also claims that it was his "leadership and direction as CEO" that led to MySpace's success.

MySpace and Marketing

None of this really means much to the average MySpace user, to be sure. But one common thread in the company's history, from Xdrive to NewsCorp, is the practice of targeting particular users with specific advertisements.

MySpace's privacy and terms of use policies grant it extensive control over the media posted to its site, though it has altered these terms somewhat to accommodate the many recording artists and bands that use MySpace to communicate with fans and sell their music.

Even with that, much of what a MySpace member posts to the site becomes the property of the company, to be sold to other companies and advertisers at their whim.

Online journalist Trent Lapinski has extensively investigated the origins and history of MySpace, and he noted that the key to MySpace's success wasn't just advertising, but demographics.

In his view, NewsCorp was more interested in the potential advertising treasure trove of the MySpace "target demographic" -- the coveted 16-to-35 year old market.

"Unlike some sites, MySpace has always also been a part of an advertising company so they have always designed their site with the intention of advertising," he has said. "Essentially, MySpace users are filling out marketing profiles that are mined by the company that are then presented as these people's personal Web pages."

However, all of this marketing madness and heavy emphasis on youth advertising carries a price, and MySpace has come under fire for enabling sexual predators and pedophiles to track down potential victims through the site.

On March 13th, 2006, Chris DeWolfe announced plans to improve the security features of MySpace to prevent underage teens from accessing it as readily, and impose stronger measures against misuse of the site for criminal purposes.

Money Talks

Beyond the demographic targeting-advertising connection, the genius of MySpace is that virtually all of the "content" is free; it's provided by the users themselves.

"To a newspaper/television baron like Murdoch, this is a dream come true," said a media executive familiar with Murdoch's modus operandi. "Accustomed to spending megabucks to produce news and entertainment products, Murdoch must marvel at being able to sit back and watch the audience entertain itself, in effect."

While it is far from the only community site -- the Web has been full of them since its inception -- MySpace is perhaps the first to be controlled by experienced mass-media marketers who understand the connection between building the audience your advertisers are seeking at the lowest possible cost.

There are those in the traditional media world who will tell you that Murdoch's arrival in the U.S. is responsible for the rising tide of sensationalism in print and television.

But media theorists have for years preached the message that the most effective media are those that, in essence, reflect and "validate" the lives of their audience. Whether it's Fox News, "American Idol" or MySpace.com, it's a media model that sells and it's not likely to go away anytime soon.

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