Why Tim Vanderhook Paid $35 Mil for MySpace (Q&A)

Few in Hollywood had heard of Specific Media, an online advertising network led by CEO Tim Vanderhook, until it came out of left field in late June to buy News Corp.’s troubled social networking platform MySpace for $35 million. The Irvine, Calif.-based company then shocked many by naming actor/pop star Justin Timberlake as a minority investor and creative force.

The Hollywood Reporter: Was your decision to bring Justin Timberlake on board as an investor mainly a marketing ploy? What is his exact role?

Tim Vanderhook: When we looked at MySpace, its current challenges and our strategies, what we needed and didn’t have in terms of internal expertise was a profession artist, someone who has a multi-faceted career not just in music. Although Justin is rooted in music, he has successfully crossed over into television and movies. He has so many angles about him and clearly very talented – singing, dancing and now acting. As we were designing our strategy to build this platform for content creators, artists themselves, we needed someone with that expertise who could help us design it. We have the technology expertise – how to build technology and sophisticated algorithms to make it relevant, but we really lagged a third leg of the stool – somebody who is really an extremely bright and intelligent creative person. Justin will really help us design the strategy from an artist’s point of view. The best way to describe it is he will be the creative force behind the platform.

THR: How involved is he really?
Vanderhook: Obviously, he has tons of careers, and he is extremely busy. But he has an office. I communicate with him almost every single day. He is extremely excited about it. He has tons of ideas that he wants to get working on. When he does have an opening in his schedule, he will be working out of our offices. We are having him create a team of about six individuals that will be working out of the MySpace offices to help him execute what he wants to do while he is out. Just since this has happened, he has already cancelled days to meet and talk with us and go over the strategy. The one piece that has probably been underreported is actually the level of involvement that Justin has. I think most people look at it as a marketing ploy. Up to this point, that is absolutely not even close to what reality is. He is extremely excited and involved and passionate about making MySpace relevant again.

THR: Did you know him before?
Vanderhook: We were looking for someone as we were looking to acquire MySpace. We looked at who is the most talented creative person who fits this bill. We came up with a couple, and he was on the top of that list. We didn’t know him. We got a chance to meet with his agent Johnny (Wright). I think we really struck a chord with Justin as he is passionate about helping other artists and giving back to that community. I think he was probably searching for something like this, and when we came up with this, I think we struck a chord with something he is passionate about.

THR: When did you actually bring Justin on board?
Vanderhook: We probably struck the deals simultaneously. It was really hand-in-hand. The final meeting with him was the day before the acquisition from News Corp. went down. We were with him in New York that Tuesday and strategizing and getting to know each other better. We just had a lot of things to finalize to get the acquisition done.

THR: What will his title be and any insight on how big his stake is in the company?
Vanderhook: He has a minority stake. The details we can’t disclose due to the confidentiality agreement. He doesn’t actually a title. He is just owner of a minority stake. He won’t have an actual president title or so. It is more about his equity stake and building the platform.

THR: So, should we expect he will be involved for a while, even after you guys develop the strategy?
Vanderhook: Oh yeah, absolutely. And strategy is always continuing to move.
 
THR: Give me three reasons for why MySpace fizzled!
Vanderhook: I think the turning point was when News Corp. signed the advertising deal with Google. It was obviously a huge deal and made a lot of sense for News Corp. But with the strings that came attached with that deal and the amount of advertising that had to be involved, the site lost its direction and ultimately lost its way of what it needed to be. It went from a social network where people could connect to be more like a portal and try to drive page views to generate more advertising revenue to achieve thresholds needed in the Google advertising deal. I don’t blame News Corp. for that deal. I think anyone would have done it given its size. But you started basically compromising the experience of the user for the benefit of revenue. And then Facebook came along and built a great product.

We are going to try and bring MySpace back to what it was supposed to be and really come back to its roots and clean up the site to make it simplified and have a better user experience.

THR: Where do you see the main opportunity beyond that, and will entertainment play a role?
Vanderhook: We are going to stay in the entertainment category. That is absolutely important. Inherently, content has changed due to social media. Obviously, we will still have a social element to the site where the community can connect and discuss and talk to each other. One thing that hasn’t been made as widely available to consumers as it should be is the strength of the MySpace music service. We have a unique opportunity. We have a huge library, almost the entire library from all the major labels, of free, streaming, on-demand music. And we are looking at what type of premium subscription model we can do with that as well. Music will be a very important pillar of the entertainment strategy as we move forward.

We also think there is a huge opportunity, when you look at something like YouTube, which is user-generated, and Hulu, which is more premium rerun television, there is no new original programming that has been produced to entertain consumers in the digital sphere. Post-Hulu, there hasn’t been a lot off exciting stuff going on. It’s gotten kind of boring. We will look at whether we can entertain the masses and create a platform for these really bright creative minds, and we’ll bring an audience, which today is 70 million people. For all the woes the MySpace brand has had, the amount of traffic every single month is absolutely gargantuan relative to other Web sites out there. People will get a kick out of being entertained again and find something that is really unique.

THR: How much original content do you expect? And to what degree will you also integrate film and TV library content?
Vanderhook: On the music side, content is going to be licensed. And beyond that, we have a tremendous community of independent artists that create a ton of tracks. On the original programming side, I would expect a significant amount of original programming built specifically for consumption for the Web rather than built for TV and tried to be repurposed for digital distribution. In traditional media, you have broadcast and cable networks. We believe there is going to be an explosion of digital networks out there where you are using the Internet as the primary distribution channel. I think there will be a lot of content created for digital and it will be the next big boom in online.

THR: Who do you look to create that content? Anyone you are already talking to?
Vanderhook: We want to build a platform for professional content creators. We have been talking with a tremendous amount of production companies. These are the same companies that make movies and TV shows. What the digital stage gives us is another distribution channel to bring great ideas to consumers. We are going to create a platform that can capture all that and help them with that.

THR: Any content partners yet we can mention?
Vanderhook: We can’t. At this stage, we are focusing on original programming. We don’t want canned stuff. We want to really have it made specifically for digital consumption. From there it will take a while to actually create it. We have a number of partnerships that we are talking about now, but nothing I can announce today. Over the near-term, you will see us get a little more active on announcements.

THR: Do you expect to shell out much money up front for such content?
Vanderhook: On the digital side, you don’t have as big of a cost structure as on the traditional side. It is pretty high-quality content for digital distribution. And what really makes this model possible today is the online video advertising industry now that this will be over $2 billion this year. What Specific Media brings to the table is a huge global ad infrastructure. For digital ad dollars, we are competing with the likes of Facebook, Google, Yahoo, AOL and Microsoft. These are big, sophisticated companies, and Specific has competed with them for over a decade. We have over 500 employees. We will bring those ad dollars to professional content creators. Advertising will be the primary business model on the content side. On the music side, I think consumers would love to have a blend of opportunities – not just advertising-supported, but subscriptions, too.

THR: You mentioned AOL, Google, Facebook etc So, do you envision Specific Media and MySpace as bigger online players and do you compete most with social networks or portals?
Vanderhook: We don’t want to bring a product that has been done before. So, from a product perspective we don’t to compete with anyone. The product we are looking to bring to market I don’t think is going to be competitive with Facebook or Yahoo or any of them. We want to tie social media with content and build a community centered around the content rather than around the individual. Sure, I guess on the social side people will try and see it as competing with Facebook. From an ad perspective, our ad sales teams are all going after the same bucket of dollars for ad-supported content.

THR: What’s the MySpace user of the future?
Vanderhook: We would like the MySpace brand itself to appeal to all consumers. And then ultimately you go select online – music, original programming or a community centered around a passion – your demo will be similar to others there.

If you look at MySpace today, it’s 18-34 with a sweet spot in the mid- to younger demos, which is obviously a very important demo. We are glad to have them.

But we’d like that platform to reach all demos and bring in mass audience to this community of content creators. The actual content creators themselves will probably have their own niche demo that their content appeals to that they are going after. Hopefully we can bring an audience of all 200 million people online in the U.S. to the content creation community, but maybe something focused on the 18-24 demo will probably appeal to that demo.

So, let’s bring the audience and community and the platform for content creators and then there will be various niches.

Overall, what we would definitely want to have is a big, broad reach of the audience and then let the content creators decide who goes where.

THR: What type content for older demos?
Vanderhook: At MySpace, you have a tremendous music service that has the entire library. I think the music piece is going to have mass audience appeal. The best part about the digital space is that it is not Tim Vanderhook deciding the highest-quality content, but it’s ultimately the community itself.

THR: What content will be produced that will attract an audience?

Vanderhook: I am so happy to not have the pressure on me to have to make that decision. Really, we just want to bring a platform for the creators and an audience, and whatever happens happens. And we’ll support that community with the economics of advertising.

THR: Do you expect movies to play a role on MySpace or is long-form content not suited?
Vanderhook: Movies the way movies are created today I don’t think are fantastic for digital consumption. You want to watch movies on a high fidelity screen. You want them to be big. You absolutely want to lean back and have popcorn or whatever it may be and really enjoy that experience. I think online, you will see shorter content or maybe shorter episodes of what may be a single story.

THR: How about movie clips?
Vanderhook: Absolutely. Movie clips themselves people view as content, so they love following whoever they may be a fan of and immersing themselves. We want to make available all types of content.

THR: Can MySpace return to sub and ad growth?
Vanderhook: What Specific Media brings to the partnership is that advantage on the revenue side – the ability to have a sophisticated technology platform and a very large sales force on a global basis.

I think driving revenue isn’t going to be the challenge for MySpace moving forward. I think the challenge for us is turning the subscriber growth back up.

There is the old mantra of content is king. That absolutely rings true. So, if we can bring a high entertainment value of content to consumers – whether it is music or original programming and digital video – and build a community around that, I think we can get the actual subscribers and usage to go back up. We are bringing a tremendous amount of firepower in regard to creative ideas with Justin Timberlake.

We have gone in eyes wide open. It is a challenge we believe we can solve, even if it’s never been done before. That’s what drew us to this opportunity – the ability to take what was a high-flying brand at one time, which has lost some of its shine. The ability to return that to growth has never been done before in the digital space. There is not a single Web site I can think of that has gone from peak to trough back to a peak. That challenge as an entrepreneur is something we are very, very excited about.

THR: There have been all these Internet IPOs as of late. Is Specific Media considering one?
Vanderhook: In its previous incarnation as a digital advertising business, Specific had been looking at the public markets. We are very focused on growing a big business. Every time you build a big business and compete against huge companies out there like Google, you always need more capital to grow that business.

With MySpace, we want to do it and do it right. So, we’d like to integrate this business and take our time and really get the product right and get it on a right trajectory and then from there, we’ll probably need more capital to grow the business. We will want to grow on a global scale. What’s interesting in digital is that this isn’t just about the United States. It is a single platform that can grow globally and reach hundreds of millions of consumers in every part of the world. As we do that, we’re going to need more capital to finance the business, and the public markets will be the right spot for that.

So, I wouldn’t say in the short-term, but as we integrate the business, that will be something we will do at some point in the future.
 

THR: How long have you been on MySpace? What about Facebook? Any policies on Facebook usage for your employees? Are the allowed to use it?
Vanderhook: I obviously use MySpace very heavily now. I don’t have a Facebook profile and never had.
 

But I have certainly used the service under different names. For MySpace when we were acquiring the business, we were trying to keep a low profile, so we were not under my exact name that we were doing usage under. But now I have actually named myself and continue to use it and build it up.
 

We don’t have a policy. Facebook has a great product. We don’t view them as something we are trying to re-build. Obviously, historically they had very similar functionality, but our future direction isn’t to compete with Facebook in terms of communications tools or tagging of photos and things like that.

I hope all of our employees use Facebook and they use MySpace. That’s really our hope for all consumers out there that we can build a product that everyone is excited about and that they want to use. For us, there is no point to force-feed one product on everyone.