News Corp.'s new digital chief has full plate

MySpace growth, Google search deal top Miller's priorities

NEW YORK -- Reigniting growth at MySpace, figuring out the future of its search deal with Google and perhaps helping to strike an agreement between Hulu and Disney are high on the priority list for News Corp.'s new digital ace Jon Miller.

As expected, the conglomerate on Wednesday said it has signed the former AOL CEO and digital right-hand man of Barry Diller to the newly created positions of chairman and CEO of the Digital Media Group and chief digital officer.

Based in New York and reporting directly to News Corp. chairman and CEO Rupert Murdoch, Miller will be charged with taking the company's digital efforts to the next level.

Or as Murdoch put it: "Our focus moving forward is twofold: to enable our digital businesses to flourish as individual entities and to bolster the digital strategies of our core media properties by treating them as central to, and not separate from, the enterprise."

Industry watchers say MySpace must be a top priority for Miller.

The social networking site has lost the buzz and user growth battle with Facebook and Twitter as of late, and even its financials have been mixed in recent quarters as online advertising revenue growth has been hit and the site has seen higher costs to expand around the world and add features.

Fox Interactive Media, the unit that houses MySpace, reported revenue of $856 million for the latest fiscal year ended June 30. However, it posted its first-ever revenue decline -- 3% -- in the most recent second quarter that ended in December driven by a lack of search and ad revenue growth and lower subscription momentum at video game and entertainment enthusiast site IGN.

Similarly, FIM's operating income contribution to News Corp. in the first fiscal quarter was similar to the year-ago levels but declined in the second quarter -- by $40 million, or 85%, nonetheless -- because of cost increases for the launch of MySpace Music, international expansion and the addition of new features.

"(Jon's) immediate focus must be on MySpace and stabilizing its base and then creating a strategic vision to help it reverse its current trends and once again become a digital leader," said Ross Levinsohn, one of Miller's partners at digital media investment firm Velocity Interactive Group and a former head of FIM.

Miller, who was not available for comment, also faces the expiration of the Google-MySpace ad search deal and related guaranteed payments in mid-2010.

Pali Research analyst Richard Greenfield recently said that Google does not seem to care about social search and has done a less-than-stellar job refining its algorithm for MySpace.

"It is harder to conceive Google paying anywhere near their prior commitments to MySpace" once the current deal runs out, he concluded. "While Yahoo, AOL and MSN could all be bidders for a new MySpace deal beginning in July 2010, we suspect all have learned from Google's overpayment. In turn, we are estimating a 50% drop in search fees."

Greenfield estimates that News Corp. will reap $300 million in each of its next two fiscal years -- or about 35% of FIM's total revenue -- from the Google deal. To offset the expected lower future revenue after that, Greenfield says FIM will have to cut costs.

Meanwhile, online video site Hulu, the joint venture between News Corp. and NBC Universal that Miller will help oversee, has been working on a deal with Disney. That would bring shows from the likes of ABC and ESPN to Hulu in return for a Disney stake in the venture. Observers wonder how Miller will manage this development.

Finally, many point to his venture capital/investment experience in Velocity as a sign that he may help Murdoch make some acquisitions in a down market to further add to the conglomerate's digital arsenal. founder Michael Wolff recently mentioned Twitter as an attractive target.

While Velocity was a different animal, its portfolio companies could provide a hint of what Miller might be interested in. Those companies include Doppelganger, which offers virtual worlds around music, fashion and entertainment; India TV, a Hindi language news provider; next-generation content production and talent management outfit Generate; Next New Networks, which creates niche TV networks on the Web; and Ad Infuse, which delivers personalized ad experiences to consumers on mobile devices.
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