Report: MySpace a drag on social media

Online ad business suffering across the board

Newly installed MySpace CEO Owen Van Natta has got his work cut out for him, as MySpace's advertising outlook is so poor that it is now dragging down the once scorching-hot social networking category.

According to a new report issued by eMarketer, U.S. ad spending on social networking sites is expected to skid by 3% in 2009 to $1.14 billion, primarily due to "problems at MySpace." And while the online ad business is suffering across the board, and spending declines are becoming the norm, the anticipated decline in spending on social nets is stunning considering the meteoric rises in spending and usage of the past few years. eMarketer tracked revenue gains of 33% in 2008 and a whopping 129% in 2007 for the category.

But clearly, momentum for social networking advertising has plummeted in the past year -- despite the mass adoption of sites like Facebook and MySpace. eMarketer had already revised its growth predictions downward for the segment at least twice in 2008. Back in December, when the researcher lowered its 2008 ad spending estimates for both Facebook and MySpace (which account for the lion's share of dollars in the category) -- it also cited MySpace's ad challenges as a key factor in the slowdown.

In December's revised forecast, eMarketer put MySpace's 2009 revenue at $630 million; now the company predicts spending will only reach $495 million, which would represent a 15% decline versus 2008.

That anticipated decline appears to correlate with data that parent company News Corp. provided in its recent earnings statement. In the first quarter of this year ad revenue for Interactive Media, which includes MySpace, slid by 16%.

The story is more positive for MySpace's rival Facebook, although that company brings in roughly half the revenue that MySpace does. According to eMarketer, Facebook's U.S. Ad revenue should climb by a health 9.5% this year to $230 million. Spending on other social networks is predicted to increase by just 1.5% to $345 million, though the market for advertising on social networking widgets has demonstrated robust growth, said the report.

The reasons for MySpace, and the category's overall struggles, have been well documented. Marketers remain wary of user generated content. Most major social networking sites generate more inventory that they can sell. Users are less inclined to click on ads in social networking environments (according to a recent report issued by the market research firm IDC). And lately, according to eMarketer more and more brands are tapping these sites for marketing or public relations efforts that do not incorporate paid advertising.

Last month, former Facebook executive Van Natta was installed as MySpace's new CEO, replacing the site's co-founder Chris DeWolfe. The change in leadership was spearheaded by News Corp.'s CEO of Digital Media and chief digital officer Jonathan Miller, who took over the company's digital operations in March.