How News Corp. Sold MySpace to an Ad Network — and Justin Timberlake

Three brothers from Irvine not only had an interest in expanding their ad network, but in an inventive strategy that News Corp. found appealing: JT

The negotiations went all night Tuesday, and the lawyers had been at it for several nights before that.

All for a relatively simple transaction: about $35 million, mainly in stock, swapping Specific Media share for ownership of MySpace.

TheWrap spoke to two individuals involved in the deal to glean details of how it went down, and why.

It had to get done before the end of News Corp.’s fiscal year, at the end of June. (Thursday, in other words.)

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In truth, News Corp. digital chief Jon Miller had been negotiating seriously with an investor group led by Bobby Kotick, the owner of Activision, with a view to finding synergy in MySpace’s vast user base and the gaming giant.

But while the broad strokes of a deal were in place, that negotiation eventually failed over legal complications — liabilities involved in the takeover that made Kotick’s group uncomfortable enough to walk away.

The most persistent bidder after that turned out to be Specific Media, an Irvine-based digital ad network run by three brothers: Tim, Chris and Russell Vanderhook. The Vanderhooks founded Specific Media in 1999 and not only had an interest in expanding its ad network, but an inventive strategy that News Corp. found appealing.

That strategy: Justin Timberlake.

Timberlake, the pop star and recent actor in “The Social Network,” agreed to take an ownership stake in the company and play a “major role,” according to a news release, in developing a new creative direction for the company.

Also Read: The Problem for MySpace, Hulu, Facebook: How to Sustain Value?

Neither of the bids from the two other interested parties – both of them founders of MySpace, Chris deWolfe and Tom Anderson – had any such clarity of vision.

“There wasn’t a concept attached to it,” said one executive who heard the pitch. “They might have had (a vision), but it didn’t come through.”

At the end of the day, News Corp. thought that Specific Media had a two-pronged play — the ad network, and the possible relaunch of MySpace under Timberlake — that made a stock swap worthwhile. News Corp. took an estimated 10 percent stake in Specific Media, which has topline revenue of more than $300 million per year already, according to one knowledgeable individual.

The new strategy involves developing MySpace as part of the “interest graph,” as opposed to the already mature “social graph.” This means organizing users around their interests — in this case, music.