The sale of MySpace on Wednesday illustrates the pressing business problem for dynamic digital companies: How do you make the value last?
From a peak valuation of $12 billion in 2007 to a garage sale price of $35 million on Wednesday, MySpace serves as a stunning example of the difficulty new media companies have sustaining their worth over time.
“When comes to new media what makes it difficult is things are changing so fast,” Richard Rosenblatt, the former chairman of MySpace, told TheWrap on Wednesday.
“Every single decision you make has broad reaching ramifications, and you need to be ready to rethink your decisions every day. For a lot of managers that’s tough, to continually have to reinvent yourself,” he added.
Rosenblatt knows that all too well, since his own start-up, Demand Media, an online publisher and content farm, was until this year one of the hottest digital content companies, with a price tag of between $2 billion and $3 billion.
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Demand is only six years old, and has been on an enviable growth curve. But last year Google changed the way it ranked news from so-called “content farms,” and Demand is not so in demand at the moment.
It’s a constant problem. Hulu, growing at exponential rates since its founding four years ago, now finds itself on the sales block.
The company had been expected to reach $500 million in revenue this year, and its value remains to be determined for purchase. But without the support of its current owners -- News Corp., Comcast and Disney -- how reliable are Hulu’s revenues going forward? Yes, there are multi-year content deals in place, but when those expire, the landscape might be radically different.
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Then there’s Facebook, with its $70 billion IPO on the horizon. Last month the first signs emerged that the company has topped out its audience in America, with the site losing users domestically for the first time in its short history.
A year ago Facebook looked unstoppable. Today, anxiety is on the rise that the company has reached maturity and will need to find a new strategy to keep its current users engaged.
“In one sense MySpace is a victim of not excuting well, but look at even hot social netowrking services such as Facebook and it's not difficult to imagine the pattern repeating itself,” Clive Thompson, a writer for Wired, told TheWrap. “If this pattern holds, someone will come up with something that those guys can’t predict and they are not able to buy it, own it or change their model. What that's going to be I have no idea.”
This seems to be the template of our times for new media companies: they burn very hot, very fast and then many of them burn out.
