20/20 Hindsight on MySpace

For all you media moguls, let’s take a look at MySpace’s worrisome red flags

Hindsight is always 20/20. Still, looking back on Rupert Murdoch's $580 million purchase of MySpace in 2005, it's possible to see a series of worrisome red flags. I present them forthwith so that you can pick out the next flops yourself — and if you're a media mogul, maybe save you a billion or two.

To wit:

1. If you don't understand the business you're buying, don't buy it. News Corp. bought MySpace because it wanted a social media business, not because it fit the media company's core business. It had a vague idea that it would advertise its movies and TV shows throughout the site, but not much more than that. Since it didn't understand the business, it proceeded to run MySpace into the ground.

Time Warner's merger with AOL flopped for the same reason: Time Warner had few significant achievements on the Internet at the time; AOL knew nothing about movies, TV and publishing.

Notably, Fox's investment in Hulu makes a lot more sense: TV is its strong suit. And Justin Timberlake, one of the new MySpace owners, understands that a big chunk of his music fans still are on the service.

2. If you buy a hot startup at its peak, you'll probably regret it later. Mark Cuban was happy with Yahoo's purchase of his Broadcast.com — it made him a billionaire — but its fair to say Yahoo! wasn't. MySpace's founders walked away multimillionaires and News Corp. was left holding the bag.

By contrast, Specific Media, the new owner, is buying MySpace at a much lower value point, making its break-even point much lower.

3. If you're not willing to invest appropriate amounts of money, you'll reap what you sow. For the last few years anyway, News Corp.'s focus at MySpace was saving money — it laid off scores of employees and outsourced to India. If your goal is cost savings, buy something you understand — like a production company. Otherwise, you're a sitting duck for somebody who IS willing to spend money to take you down. Like Facebook.

4. If you don't innovate, you die. News Corp. knows how to innovate in television ("American Idol") and publishing (The Daily). It knows much less about social media. That left it vulnerable to any company that changed the social media paradigm — as someone (again, Facebook) surely was going to do. When you're the big gorilla, everyone goes after you.