Tuesday, October 21, 2008

MySpace Music Will Not Be Spinned Off; Outside Ownership Not Coming

That private-equity set-up for the much-hyped MySpace Music isn’t on the front burner and may not ever happen, according to sources familiar with the situation. There are several reasons that boil down to this: News Corp (NYSE: NWS) and MySpace don’t see the need to try to do something as complicated as a full spin-off given the way MySpace Music has taken off in terms of downloads and advertising interest. This is not a case of market fright—private equity investment interest is there— but of the company deciding there’s no compelling reason to make the move at this point. As someone in the PE community told me, “They didn’t even shop it that hard.” The delivery of 1 billion songs in the first week drove home something internally that seemed like a problem to some along: it’s too complicated to unwind MySpace Music from MySpace and could damage the potential for the music service to flourish. As one source put it, “you might be shooting yourself in the foot. We’re pretty happy with the way things have been working to get us to this launch; the idea we have to do things completely separately doesn’t seem to be as relevant.” The MySpace Music JV as currently set up with music labels as equity partners is a separate subsidiary within MySpace. Taking outside financing, which News Corp doesn’t really need at this point, would have required a separate company with new licensing agreements and a lot of other complications. One source compared it to trying to spin off Yahoo Sports: “What is it if not Yahoo?”

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