Ominous note for News Corp. and its MySpace property: During yesterday’s Q4 earnings call, Google laid part of the blame for its miss directly at the social network’s feet.
Google went out of its way not to say that out loud, and instead talked about “disappointments” and “challenges” with “social networking as a whole.” But it steered Wall Street to an obvious conclusion: Google’s three-year, $900 million deal with MySpace and NWS’ other big Web properties is now a problem. Key excerpts from the call, via SeekingAlpha:
From pre-Q&A script:
The increase in overall TAC rate was primarily related to the performance of a few AdSense partner sites, for which we are required to make guaranteed payments. We have found that social networking inventory is not monetizing as well as expected.AdSense TAC was $1.3 billion, while TAC related to distribution partners and others who direct traffic to our websites totaled $125 million in the quarter.
We don’t talk about individual partners’ performance or anything like that. Now I do want to highlight though, we have had a challenge in Q4 with social networking inventory as a whole and some of the monetization work we were doing there didn’t pan out as well as we had hoped. But we are continuing the efforts and we are still optimistic about future quarters.
…we have a huge amount of social networking inventory, including the MySpace relationship, including of course Orkut, our own network, which is very, very successful and probably like 20 others, or something like that. I don’t know the exact number. But we have an incredible amount of this inventory and in fact, it varies quite a bit in how it all monetizes, based on a number of factors, some of which we understand, some of which we don’t.
...I don’t think we have the killer best way to advertise and monetise the social networks yet. We’re running lots of experiments. We had some significant improvements but as I said, some of the things we were working on in Q4 didn’t really pan out and there were some disappointments there. I hope to be able to report more progress in the future but it’s a big opportunity because it’s so much inventory.
Just to spell it out: Google’s pact with MySpace is by far the largest guaranteed deal, and the largest social networking deal, that the company has. So if it was doing OK, Google could come out and say that. But it’s not.
In retrospect it’s now clear that Google overpaid News Corp. in 2006, primarily to keep Microsoft from getting access to MySpace’s inventory. But Google can afford to overpay, and up until now it hasn’t complained about the deal — instead it’s said it is pleased with performance, etc. Combined with a series of stats that show growth slowing significantly at the site, this is a real problem for News Corp., as well as Facebook and every other social network. Expect to hear much more about it during the NWS earnings call next week.
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