As anticipated, MySpace will layoff 30% of its staff, according to a press release.
Layoffs are always tough and sad, but this is the right move for News Corp’s (NWS) social network.
Basically, Google forced MySpace to make this move after making it clear that it would not renew its $300 million per year ad deal with the social network when it expires in 2010. Google will want to do the deal at a rate closer to $50 million per year, and that will shrink MySpace revenues by as much as half, we’ve heard.
Besides, as a source close to the company told us last week, “If you can’t run that site with 750 people, you don’t know how to run a business.”
Here’s the statement:
As part of a plan to restructure itself into a more innovative, efficient, and entrepreneurial business, MySpace announced today that it will reduce its staff by nearly 30%. This restructuring plan crosses all U.S. divisions of the company and lowers the total number of domestic staff at MySpace to 1,000 employees.
“Simply put, our staffing levels were bloated and hindered our ability to be an efficient and nimble team-oriented company,” said MySpace Chief Executive Officer Owen Van Natta. “I understand that these changes are painful for many. They are also necessary for the long-term health and culture of MySpace. Our intent is to return to an environment of innovation that is centered on our user and our product.”
“MySpace grew too big considering the realities of today’s marketplace,” said Jonathan Miller, News Corporation’s CEO of Digital Media and Chief Digital Officer. “I believe this restructuring will help MySpace operate much more effectively both structurally and financially moving forward. I am confident in MySpace’s next phase under the leadership of Owen and his team.”
On Friday, we published a story headlined “MySpace Is In Far Worse Shape Than Its New Executives Thought.” Here’s that again, for some context:
Running MySpace, new CEO Owen Van Natta and News Corp. (NWS) digital head Jon Miller are beginning to realise they have taken on a much bigger challenge than they initially thought, sources close to both executives tell us.
“The business is in a lot worse shape than Fox Interactive was positioning” prior to the Owen and Jon’s arrival, one source says.
There are two main myths that the new team has seen exploded since their arrival.
Myth 1: MySpace usage may not be growing, but it’s not shrinking either.
During former CEO Chris DeWolfe’s tenure, MySpace made a lot of noise in public about its 120 milllion or so unique visitors, but the new team on the scene has discovered that “the true [user] engagement numbers are horrendous.”
Myth 2: With its year-old portal advertising strategy, MySpace doesn’t need Google to make money
Google hates the $900 million, 3-year MySpace ad deal it did back in 2006. When it renews the deal, Google will probably only guarantee around $50 million per year. This will cut MySpace’s annual ad revenues in half, from $600 million to $300 million.
So what do Jon and Owen plan to do, now that they’ve learned just how deep MySpace’s problems run? Already, they’ve canceled plans to move FIM to a new offices. That move will cost the company $350 million over the next 12 years if MySpace can’t find someone to sublease the vacant new offices, Pali Research reports. But it had to happen because Live Nation reneged on a deal to lease the offices MySpace currently occupies.
We’ve been told to expect two more “dramatic” changes.
Layoffs. News Corp is a cutthroat company. Jon and Owen know they can’t let MySpace lose $100 million to $150 million during their first year and keep their jobs much longer. The easiest and probably smartest way for them to keep that from happening will be to cut MySpace’s 1,500-strong headcount in half. “If you can’t run that site with 750 people, you don’t know how to run a business,” says a source close to the executives. Another source close to the executives described Owen and Jon as “the new adult supervision” that will “make adult decisions.”
New sales leadership. MySpace sales boss Jeff Berman is on his way out, and we hear Jon wants to replace him with one of his old AOL colleagues. “Jeff is very good, very smart,” but “miscast,” says a source who thinks Jeff will be moved to a new position in News Corp. “You want to bring a pro in,” says this source, “[Jeff] is learning on the job.”
Reached, MySpace declined to comment on this story.