Just a few months ago, News Corp. (NWS) landed a crucial deal with Internet leader Google (GOOG). News Corp. designated Google as the search engine for MySpace, the social networking leader that News Corp. acquired last year for $580 million. The Google deal guaranteed $900 million in revenue for MySpace over a three-year period, more than enough to recoup News Corp.'s cost of acquiring MySpace, plus a tidy profit.
Now News Corp. is seeking reassurances in the wake of Google's $1.65 billion agreement to acquire Internet video leader YouTube. The YouTube deal poses several potential conflicts (see Businessweek.com, 10/10/06, "Google Competitors Beware"). Today, YouTube doesn't compete directly with MySpace, where members keep home pages loaded with photos, videos, music and messages. But YouTube has a social networking component, because its users can share playlists and other information. That could be the foundation for more YouTube social networking features that would put it into more direct competition with MySpace.
VIDEO IN PROFILES. The main point of potential conflict is the millions of YouTube videos that are embedded on the profiles of MySpace users. Google is expected to integrate advertising into YouTube videos produced by professionals and amateurs alike. As a result, Google could soon have the ability to stream ads to MySpace users who are viewing YouTube videos embedded onto their MySpace pages. The question is whether News Corp. will get a slice of that revenue, and if so, how much.
So far, little or no money has been on the line, but if revenues from online video advertising surge, as both companies predict, how that money is shared will become increasingly important. "The revenue-sharing question for MySpace and YouTube is really tough, but it has to be resolved," says Nick Holland, a senior analyst at Pyramid Research. News Corp. declined comment, and Google didn't respond to several requests for comment.
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