Building an Internet Empire

A few days later News Corp. announced it had signed a definitive agreement to acquire Intermix for approximately $580 million in cash, or the equivalent of $12 per common share. Intermix is organized in two distinct businesses. MySpace.com, the social networking community geared toward 16-to 24-year-olds, is the primary business, and the second is an online marketing unit that markets products based on data collected from its members.

A brief look at some statistics on MySpace.com provided by Comscore Metrics report will really open your eyes to the potential of this new acquisition:

• 24.2 million unique users in October, up 12% from 21.6 million in September.

• 150,000 new users a day during the first half of November, up from about 100,000 a day last summer.

• 11.6 billion page views in October (up from 9 billion in September), displacing eBay as the fourth-busiest site on the Net.

• More pageviews than any Internet destination except Yahoo!, AOL and MSN.

• Twice the pageviews of Google, which logged 6.6 billion in October.

It is clear that the Intermix acquisition will be the key driver in News Corp.'s quest for online dominance. In its most recent annual report, Intermix states: "Revenues increased 49% to $79 million in fiscal year 2005 from $52.9 million in fiscal year 2004. The increase in revenues was attributable to growth in both business segments with the product marketing segment producing $48.5 million in revenues in fiscal year 2005 compared to $29.1 million in fiscal year 2004, and the network segment producing $30.5 million in revenues in fiscal year 2005 compared to $23.8 million in fiscal year 2004." Those figures represent about half of MySpace.com's revenue, as Intermix only recently acquired the other half of MySpace.com.

Rupert Murdoch, CEO of News Corp., said: "Intermix's brands, such as MySpace.com, are some of the web's hottest properties and resonate with the same audiences that are most attracted to Fox's news, sports and entertainment offerings. We see a great opportunity to combine the popularity of Intermix's sites, particularly MySpace, with our existing online assets to provide a richer experience for today's Internet users."

Then in October, News Corp. announced a $650 million agreement to buy closely-held IGN Entertainment. IGN Entertainment is an Internet media and services company focused on the video-game and entertainment-enthusiast markets. Collectively, IGN's properties reached more than 30 million unique users a month. This acquisition brings News Corp.'s total unique monthly users to approximately 70 million.

Over the next several quarters, we should see synergies unlock as advertisers in the traditional media sectors of News Corp. start populating the ad space of MySpace and IGN. These new businesses are still growing and hitting key demographics going into the holiday season. However, as I wrote here, a stronger way to play News Corp. is to buy Liberty Media(L Quote) stock, run by John Malone.

News Corp. offers a sufficient margin of safety for those that want to play it straight, but a slightly larger cushion would be to sit side by side with Malone and buy Liberty.