Darn, here I was thinking I had a great April’s Fool Joke, and Michael Arrington beat me to the punch. I wrote this on the flight here to SF… In the end, Arrington had his own trick up his sleeve… you know what they say: no one remembers the second one to do anything… speed matters.
News Corp.’s FIM to Acquire Michael Arrington’s Tech Crunch Blog Network
There are ordinary flights, and then there are extraordinary ones. Let me tell you folks, that my flight in to San Francisco was nothing short of unbelievable.
First off, I am no journalist, certainly no investigative reporter; I’m a Web entrepreneur, writer and occasional analyst. But on my flight in to SF I ran into a former colleague of mine (indirect albeit), stemming from my three-month tenure within News Corp.’s Fox Interactive Media. The background being that in Sept. 2005 News Corp. bought the company that bought my company in May, 2005.
Anyway, there I was walking on the plane when I ran into a former colleague that shall remain nameless. We chatted a bit, about News Corp., FIM’s breathtaking rise, their M&A strategy – past and present. He mentioned that he read my blog, and that the FIM brass was happy to see that MySpace’s acquisition ranked as #1 in our list. From there the topic switched Michael Arrington’s Web 2.0 uber blog, Tech Crunch.
As we exchanged thoughts, I could not help but see something lurking beneath that smile. I had to pry, and pry I did, and thankful for that I am, for I managed to catch a helluva big cahuna.
Folks, sit down.
News Corp. has essentially come to an agreement with Michael Arrington to acquire his Tech Crunch empire. There remain a few issues to be worked out, some small, some large, but the deal is advanced enough that I can write about it with no chance of it being derailed.
Small issues include Arrington wanting to keep Crunch Notes off the table, but News Corp. is not too happy about that, fearing that Arrington might instead turn his focus more on that personal blog than his flagship network, anchored by TechCrunch, but which also includes GearCrunch, MobileCrunch and others. A larger issue is price, something that has yet to be finalized, though a range has been agreed upon.
Scaling Tech Crunch
The idea of FIM buying TC originated not with News Corp., I was told, but from Arrington and former FIM M&A executive Heather H. – incidentally, Tech Crunch’s current CEO – when they were talking about potential growth options for TC and scaling limitations of his empire while she was still at FIM.
Managing FIM
Once Ross Levinsohn left FIM, it was clear that the day of the $500M+ M&A was over, it was a matter of integrating and managing the digital empire he has put together. Of course, there was a matter of what to do with MySpace in particular, a site whose traffic far overshadowed its revenue.
A Match Made in Heaven?
When Heather met Michael, surprisingly, two major opportunities rose to the surface:
- Tech Crunch could serve as a filter for which startups would add value (ie. revenue) for MySpace.
- FIM could borrow Arrington’s modus operandi and apply it to MySpace’s 100M+ members in order to develop MyCrunchSpace, essentially blogs written by MySpace subscribers over literally thousands, if not millions, of topics, people and places etc. Weblogs Inc. sold for $25M to AOL. The idea was, this would scale far more, far faster, and introduce some kind of order to MySpace’s burgeoning growth.
Monetizing MySpace, Creating a Wikipedia.org Killer
Reluctant to publicize this out of fear of being ridiculed, very few people were privy to the details, but as the idea floated around the organization, from Heather to FIM CEO Levinsohn, onto News Corp. COO Peter Chernin and ultimately Chairman Rupert Murdoch himself, it became clear that Arrington could exert his proverbial Mojo onto MySpacers – the ultimate Web 2.0 audience – and filter out the best widgets and ultimately create a Wikipedia.org killer.
The irony of it all is, all along, Wikipedia.org co-founder Jimmy “Jimbo” Wales is talking about a Google killer whereas News Corp. has been hatching a plan to kill Wikipedia.org and reduce the seedy, dubious, and advertiser-unfriendly user-generated content currently found on MySpace and replace it with more ad-friendly TechCrunch like channels.
Instead of just covering Web 2.0 startups, MySpace users would talk passionately – or hopefully as passionately as Arrington covers his space – about topics that could be bundled or pitched to advertisers more favorably than the current slate of topics covered on MySpace.
Murdoch and Chernin viewed this as a good way to monetize MySpace, which still only generates $30M despite being the largest web property when measured by page views. Looking ahead, the idea was to leverage MySpace videos to get people to do vlogs, thinking that so long as people covered people, places and things in video format in a Wikipedia.org context, it might also have a YouTube killer at hand.
If Every Heather, Michael, Tom and Chris…
Naturally, the more I heard the details, the more questions I had. Of note, I said Chris and Tom of MySpace can’t like this idea, can they?
Turns out that the tradeoff for having considerable autonomy from News Corp. is that MySpace must generate a growing top line, something that despite the $30M figure it is not really doing, when you consider that News Corp. is a $20 billion media empire… and Murdoch is eager to make digital more and more relevant to his bottom line.
Structure
The way it will work is that Heather will remain CEO of TC, and she will report to Peter Levinsohn of FIM; in other words, TC will find itself on par with IGN, MySpace as a form of incubator. This was obviously a major issue, since the MySpace guys and experienced IGN executive Dale Strang (my one time boss, I guess) were interested with brining Arrington on board, but not if that meant any change to the pecking order which now has them each reporting to FIM’s head Peter Levinsohn, who replaced his cousin Ross in late 2006 (Ross is currently on the board of Napster).
MySpace Classifieds
By now, I figured, the deal didn’t sound as crazy as when I initially got wind of it. I asked where Edgieo (the classifieds service that Arrington has invested in) fits in all of this. The folks at FIM and TC have already addressed this, hoping to turn it into MySpace Classifieds, though I was told “this is not seen as a deal breaker, obviously.”
Heather as “TC CEO”
As we chatted about more about the details, a lot of things previously disclosed made sense. When Tech Crunch reported earlier that Heather would join as CEO, it did not make sense, as to why someone with Heather’s experience would join what was ultimately a small but influential blog network. You might recall that Arrington hastily disclosed that on his blog after Om Malik broke the news… the fact of the matter was that Heather was looking at less major, home run-type, $500M+ deals at FIM and the idea was for her to vet M&A opportunities that come in via Tech Crunch. There was a memo that was leaked that announced all that, but missing from the leak was the TC/FIM hookup, apparently.
The FIM Incubator Fund
Another growing source of frustration at MySpace, it turns out, is the wild wild west nature of the widgets that have grown in popularity on MySpace, I was told. While everyone thinks of YouTube, my erstwhile colleague told me that literally dozens of new widgets creep up every day, and keeping on top of these is a big time waster at FIM. It’s also not something that anyone internally has shown a real acumen for, because it’s a full time job, as demonstrated by Arrington.
TC presents a good opportunity for News Corp. in that Arrington and co. will be able to identify which widgets should be referred to the business development unit at FIM and which ones need to get a letter from legal, basically. A select few will get something more.
The most promising ones, and the reason why Heather was set to transition to FIM, will get an investment ranging from as little as $25,000 to $250,000… News Corp.’s FIM is not a company that “likes to lease,” in the words of former CEO Ross Levinsohn, they usually buy a company. But given the mass, untapped goldmine that is MySpace, Arrington has apparently convinced FIM that they will have to trust entrepreneurs and remain independent while they try different things against the MySpace community… realistically, I presume, MySpace cannot also buy every single widget that pops up on MySpace, but not doing anything means that the can grow on MySpace – a la Youtube – or worse, grow elsewhere which will cause a risk of flight to MySpace.
Price Tag
I tried my best to get an answer for the amount of the transaction. I could not get an answer, and my reading of the words and body language is that this item (an important one, admittedly) has yet to be finalized, but we’re talking about something in the $25M range. It’s a very steep price, but Murdoch can afford anything, and that is what the Time Warner / Weblogs Inc. deal turned out to be.
Similarly, this was pitched like an acq-hire, and there’s not much upside for Arrington by selling, so they had to sweeten it by going with a cash-rich offer in that range. MySpace’s Chris and Tom, turns out, only made $5M or so in Intermix’s $580M sale to News Corp., after all.
As well, missing from the major headlines is the exodus of talent from FIM’s IGN unit since the deal, Mark Jung, former IGN CEO left and recently joined widget maker (there’s that word again) Clearspring as Chairman of the Board, Richard Jalichandra (IGN’s former VP of Corporate Development who orchestrated the deal with my old company, in fact) joined Exponential – parent company of the Tribal Fusion ad network. In Arrington, it seems, Rupert Murdoch views someone with the imagination to identify what will – and won’t – work on the Web, particularly on his “$6B baby,” MySpace.
Timeline
Obviously, this entire discussion was initially set to be off the record, but in the end, I did get an ok that everything was fine to go to print, apart from one major fact, so long as the source remained anonymous.
I just got into the hotel and rushed to the first hot spot. I can imagine that the usual suspects (Valleywag, Rafat Ali’s Paid Content or Om Malik) will be all over this by now… News Corp. is set to make an announcement in the first days of April, I was told, or this upcoming week, so you can add the NYT and other notable media to the list…
But, I am pretty certain that I can quote Rafat by saying: “you read it here first.”
Enjoy his. Apparently, more than one person bought it…
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