What’s Up With MySpace (And Why Isn’t Yahoo Interested)?

Is the MySpace sale saga nearing a close? News Corp (NSDQ: NWS). may finally be near the end of the painful process of finding a resolution for an acquisition that turned from triumph to unprofitable distraction. Earlier this week it seemed a spin-off partnership might be most likely. Now Kara Swisher is reporting serious interest from an investment group that could include Activision (NSDQ: ATVI) CEO Bobby Kotick.

Where are the strategic buyers? I asked Ross Levinsohn, who as head of Fox Interactive Media, helped Rupert Murdoch invest more than $1 billion to supersize News Corp digital in a hurry. (I had also just interviewed him about Yahoo’s underestimated value.) One large chunk of change went for MySpace when News Corp won the nascent social network away from Viacom (NYSE: VIA) for $580 million in mid-2005. Now Murdoch and company are running a salvage operation on MySpace, where costs have been cut to the sinew as the social net is being shopped. Among those who have looked: Yahoo (NSDQ: YHOO), where Levinsohn is EVP-Yahoo Americas. Would Yahoo buy MySpace?

“We look at everything and obviously my relationship there is such that it would have been wrong of me not to look. I don’t know what the future for it is,” Levinsohn told paidContent. But it’s not Yahoo?

“No, look, it’s an asset that needs the right home,” Levinsohn replied. “I’m not sure Yahoo today is the right home.”

If not Yahoo, then who would be the best fit? “Either a strategic who could leverage its infrastructure whether it be back office, sales, distribution to help it — you’d put us, MSN, AOL (NYSE: AOL) and a couple of people like that in that mix. Or I’d rather see it go to a spinout investor, private equity venture, that could really give it the love, energy and cash it needs. I think it needs both. Even if it goes that way, it’s going to need a real distribution partner.”

Levinsohn dismisses any suggestion that MySpace was one of News Corp.’s most troubled digital acquisitions. “In the pantheon of News Corp investments I”m not even sure it would be close to the most troubled,” he said, offering Gemstar as a better example.

He offers two contexts for the MySpace acquisition: “We bought a social networking site in 2005 before anyone knew what social networking was and now look at where social networking is — so if you look at the trendline we were way head of the game. When we bought it, it was doing about $1 million a month; 24 months later we were on a run rate to do $500 million a year. You’d have to say that was a pretty good trajectory. Users went from, when we bought it, to 70,000 signups a day (which I thought was astounding), to the month I left about 450,000 signups a day. So again, trajectory, unbelievable. The Google (NSDQ: GOOG) deal, at the time was a momentous deal, almost $1 billion virtually all to the bottom line. We paid $580 million and one deal paid for it plus — and that’s not to mention growing revenue.”