Specific Media’s MySpace Deal: Transforming An Ad Net Into A Media Company

Even before serious talk began that MySpace (NSDQ: NWS) was in play , Specific Media co-founder and CEO Tim Vanderhook was looking for an acquisition that would transform the company from an online ad network to a media company. “A year ago, me and my brother [Specific Media co-founder, COO] Chris felt we had built a pretty great digital business, but we also wanted it to be bigger,” Vanderhook told paidContent.

“We knew we wanted to be a media company. We wanted something that had a known brand and presence. So when the MySpace sale process started, we knew that was exactly what we needed and what we wanted.”

The 31-year-old Vanderhook co-founded Specific Media in 1999 with his two older brothers Chris and Russell. Until now, the company was best known for helping popularize the “pop-under” around 2001; it has spent the past few years expanding overseas and offering more features to publishers. In comScore’s periodic ranking of ad networks by audience reach, Specific Media generally ranks toward the lower half of the top 10.

Reviving MySpace and transforming SM: Before last week’s $35 million MySpace deal — considerably less than the $580 million News Corp paid for in 2005 and nowhere near the $6 billion Rupert Murdoch once claimed the social net site was worth — Specific Media’s most notable buy was the acquisition of video ad network BBE for somewhere between $65 million to $85 million.

“Despite the current view of MySpace, it is still used by millions of people and it is still considered a premier brand,” Vanderhook said. “But it has fallen on tough times and we believe we can revive it.” (Check out our full timeline of MySpace’s ups and downs, here.)

News Corp.’s stake: Vanderhook confirmed that News Corp. will retain a stake in MySpace that’s just under 5 percent. “News Corp. believed that there can be a continued upside potential in owning a piece of MySpace, even though they felt they couldn’t make that happen on their own,” he said. “The company wanted to be able to capitalize on any success that a new owner would have with MySpace, so part of the deal was that they would have less than 5 percent ownership. It’s a vote of confidence in our plan.”

As a minor shareholder in MySpace, News Corp. has promised to provide Specific Media with a vast amount of resources, Vanderhook said, though he did not provide specifics.

Timberlake lends more than a name: Despite having the continued backing of News Corp., what makes Vanderhook think he and his team can succeed where one of the most powerful media corporations couldn’t? Part of it has to do with the additional involvement of pop star Justin Timberlake. The news that Timberlake would be part of the arrangement to buy MySpace seemed to come out of left field, since the closest he’s got to being in the social media business was playing early Facebook backer Sean Parker in the movie The Social Network. Vanderhook stressed Timberlake’s value not just as a well-known personality who can give MySpace some extra buzz now and then, but as someone who can bring an artist’s eye to the work MySpace does.

“Myself and Chris – we understand online advertising and how to build complex technology,” Vanderhook said. “But the thing that was core to MySpace was the artists. That was not our strength. We knew we would need a partner, some who was involved in the music business or Hollywood. Justin is involved in both. And he’s not just someone who will just slap his name on MySpace and not be involved. He will have a hands-on role in directing the creative direction of the site and working with the other artists.”

The Vanderhooks had no previous connection with Timberlake. But they reached out to him with an appeal based on crafting a role for Timberlake that would have him mentoring and discovering young artists and helping shape their careers. Timberlake will have his own office at MySpace and a staff of six.

Music and entertainment: While music will continue to be a particular focus of MySpace, Vanderhook wants it to be scene as a broader entertainment vehicle. That’s essentially the same idea that News Corp. had, especially in terms of the creation of MySpace Music. The first phase will take about two months — with current MySpace CEO Mike Jones working with the Vanderhooks on the transition before exiting the company.

No rebranding plans: Since MySpace embarked on a rebranding a year ago, Vanderhook sees no real need for another one, at least not at this early date. And even though many people may be divided on whether MySpace’s member pages need to revamp in favor of a cleaner, more seamless look — as opposed to the sometimes garish individually-designed pages young users seem to enjoy — Vanderhook says the main focus right now is merely on improving the site’s functionality and usability, particularly on an international basis.

“We haven’t made any decisions on design and/or changing the user experience at this point,” Vanderhook said. “As we establish better functionality across MySpace, we’ll be asking: ‘Do we keep it at its core or make it easier on the eyes?’ My sense is that we’ll try to maintain the individuality as much as possible.”

As a precondition of the sale, MySpace will shed half of its member workforce (that’s after a previous cut in jobs six months ago). Asked if Specific Media’s ambitions for MySpace will be difficult to manage with half of the staff gone, Vanderhook said that despite the challenges and the hardship on employees, this will all help MySpace survive.

”We’re going to get real aggressive. In the first 90 days we will examine if we’re under-resourced,” Vanderhook said. “I don’t see us doing any massive hires for a while. We have a great management team between us and MySpace. As for the staffing levels we’re coming in with, I would say the company is the right size now.”