What will MySpace become after a 30% headcount reduction?

The question financial analysts are asking this afternoon in the wake of News Corp.'s layoff of 30% of MySpace employees is not, "Will this help?" Or even, "Does this make things better." It appears to be, "Will this be enough?"

In a frank statement this afternoon demonstrating he hasn't lost his touch since leaving AOL, News Corp.'s Chief Digital Officer Jonathan Miller pronounced the deed done, saying, "MySpace grew too big considering the realities of today's marketplace. I believe this restructuring will help MySpace operate much more effectively both structurally and financially moving forward. I am confident in MySpace's next phase under the leadership of [CEO] Owen [Van Natta] and his team."

The headcount reduction should number about 420, leaving MySpace with around 1,000 employees. But as late as this morning, analysts had been quoted as saying the once dominant social network could use a 50% headcount reduction. A move like that had been expected since Owen Van Natta's appointment last April.


Van Natta's statement to his troops was obtained by Silicon Alley Insider this morning. It reads in part: "These decisions are difficult for everyone, but especially for our friends and colleagues who contributed to MySpace's success and are directly affected by the changes. Through no fault of theirs our company's size became unsustainable. The future success of MySpace is dependent upon us operating as a nimble and entrepreneurial company with the adaptive mentality of a start-up."

Last week, the Insider's Nicholas Carlson cited a source close to MySpace as saying that layoff number could have been, and perhaps should be, higher: "If you can't run that site with 750 people, you don't know how to run a business."

Assuming Van Natta and Miller have a long-term plan to run MySpace with 750 or 1,000 people, what exactly will it do? In News Corp's quarterly report last month, MySpace was only mentioned in two contexts: first as a money drain, and second as a music site requiring further investment. Fox Interactive Media is MySpace's parent company division; in the previous quarter, it lost a quarter of a billion dollars in revenue over the previous year. "The decline in FIM operating results were driven by increased costs associated with the launch of MySpace music and the addition of new features," reads last May's Form 10-Q.

While News Corp. is distressing over how much its music venture has hung like deadweight against MySpace's and FIM's profitability, the record labels that own a stake in the music venture -- Warner Music Group, Universal Music, and Sony Music -- reportedly expressed their own regrets last month over FIM not integrating the Music brand with MySpace more than it already has.

The music business was supposed to provide MySpace with a business model to compensate for the lack of revenue from social networking; now the latter is being looked upon as a possible channel for reviving the former. Trouble is, MySpace's main direction continues to be south, with comScore estimating that Facebook's global traffic last March surged to 295 million users versus MySpace's 183 million, falling below Amazon and (ironically for Miller) AOL. MySpace still holds the lead for US traffic in April, however, with 71 million unique visitors versus Facebook's 67.5 million.

While social networks began marketing themselves to other Web sites as a unique new way to make logins more common, and drive traffic back to those Web sites, it appears Facebook is gaining in that department too. As AdAge reported earlier this month, when Turner Networks used the Socialize service to enable social network users to log on through their respective pages, Facebook trumped MySpace in logons from Socialize users, with Twitter placing a distant third.

So Miller and Van Natta are left to deal with reformulating another new business plan, again. Step one, at least for the sake of the next quarter's 10-Q, might be to answer the looming question, "What is MySpace?"

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