A few years ago, Rupert Murdoch was heralded as an internet genius.
Why? Because unlike most of his digital-dunce mogul brethren, he somehow managed to buy MySpace for only $580 million.
This coup was cited again and again as evidence that Rupert Murdoch had something that no other mainstream media mogul (except possibly Barry Diller) had: brains enough not to get taken to the cleaners when it came to buying Internet properties.
Last summer, the brilliant Digital Rupert even emerged as a potential white knight in the Microsoft-Yahoo struggle: He was to merge MySpace into Yahoo and save it from Microsoft's clutches ... as long as Yahoo agreed to value MySpace at something like $10 billion.
Even Yahoo wasn't that stupid.
Rupert's real goal in that effort, it seems, was to unload MySpace before its value completely collapsed. Which, arguably, it has since done.
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A source suggests that MySpace did about $500 million to $600 million of revenue last year (fiscal year through June) and that it lost money in the process.
How much is a deeply troubled, money-losing social network that has long since surrendered its buzz and momentum to Facebook worth?
There's no definitive answer.
A glance at the financials -- shrinking revenue, losses, declining market share, loss of mojo and market leadership -- would suggest that the company might be worth 1X-2X its revenue, on the assumption that MySpace could cut costs radically and make a bit of money in the next few years. That would put the valuation at about $500 million to $1.2 billion -- with the lower end being less than what Rupert paid for it, and the upper end being twice what he paid for it (hardly the steal of the century).
A bull might say that the new management, led by Owen Van Natta and Jon Miller, will kick the place into shape and get growth cranking again, in which case it might be worth 3X-4X revenue or more. This wouldn't make Rupert's purchase price a brilliant coup, but it would at least produce a good return.
But then there's a third possibility, one that history suggests is a very real one: MySpace might actually be worth next to nothing.
In the history of the internet, the instances in which a former world-beating company has lost its mojo and then come roaring back to health are rare. Far more common is the fate of companies like Lycos, Infoseek and Excite -- once rich, successful and powerful properties that are now all but forgotten.
Why are these properties all but forgotten?
Because the internet is a winners-take-most game.
Yahoo won the portal wars -- and Lycos, Infoseek and Excite were discarded like garbage on the side of the road. Google won the search wars. Facebook is now winning the social-network wars.
Like MySpace, Lycos and company were bought near the peak of their parabolic life trajectories for absolutely fabulous sums by companies that should have known better:
- Infoseek went to Disney for $1+ billion
- Excite went to @Home for $8 billion
- Lycos went to Terra for, gulp, $13 billion!
How much are Lycos, Infoseek and Excite worth now?
Next to nothing.
Now that we know how the future turned out, we also know how much Lycos, Infoseek, and Excite were really worth when they were bought out at these fantastic sums. So how much were they really worth?
Next to nothing.
Why?
Because the value of a business is the discounted value of the future cash flows it produces -- and the discounted value of the future cash flows produced by Lycos, Infoseek, and Excite turned out to be next to nothing.
So, if MySpace follows in the footsteps of these other Internet relics, how much might it actually be worth right now?
Next to nothing.
Rupert has his work cut out for him.
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For more of Henry Blodget's analysis of digital media, check out Business Insider.
