Google, Fox Renegotiating Advertising Deal

TechCrunch has a post mentioning that Google (GOOG) and MySpace parent Fox Interactive Media (NWS) were renegotiating terms of their mammoth three-year, $900M deal.

I had previously asked outright: How Much is MySpace’s Search Business Worth? and Did Google Overpay for Fox Interactive Media’s Search Business? back in the summer when the deal was announced.

Regardless of what anyone says, let’s face it: Google paying News Corp. $900M over three years makes MySpace the best Web acquisition hands down.

TC suggests that the deal is surpassing expectations, though a few commenters say “not so.”

I don’t know, but when you sign a large 3-year deal in August, and then you try to renegotiate within six months, it’s not because the deal is surpassing expectations; it’s that the deal needs some help.

News Corp. probably needs to get more money because it considers the tripling of MySpace’s audience as a reason for more dough, it also is probably finding MySpace’s display/banner business not as robust as it wished given its total inventory.

As per Google? If it’s renegotiating, it's perhaps because they are not getting what they wanted. Think about it, they’ve locked up the real estate for three years… if it was doing all right there wouldn't be a need to look things over, no?

The bottom line is that while the data that FIM collects on users on its social network site MySpace is useful, I am not convinced that people clicking through people’s profiles really care or click on text ads, which are monetized through clicks, and not impressions. Google probably did some estimations looking at the sheer volume of impressions and assumed a given click through rate [CTR], my guess is that the effective CTR is far lower. Worst still, as I had written previously and relinked above, the revenue per click [RPC] on the kind of keywords that one can imagine would be served on such sites would be crappy.

All to say, the deal is about all of FIM’s assets, though Fox Sports is excluded, presumably because Fox Sports partners up with MSN.com and well, Microsoft (MSFT) would not allow that.

As per FIM’s other assets, let me add this: IGN is super successful at selling to brands, but that means that the inventory and real estate left over for Google’s text ads are neglected. Having worked at one of FIM’s online properties and having struck a deal with Google myself for that site, let’s just say that I would be very surprised if this deal really surpassed expectations.

I will say this: MySpace has grown quite a bit (3 times the size it was when News Corp. bought it) so that will help Google, who is paying $900 over 2 and a half years and could afford to take the hit (assuming there is a hit). In the end, this was a shrewd defensive move by Mountain View to keep Yahoo! (YHOO) and MSFT modest.

Disclaimer: I own shares in Yahoo! and was employed by News Corp. in 2005.