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MySpace Sold for $35 Million to Group Including Justin Timberlake

News Corp has sold the struggling social network MySpace for $35 million, just a small fraction of what it paid for the site.  The hugely discounted sale comes as other, newer Web startups are selling for huge amounts.  R&B singer / actor Justin Timberlake has reportedly teamed up with advertising company Specific Media to acquire MySpace, which Rupert Murdoch's News Corp picked up in 2005 for a hefty $580 million.

When News Corp acquired MySpace, it was among the world's most popular websites, and Murdoch considered beating out Viacom for it as a major victory.  Since then, however, Facebook has come onto the scene, taking away the bulk of MySpace's users, and eclipsing its total numbers in the process.

MySpace is considered a prime example of what can happen when a traditional media company tries to impose its will on a startup, and also shows how audience and investors' tastes can shift in the blink of a eye, relatively speaking, in the world of social networking.  The tremendous discount at which MySpace was sold contrasts sharply with the booming popularity among users and investors alike for newer social networks like Facebook, LinkedIn, and Twitter.

Under the terms of the deal, News Corp will retain a small stake in MySpace.  Specific Media, which specializes in digital advertising, said that Justin Timberlake, who portrayed Facebook adviser and investor Sean Parker in “The Social Network,” would take a stake in the company and would play a “major role” in the company moving forward. 

Exact financial terms of the deal were not disclosed by any of the parties involved in the sale, but sources familiar said the deal is worth $35 million through a mix of cash and stock.  News Corp, meanwhile, will retain a 5 percent stake in the company, according to the source.  Furthermore, the source said that over half of MySpace's 500 employees will be let go when the new ownership takes over.

The deal brings to a close four months of bidding for the troubled network, in which a number of prospective buyers took part, including several other social networks.  The auction had been expected to bring in a price tag of close to $100 million.  But, in the end, MySpace serves as an example of what can happen to startups that rest on their overwhelming popularity as new competitors prop up and surpass them in popularity.

MySpace was founded in 2003 by Chris De Wolfe and Tom Anderson, who designed it as a way for friends and fans to connect with each other as well as to their favorite bands and artists.  Functioning as something of a musical version of pioneer social network friendster, the site quickly became very popular with teenagers and young adults, who would spend hours on the site customizing their pages, posting photos and farming for friends.

At the peak of its popularity in 2008, MySpace had some 80 million US users, double the amount that Facebook had at the time.  The growth came in way too fast, however, and MySpace had a hard time dealing with the boost in traffic.  Users commonly complained that the site was too slow and users began moving over to Facebook, which had opened up its platform to third-party developers such as Zynga, with its popular games like FarmVille, to keep people on the site for longer periods.

By the beginning of this year, the number of US visitors to MySpace was down to about 40 million per month, while Facebook had grown to about 150 million, according to data from ComScore.  MySpace became a major liability for News Corp, with its losses leading to a staggering operating loss of $165 million for News Corp in the first quarter of this year.