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Peter Chernin: The Goat of the MySpace Fiasco

Written By mista sense on Sunday, April 10, 2011 | 9:54 AM

"How News Corp got lost in Myspace." That's the headline atop a deeply researched and sourced story by Reuters' Yinka Adegoke, chronicling how the once-valuable Internet property--which could have been Facebook--was mismanaged so badly that MySpace is now on the open market, for sale at just a fraction of the $500 million that News Corp. paid for it six years ago.   Meanwhile, of course, Facebook sails along, heading towards a valuation of $100 billion or more.

In reading the article, The Cable Gamer came to understand more clearly not only what went wrong at MySpace, but also why COO Peter Chernin was pushed out of the News Corp. in June 2009--it was Chernin who got lost in MySpace.   To put it another way, Chernin is the goat of this decline and fall.

It was Chernin who handled the MySpace account for NWS CEO Rupert Murdoch.   As Reuters explained it, Chernin was "a key filter between the Los Angeles-based Myspace and Murdoch."

So what went wrong with MySpace under Chernin's watch?  Lots of things, including the technical inferiority of MySpace to Facebook as a web platform.  But that could have been fixed, with better leadership.   It seems that the only places in the country that possess the technical talent to put together and keep together a first-rate website are San Francisco, New York City, Seattle, and maybe Austin, TX.   Beverly Hills, the improbable HQ of MySpace, might have been a great place to eat lunch, but it was just not the place to grow a tech-based company.  AOL, for example, got a start in the DC area, and did well for a while, but it soon discovered the same problem--like LA, DC lacks the talent pool that was needed.  And so AOL, too, fell by the wayside.   It would have been the easiest thing in the world to move MySpace to New York City, or to one of those other tech meccas, but nobody thought to do it.  Indeed, for the first years of NWS' ownership of MySpace, Chernin was planning on moving the outfit into fabulous digs in Playa Vista, a chic part of LA better known for cool nightlife than tech talent.

And who was the top Angeleno at NWS?  Why that would be the same Peter Chernin.  As the Reuters story puts, it, Chernin served as Murdoch's "eyes and ears in Hollywood; and so it was as if Chernin thought he was building a new movie studio HQ in Playa Vista, dreaming of being the next Louis B. Mayer, as opposed to a tech company HQ.  The last thing that Chernin wanted to do was schlep up to Palo Alto or some place; he wanted to just cruise down the 405 to his posh new palace overlooking the Pacific Ocean.  Of course, by the time the Playa facility was ready to occupy, MySpace was crumbling, so NWS never made the move--but still had to pay off the lease. 

So we can see a clear failure of leadership from NWS--having bought MySpace, it was supposed to make it better, give it the benefit of synergies, and so on.   And that was Chernin, who obviously did not understand the aforementioned technical issues, who tried to apply his own corporate bean-counting approach to MySpace, and that's where the real problem with MySpace got worse and worse.   We all remember what they say about bean counters: They know the price fo everything and the value of nothing.   MySpace needed to be nurtured for years and years, just as Mark Zuckerberg did with Facebook; that is, be patient, focus on the quality of the product, not just trying to sqeeuze money out of it, without regard to longterm consequences. 

Here's how Reuters explains it.  The Chernin-ization of MySpace began when Chernin struck a deal with Google to guarantee a certain number of pageviews.   Here's Chernin and one of his proteges, Andrew Levinsohn, trying to milk MySpace for more than was healthy for the young startup:  

The Google agreement, which had been hailed as a major coup by Chernin and Levinsohn as well as Wall Street, started to be viewed by Myspace executives as a double-edged sword. The Google deal required a certain number of Myspace user visits on a regular basis for Google to pay Myspace its guaranteed $300-million a year for three years. That reduced flexibility as Myspace couldn’t experiment with its own site without forfeiting revenue.

The problem was that if you get locked into guaranteeing page views, then the pressure is on to clutter up each page with more content and ads, and that can take away from the "look" of the site, and also kludge up the site.     So MySpace got the reputation of being messy, while Facebook was clean. 

All this happened on Chernin's watch.   Then, after years of drift and decay under Chernin, he was finally gotten rid of by Murdoch--and finally, the deteriorating situation was closely examined.   As Reuters puts it, citing one close-in executive: “Chernin leaving was the trigger for major change with Myspace, all the businesses got reexamined because they were going to be reporting into Murdoch."  In other words, once Chernin was out of the way, a new strategy could be put in place.

Chernin was replaced by NWS veteran Chase Carey.  And Carey possessed the acuity to realize that after four years of mismanagement, MySpace was probably hopeless by 2009.  And it was Carey who had the vision and strength to make the decisive call about MySpace's post-Chernin future: 

The growing list of troubles at Myspace raised alarm bells at News Corp’s headquarters in New York. Back in June 2009 Murdoch had replaced Chernin with Chase Carey, the former DirecTV CEO and a long time News Corp executive. Carey, a straight-talking, dollars and cents kind of executive whose only obvious extravagance is his remarkable handlebar mustache, immediately raised doubts about Myspace, stating what many outside observers considered obvious.

“Chase’s arrival was key, no one inside would admit that they had lost confidence in Myspace but he just called it like he saw it when he came back,” said a business partner of News Corp who was retold the conversations.

Carey warned time was running out for Myspace, telling Wall Street it had “quarters not years” to get its act together. In the fall of 2010, he began to talk publicly about the possibility of a sale.

And now, that's what is happening.  It's unfortunate, of course, that the NWS-MySpace relationship didn't work out, but it's at least fortunate, now, that the hemorrhaging out of MySpace is finally coming to an end. 

So NWS shareholders should thank Chase Carey--NWS stock is up 30 percent since you took over two years ago.  And thanks for nothing, Peter Chernin.

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