Google Deal May Be Just The Beginning For News Corp Internet Earnings

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By Chris Shaw

News Corporation (NWS) is being lauded for the deal it has struck with Google that will see the search engine guarantee the media giant as much as US$900m in revenue sharing over the next four years, but the future upside may be even greater.

The key to the deal is to understand why News is being paid such a sum for, in effect, doing nothing by not creating its own search engine capabilities to run through its strongly growing MySpace online site.

Essentially, the growth in traffic at the MySpace social networking site has forced Google to act, or miss out on a significant portion of internet traffic. A recent Nielsen NetRatings report showed traffic to MySpace was growing by more than 300% annually, making it the eighth largest brand on the internet, passing Amazon.com in the process.

Of more significance, another report by Nielsen NetRatings showed MySpace now accounts for 17% of all Web advertising impressions, as well as 7.2% of all online ads purchased.

So for Google it makes sense to partner with MySpace, as the deal means more and more people will be using Google’s search capabilities, which in turn allows it to generate additional revenues.

But it also makes sense for News Corp, as the combination of the two companies is unlikely to stop at this deal. Indeed, News Corporation executives have indicated there are a number of plans in the works to further develop MySpace, including the development of a number of portals that will facilitate the accessing of more significant services than simply online networking. This would clearly include news and other entertainment, given this is the content News Corp can bring to the table.

Longer-term the upside seems significant, so while News Corp appears to have signed a great deal for now there is the potential the current deal will grow into something far in excess of what Google is now paying.

To think, it was only about a year ago people were wondering if Rupert had overpaid for MySpace and the other internet businesses he purchased.

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