MySpace Cues Music Service

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Its engagement to Ticketmaster just didn’t work out. Irreconcilable differences? No matter, music Web site iLike has tied the knot, this time with MySpace.com.

By acquiring the Seattle-based iLike for a reported $20 million, Owen Van Natta, MySpace’s new chief executive, is gambling that he can coax value out of iLike’s assets in a way that Ticketmaster executives couldn’t.

West Hollywood-based Ticketmaster Inc. bought a 25 percent stake in iLike for $13.3 million in 2006 in the hopes it could leverage iLike’s music-loving user base to boost ticket sales. At the time, iLike was valued at more than $53 million, and there were whispers that Ticketmaster could one day outright buy the Internet music site, which helps its 55 million users find new music and share recommendations with friends.

But the synergies between the two companies didn’t materialize as hoped, opening the door for a second suitor: Last week, MySpace, the Beverly Hills-based social networking site owned by News Corp., announced the deal.

Meanwhile, Ticketmaster has been left in the cold. Financial details of MySpace’s acquisition were not disclosed, but experts said it was unlikely Ticketmaster could have recouped its investment.

“It certainly doesn’t appear that way,” said Brett Harris, an analyst at Gabelli & Co. Inc. in Rye, N.Y., who follows Ticketmaster.

Ticketmaster executives did not return requests for comment.

The massive ticket vendor appeared to have high hopes for iLike when it took a stake in the company three years ago. One of iLike’s most popular features is a scan of music libraries already on people’s computers. ILike then recommends other artists and albums for users to buy based on their tastes. Ticketmaster wanted to use that feature to promote ticket sales for concerts by targeting fans of specific bands and performers.

“With our investment in iLike.com, we look forward to a series of integrations that will introduce live events and ticket-purchase opportunities within the iLike music discovery process,” Sean Moriarty, Ticketmaster’s then-president, said in a statement at the time of the investment.

But in its latest annual report, the ticket vendor said it wrote down the value of its $13.3 million investment by 43 percent. Then earlier this summer, a report surfaced that iLike executives wanted to buy back Ticketmaster’s share of the company.

Ticketmaster went through a significant change since its investment in iLike, which may explain why the relationship failed.

The company bought into iLike when it was part of Internet conglomerate IAC/InteractiveCorp. Since then, IAC spun out Ticketmaster as an independent, publicly traded company. At that point, Ticketmaster began concentrating on its core business. This spring, Ticketmaster announced it would merge with Beverly Hills concert promoter Live Nation Inc. in an effort to staunch declining revenue.

“They’ve got to focus on ticket sales and concert attendance,” Harris said. “From an equity investment perspective, the performance of those businesses is really what’s important.”

By straight percentage, Ticketmaster’s stake in the reported $20 million deal would be worth $5 million, meaning a loss of $8.3 million. However, analysts said that the ticket company’s share is probably higher.

Ticketmaster could have bought preferred stock in iLike, which would essentially guarantee a certain payment if iLike was purchased. A popular Silicon Valley blog reported Ticketmaster received $8 million from MySpace, a loss of about $5.3 million.


Better fit?

Analysts said it appears MySpace is a better fit for iLike than Ticketmaster.

MySpace, in a partnership with the major music labels, co-owns MySpace Music, where users can stream and discover new tunes, and where bands can post photos, videos and songs. Van Natta said MySpace Music has tripled in monthly visitors to about 12.6 million since MySpace overhauled the site last year.

It makes sense to link MySpace Music and iLike to increase traffic to both sites, said Mike McGuire, vice president and media analyst at research firm Gartner Inc. in San Jose.

The acquisition also gives MySpace a way to capitalize on the growth of rival social networking site Facebook Inc., based in Palo Alto. ILike already builds a popular application that is used by about 10 million Facebook users. Now, MySpace can use that to get its brand out in front of millions of people and drive them back to iLike’s site and MySpace.

“MySpace wants to tap into people who are potentially using Facebook every day and get them to come to MySpace and see the future direction of the site,” said Mark Suster, a partner at venture firm GRP Partners in Century City who follows Internet companies.

MySpace’s purchase is its first significant move under Van Natta, who took over as chief executive in April. It comes at a time when the company is looking for a win. Once the largest social networking site in the world, MySpace has since been passed up by rival Facebook. MySpace attracted 68.3 million unique visitors in the U.S. in July, down 9 percent from last year. During the same period, Facebook attracted 88 million unique visitors, more than twice as many from last year.

MySpace’s declining popularity has crimped revenue at its parent company, Fox Interactive Media. Last quarter, Fox Interactive reported ad revenue fell 22 percent compared with the same period in 2008. At the same time, News Corp. took a one-time $680 million charge, in part to reflect the declining value of Fox Interactive (which is mostly MySpace).

Both MySpace and Van Natta have significant experience with Internet music. MySpace has become an essential tool for any musician or band to promote themselves and develop fan followings. Van Natta was chief executive of Project Playlist, a Palo Alto startup that helped users build and share customized music playlists.


Ticket sales

Although Ticketmaster struggled to get the highest return on investment from iLike, MySpace is positioned to use the site to drive traffic through its own ticket-selling channel.

In April, MySpace began experimenting with MySpace Music Ticketing Hub, a service that helps MySpace Music users find concerts of their favorite bands. MySpace’s Ticketing Hub then drives the users to third-party ticket sellers, including Ticketmaster.

The service is still nascent, but Van Natta said he saw potential to grow it with iLike. ILike’s Facebook application, for instance, already helps users find concerts in their area.

“ILike is a leader in generating ticket sales, something MySpace Music has just gotten into,” Van Natta said. “By bringing those efforts together, we should accelerate things and we’ll see more business.”

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