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Tickers in this Article: NWS, NWS.A, GOOG, YHOO
Sometimes an old dog can learn new tricks -- and maybe even surprise itself in the process.

Case in point: last year, traditional media giant News Corp (NWS, NWS.A) took a somewhat uncharacteristic step and paid what was deemed a fairly hefty US $580 million to acquire a relatively unknown social networking website -- In one short year, the deal has proved to be a masterstroke, with industry pundits calling it one of the biggest internet business coups of the decade.

Some have even predicted that the business could be worth as much as US $15 billion in a few short years, with an online business footprint rivaling that of internet giants like Google (GOOG) and Yahoo (YHOO).

So what's behind all the hype?

It seems that the social networking concept is hot, especially among the younger set who seem quite taken by a business model that allows them to develop their own online "space", complete with personal data like pictures, videos, blogs and links to other online friends.

Over the last year, MySpace has picked up over 30 million subscribers, pushing its total active user numbers to over 90 million.

Subscriber growth has prompted an explosion in advertising-based revenues for the business. In less than one year, revenues have quadrupled from around US $3-$4 million a month to about $16-$17 million and are expected to reach US $25 million by early next year.

If you extrapolate this 50%-70% annualized growth rate ahead two years, annual revenues could exceed US $1 billion by mid-2009, producing a US $13-$15 billion valuation if we use the same 13x-14x revenues multiple that was reflected in the initial purchase price for the business. That works out to about US $4-$5 in value per each voting and non-voting share of News Corp.

So what is News Corp planning to do with MySpace to transform the site's amazing popularity into a solid revenue producing engine and thereby achieve its projected future valuation? For starters, News Corp has already a cut a deal virtually guaranteeing that a portion of that potential revenue growth will be met.

Last August, Fox Interactive Media, the online division of News Corp, entered into a US $1 billion-plus, three-year deal that gives Google exclusive search and advertising delivery rights to all Fox websites, including MySpace. Subject to certain site traffic volumes being met, the deal guarantees US $900 million to Fox Interactive over three years.

Giving online visitors a reason to hang around your site long enough to view all those revenue generating ads is the obvious next part of News Corp's strategy with MySpace. Since a visit to MySpace involves a more interactive experience then just clicking and viewing, the challenge is to make the process of uploading content to and enhancing one's "space" as easy and interesting as possible. These days, the hottest upload commodity is video, and recently MySpace's efforts to enhance this process have paid off nicely.

Homemade or professional, copyrighted or not, it seems everyone is doing it. Lately MySpace scored the top spot in a survey that tracked the number of videos downloaded and viewed from traditional sites like Yahoo and others like the wildly popular net upstart; In July, MySpace delivered a record 1.46 billion video streams, more than doubling the tally from former top-dog YouTube, which only pushed out 649 million videos.

The addition of further online gadgets, gizmos and widgets to MySpace in the coming months to enable further content management could also deliver similarly impressive user stats. Other future enhancements could include access to more Fox video content, links to affiliated services like job sites, travel, shopping, auctions etc. In the online world, the business mantra seems to be "if you build it – they will come".

While all this seems to be playing well in the online world, News Corp shareholders seem to be taking a more measured view of these developments. The shares have basically been tracking sideways since June and only recently experienced a bit of an up move – mostly in line with the general market gains of last couple of weeks.

Could it be that MySpace's potential is being overlooked amongst the more traditional media holdings in News Corp's business portfolio? If so, the shares could move higher as the true value potential of MySpace becomes more fully grasped.

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