Assuming MySpace meets its page view requirements, Google writes a $75 million check to News Corp. every quarter as part of a multi-year, $900 million AdSense deal the two hammered a few years ago.
In a post today, TechCrunch's Michael Arrington detailed the payment schedule in the Google-MySpace AdSense deal and echoed what was said by a Wall Street analyst last week: this deal is one that Google will likely not want to renew. The following is paid out in quarterly payments:
- Jan. 1, 2007 - June 30, 2007: $50 million
- July 1, 2007 - June 30, 2008: $250 million
- July 1, 2008 - June 30, 2009: $300 million
- July 1, 2009 - June 30, 2010: $300 million
Last week, Bernstein analyst Jeffrey Lindsay wrote in a research note:
Rather than agree to revenue guarantees and exceptionally high TAC rates to partners such as AOL and MySpace, as it did in the past, we think Google will simply pass on these deals and allow a much larger share of this low margin and loss-making business to go to competitors such as Microsoft.
Also see: Analyst: Google will start walking away from bad AdSense deals like MySpace
In his post, Arrington offers his two cents on how MySpace is able to meet its own quotas but why Google also may not be happy with the results. He writes:
Any search on MySpace by default returns Google web results, which is rarely what the user wants to see... For their part, Google is said to be unhappy with the results. Perhaps it’s because MySpace is tricking users into doing Web queries, but click through on ads is rumored to be abysmal, and conversion on those click throughs is even worse. In other words, Google, Google advertisers and users are unhappy, but MySpace is just fine, thank you.
Some of Arrington's conclusions may be based on conversations with unnamed sources but there's definitely some meat to this theory. MySpace may bring a lot of eyeballs to the equation, but if those folks aren't clicking through in a way that benefits Google's ROI, then cutting those ties after the deal expires makes perfect sense.
You also have to consider the economy factor: things aren't the same as they were when this deal was first announced back in Summer 2006. The online advertising landscape has changed significantly in that time. If this deal were to be hammered out today, my guess is that the terms would be very different.
Just like every other homeowner and shareholder out there, Google has likely learned a lesson or two about financial deals they've signed in the last few years. At least for Google, the end of the deal is already on the horizon.
Previous coverage: Did Google get hosed on its MySpace search deal?