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Renegotiated MySpace deal to give Google an earnings boost next year

Google reports its second quarter earnings on Thursday, but a few analysts are already looking ahead to the back-half of 2010 and a renegotiated deal with MySpace.Google inked an obscene $900 million guaranteed ad deal with MySpace in 2006.
Written by Larry Dignan, Contributor

Google reports its second quarter earnings on Thursday, but a few analysts are already looking ahead to the back-half of 2010 and a renegotiated deal with MySpace.

Google inked an obscene $900 million guaranteed ad deal with MySpace in 2006. At the time, MySpace was the social media juggernaut. The problem: Google never quite figured out how to monetize MySpace.

Jeffries analyst Youssef Squali says in a research note that Google will renegotiate the MySpace deal in a way that will boost its earnings. Microsoft might be aggressive in bidding for a MySpace search deal, but that's a wild card.

Here's how Squali sees the MySpace negotiation going.

  • Google pays out a remaining $150 million to MySpace in the first half of 2010;
  • Almost 70 percent of Google's traffic comes from owned and operated sites so the company can be selective about its partners;
  • That selectivity is likely to mean Google can cut its MySpace expenses dramatically from roughly $300 million a year to $100 million;
  • News Corp. may toss in some video to YouTube to help the partnership;
  • A bidding war is unlikely;
  • A revised MySpace deal can drop 13 cents a share to 16 cents a share to Google's bottom line in fiscal 2010. In fiscal 2011, 25 cents a share to 30 cents a share would fall to the bottom line.

Also seeAnalyst: Google will start walking away from bad AdSense deals like MySpace

Squali writes:

Beyond 2Q10 though, we believe that Google would opt to convert the current MySpace deal to one that offers much lower annual guarantees, in the range of $50-100M per year vs. the current run rate of $300M/year. The primary reasons for such renegotiated deal would be the difficulty in monetizing MySpace’s social traffic and the continuing decline in MySpace usage in light of new competitors such as Facebook and Twitter. comScore data from April ’09 suggests MySpace worldwide page views were down by 20% from a year ago level.

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