MySpace CoFounder Says Purchase Was A Scam

Jonathan writes "Brad Greenspan says he's the real founder of MySpace, not Tom, and the sale of MySpace to News Corp. was a criminal act. In a nine-chapter report, he describes how this was accomplished by hiding the value of the site from Intermix Media's shareholders." From the article: "How was News Corp able to turn $327 million into $20 billion or more of value within a year? The Myspace/Intermix transaction was so low compared to other internet transactions that it is raising eyebrows by analysts and media everywhere. Everyone seems to be asking how News Corp. got such a good deal. It seems too good to be true! After signing the transaction to buy Myspace & Intermix (but prior to the closing), News Corp. itself even showed how strangely little it had paid for Myspace by immediately paying $3.99 per monthly page view for slow growing comparable IGN. News Corp. paid only .03 cents per monthly page view for the hyper fast growing Myspace. Therefore, we can conclude that the fair value of Myspace was 100x or more what News Corp. paid! "

Sounds like sour grapes

How can you illegally sell a company? Surely both parties had to agree, right? If I agree to sell you my house for $20, I can't come back later and claim fraud. How, if both Tom, and this guys company agreed to the sale, can it now be fraud?

Re:Sounds like sour grapes

What if _I_ sell your house for $20? In that case, yes, you can come back later and claim fraud--I didn't own your house. Note: I didn't RTFA, it seems to be /.ed already. But that seems to be what the summary makes it sound like.

If he were in Canada

In Ontario, Canada, he would be out of a house [thestar.com].

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True, but it's still fraud. It's just that Canadian law is a tad sloppy in protecting fraud victims.

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But that seems to be what the summary makes it sound like.

Ah Yes the venerable Slashdot summary. Right up ther with Cronkite.

Re:Sounds like sour grapes

From a brief scan of the article, I get the impression those running the company wanted to sell the company fast so that they'd cash in before their prior misdealings were revealed. The other shareholders were deceived to the true value of the company, so the fraud is between those running the company and the other shareholders.

Re:Sounds like sour grapes

Also funny how those those story *all* seem to originate on media sources also owned by Murdoch.

By "media sources owned by Murdoch," do you mean "television," "radio," or "congress"?

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Come on now. Congress isn't a media source...

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actually, 15-year-olds are legal in quite a few states in the country...

Re:Sounds like sour grapes

The company being sold was a corporation, so most likely, only a majority of the board of directors (and possibly the shareholders) had to agree to the sale. Greenspan was a minority shareholder, and apparantly was opposed to the sale. He can sue on the basis that the sale was improper and deprived him as a minority shareholder of some rights. Since there was apparantly a higher per-share offer made, he can argue that the board breached its duty to the shareholders by not taking the higher offer. The board probably has a lot of leeway, and Greenspan will have a hard row to hoe, but there's certainly a possibility that he's right, especially if the board misled the shareholders.

Re:Sounds like sour grapes

If I agree to sell you my house for $20, I can't come back later and claim fraud.

Actually, you can. And you can even win the point in court. You basically say, "Your honor, there's no reasonable way I could have agreed to sell my house for $20. This was not intended to be a gift and comperable homes are worth $500,000. The contract is unconscionable and should be voided."

The court then agrees that the contract is unconscionable and voids the sale.

There is a famous case involving a cow that was supposed to be sterile but had a calf a few months after the purchase. I forget the name of it. The seller thought he was selling a sterile cow and priced it accordingly. When he found out it wasn't, he asked for more money. When the buyer refused saying, "Hey, I thought the cow was sterile too. Tough luck." So the seller sued and won.

Not quite

IANAL, but in the sources you've cited, it was discovered the cow was pregnant before the money changed hands. That alters the situation significantly. If the cow had already been purchased and then became pregnant, the seller would not have any recourse.

Re:Sounds like sour grapes

It was Sherwood v. Walker

http://lawschool.mikeshecket.com/contracts/sherwoo dvwalker.htm [mikeshecket.com]
http://www.law.pitt.edu/madison/contracts/suppleme nt/sherwood_v_walker.htm [pitt.edu]

There is some more discussion of the topic in general at:

http://islandia.law.yale.edu/ayres/mutual.htm [yale.edu]

It could be worse for techies...

Imagine if every time you successfully overclocked a CPU, Intel or AMD asked for more money! :-)

Re:It could be worse for techies...

You shut your damn mouth right now.

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His mathematics are further off than that, the summary says 0.3 cents, not 3 cents ($0.03 as you used).

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I would think Newscorps' lawyers reviewed the sale with a fine tooth comb.

They most likely did, but a) they might not have had the technical expertise to understand the issues and b) as the buying party (who would benefit from the discount), they had milli

In hindsight

In hindsight, yes. Yes it was a horrible scam, but then again I meant to invest in Billy Gates when he worked out of his garage. Dammit Gates! You owe me billions!

Gates never worked out of a garage

He worked out of his dorm room at Harvard.

Hewlett and Packard, Jobs and Woz, and even Page and Brin worked out of garages. Gates was born to one of Seattle's richest lawyers, and probably hasn't ever set foot in a garage.

Yeah!

And I'm the founder of Slashdot. Where's my money?

Re:Yeah!

Thanks for coming forward. You owe $300,000 in operating losses!

News corp got ripped off...

Myspace will ultimately be worth nothing. Myspace is already past the height of its popularity, its just coasting on momentum which will run out eventually.

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I think you're underestimating the momentum this monster has. I mean it really is the easiest way to "social network" right now. Even if something better comes along, it would have to be VERY appealing to slay the beast. I mean look at how long AOL overst

Re:News corp got ripped off...

Eventually the animations and neon background images will blind the user base, however. And then where will they be?

I know everybody my age uses Myspace. I patently refuse not because I mind social networking sites, although I think that's kind of a highbrow name for them, but because the average Myspace page looks like it was created in 1994 by a visually impaired thirteen-year-old with a stock of clip art and animated GIFs.

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there is one warrior that could slay it. and that is Google.

combine gmail, google calender and add in a social network function and they could be a serious player in the social network market. apply tagging to friends lists along with mail and allow tag

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Myspace will ultimately be worth nothing. Myspace is already past the height of its popularity, its just coasting on momentum which will run out eventually.

Why does that get rated insightful? You might as well start claiming Yahoo hit its peak and is only

Netcraft Confirms it: MySpace is dying.

Netcraft Confirms it: MySpace is dying.

Yet another crippling bombshell hit the beleaguered social networking site today when recently discovered that its marketshare has begun to seriously slip, due to mainly to other sources of personal videos, such as Google's own service and uTube, combined with modern teenager's lackluster desire to socially network. Current random surveys indicate that a large number of new user signups over the last 3 months have mainly been middle aged single men and U.S. Senators.

You don't have to be a genious to see the writing on the wall: All the teenagers that want to be on MySpace already have accounts, and there simply aren't enough pre-teens coming of age to maintain this rate of growth. The future of MySpace is indeed bleak.

When asked for comment, MySpace founder Brad Greenspan replied "look, I just need a few weeks before you print this..."

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Myspace is already past the height of its popularity, its just coasting on momentum which will run out eventually

Can you please back that claim with.. anything? All I see is the ever increasing number of members on myspace, and now with the new multilang

If I had that much money....

If I had that much money, I'd consider buying MySpace just so I could shut it down.

Ok, who's the wise guy?

Who's holding down the F5 key on the article's site?

Re:Ok, who's the wise guy?

Sorry

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OK

i founded myspace

i founded myspace as a how-to site on html design etiquette. myspace was originally intended to focus on page readability, intelligent page layout, good user experience, intuitive controls, and subtle interaction. i could be overreacing, but i think something went wrong somewhere though...

Re:i founded myspace

i founded myspace as a how-to site on html design etiquette

I see you followed those same principles in the site you link to [griefmovie.com] in your sig (and the puncuation in your post). ;-)

Re:i founded myspace

No, I founded MySpace!

Article hosted on a Cablemodem?

It looks like this article is hosted on a cablemodem. itcc.hopto.org resolves to 74.67.58.67, which resolves to cpe-74-67-58-67.nycap.res.rr.com. It was probably slashdotted in seconds.

Poor guy.

or does the water get him instead?

Therefore, we can conclude that the fair value of Myspace was 100x or more what News Corp. paid!

Or can we conclude that they paid 100 times too much for IGN?

unfriended!

I bet he's no longer one of Tom's friends...

TFA mirrors and a link

Greenspan's site with his side of the story is here, for now: http://www.freemyspace.com/ [freemyspace.com]

Other news articles with similar content: http://news.google.com/news?hl=en&ned=&ie=UTF-8&q= brad+greenspan+myspace&btnG=Search+News [google.com]

Non slashdotted article

Here is a non-slashdotted article that explains this a bit better.

http://www.pcmag.com/article2/0,1895,2025069,00.as p [pcmag.com]

-D

Dear God...

This is the epitome of MySpace drama. Literally.

Oh well

The only fair thing to do is delete MySpace entirely.

Bad boys bad boys, whatcha gonna do

Does this mean that we'll get to see a shirtless, drunken Rupert Murdoch dragged kicking and screaming over a mobile home lawn covered with broken Playskool toys and empty beer cans?

Valuation of companies is an artform

It all comes down to the author suggesting people knew stuff about the future of Myspace that the shareholders didn't know. But with quotes like this from the report:

"I bet if you extrapolate the numbers into Calender 06 (using 4thQ of our FY05 as the main driver) and include 3-5mm in cost savings the ebitda is in the 40-50mm range. Can someone please take a look at that asap. We will be valued off of calender 06 numbers ."

"Deutsche assumed that by 2008, Myspace would generate $100 million in revenue for that year."

And the fact the company was purchased for $580mm (according the PC Magazine article), shows that the company's valuation/sales price was appropriate.

Standard fare for M&A is 3-4x current year's revenues for a company. You can't value a company based upon what it *might* do next year (because every company likes to be very optimistic about *next* year's revenues!). So if Myspace was set to do somewhere between $60-100mm in 2006, then they got somewhere between 5.8x to almost 10x their revenues. These are already extraordinary numbers.

To suggest they should've gotten 20x or 25x 2006 revenues is a number nobody would believe.

And the reason for a "quick" close? A deal isn't done until it's done. All parties usually like to close as quickly as possible on a deal because it means neither side will get cold feet. Of course both sides also allow time for due diligence, a part of which is valuation.

But valuation of companies is more "art" than it is a science. Outside of the 3-4x revenue rule, valuations can be all over the map (hi Google!).

Pageviews as valuation?

That's bizarre. Not all pageviews are equal. IGN's pageviews are people who are researching what games to buy, and are therefore prequalified for IGN's advertisers (and a large percentage *will* spend money in that area in the immedaite future).

MySpace's pageviews are teenagers who have little income, and who are not prequalified for any particular product or service, so advertising return rates (and therefore advertising revenue) will be dramatically lower.

I don't know about the "it was stolen from me" angle, but the pricing comparison to IGN is such incredibly fallacious reasoning that it really reduces the guy's credibility in my eyes.

-b

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I once sold a computer for peanuts and saw its value rocket the day afterwards. Should I consider myself a victim?

Similar story: A couple of years ago I upgraded the motherboard, CPU and RAM on my main PC. I then shifted the old mobo/CPU/RAM to my spare

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there was a treasure map inside.

duh.

Re:fp

THat does it... I'm deleting Tom from my "friends list!!!!!!"

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that was his first post, and he is just another /. troll.

don't feed the trolls please.

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Really? I was under the impression that corporate governance was a serious problem. Management has considerable authority to run shareholders meetings, and it's very difficult for even majority shareholders to remove members of the board of directors.

My s