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MySpace CoFounder Says Purchase Was A Scam 214

Posted by Zonk from the missing-a-few-pennies-here dept.
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! "
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MySpace CoFounder Says Purchase Was A Scam More

MySpace CoFounder Says Purchase Was A Scam

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  • Sounds like sour grapes (Score:5, Interesting)

    by Scott Lockwood ( 218839 ) * on Thursday October 05, 2006 @05:24PM (#16328123) Homepage Journal
    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 (Score:5, Informative)

      by drcagn ( 715012 ) on Thursday October 05, 2006 @05:27PM (#16328177) Homepage
      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.

    • Re:Sounds like sour grapes (Score:5, Informative)

      by Chris Graham ( 942108 ) * on Thursday October 05, 2006 @05:30PM (#16328239) Homepage
      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: (Score:2, Informative)

      by Anonymous Coward
      Actually selling your house under market value is illegal as it is tax avoidance, here in Australia anyway.
      • In Ontario when you sell a house below market value (eg gift it to family) you pay tax as though you sold it at market value.

        Of course we have a fucked up market value system where they decide how much your house is worth, forgetting that it's only really worth what someone will pay.

    • Re:Sounds like sour grapes (Score:4, Insightful)

      by monkeydo ( 173558 ) on Thursday October 05, 2006 @05:38PM (#16328367) Homepage
      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 (Score:5, Informative)

      by Spazmania ( 174582 ) on Thursday October 05, 2006 @05:46PM (#16328471) Homepage
      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.

    • Re: (Score:2)

      by Kaenneth ( 82978 )
      Not if you are in the middle of divorcing your wife, and give her $10 as her half of the house.
    • If I agree to sell you my house for $20, I can't come back later and claim fraud
      If you sell someone your house for $20 then anyone who isn't a little suspicious of this transaction needs their head examined.

  • In hindsight (Score:5, Funny)

    by iknowcss ( 937215 ) on Thursday October 05, 2006 @05:25PM (#16328151) Homepage
    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!

  • Yeah! (Score:5, Funny)

    by Jello B. ( 950817 ) <jellobmello AT gmail DOT com> on Thursday October 05, 2006 @05:26PM (#16328159) Homepage
    And I'm the founder of Slashdot. Where's my money?

  • News corp got ripped off... (Score:5, Insightful)

    by Monkelectric ( 546685 ) <[moc.cirtceleknom] [ta] [todhsals]> on Thursday October 05, 2006 @05:26PM (#16328161)
    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.

    • Re: (Score:2, Funny)

      by dedazo ( 737510 )
      Shweet, I can almost sense all the upcoming Slashdot articles about MySpace that include the term "beleaguered". Just one question though - is there such a thing as a MySpace "fanboy"? If so I'm going to have to upgrade the asbestos suit I used for the Apple ones.
    • And everyone gets ripped off when they fill up their car. The fuel will eventually be gone again.

      The idea is to make enough by driving the car to work (for example) that you make more than you paid for the fuel.

    • Re: (Score:2)

      by L7_ ( 645377 )
      Fox is supposedly hiring 300 new software engineers to work on reengineering the site. As long as they can keep thier userbase and allow them thier geocities like pages, friendster-like friends lists, and allow indie bands to upload thier music for electrionic distribution then they probably won't be going anywhere.

      However, since http://facebook.com/ [facebook.com] is now open to everyone; everyone i know is now using that for thier social networking needs.
      • Question to corporation: How many software engineers does it take to create a Myspace?

        Answer: Three hundred. Three to do the programming, three for QA, and 294 to lay off right before Christmas.

        Seriously, do you have a cite for that 300 figure? Most of the concepts behind software like MySpace are fairly trivial, with scalability being the most difficult hurdle. It seems like a reasonable number of developers would be twenty to thirty times fewer than 300.

        • Re: (Score:2)

          by L7_ ( 645377 )
          This was the article I was referencing: http://jdj.sys-con.com/read/276832.htm [sys-con.com]

          Fox Interactive Media's hiring managers and recruiters are actively seeking candidates for more than 250 open positions throughout its network, including data architects, director of engineering, product managers and graphic designers.

          So, they could be developers or IT staff. The rep I talked to was interested in my AJAX background. *shrug*

          • Ah, ok. It looks like that's 250 jobs throughout the entire organization, which encompasses much more than just MySpace. Three hundred developers working on MySpace alone would be pretty insane.

    • Re: (Score:2)

      by Kelson ( 129150 ) *
      Myspace is already past the height of its popularity


      I should've realized it was past its peak the moment I started considering getting an account. I'm so far behind the curve on every fad, it should've tipped me off immediately!

    • which will run out eventually.

      yeah, as soon as the world runs out of pubescent teenagers, pedophiles and greedy VCs / media corporations.

    • Re: (Score:3, Insightful)

      by B11 ( 894359 )
      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 overstayed their welcome.

      • Re:News corp got ripped off... (Score:4, Funny)

        by Corvaith ( 538529 ) on Thursday October 05, 2006 @08:26PM (#16330501) Homepage
        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.

      • Re: (Score:3, Insightful)

        by Lehk228 ( 705449 )
        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 tags to be used on calendar events, such as a "school" tag that could allow your classmates to see your school schedule, but keep it private from people not tagged as school, or allow only people with certain tags to comment on your profile, or require certai

    • Re: (Score:3, Interesting)

      by moochfish ( 822730 )

      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 coasting on momentum too. Look at the alexa [alexa.com] stats. I don't see any overall decline in myspace. It's had a solid year of growth. There's no way to conclude it's about to tumble into oblivion. In fact, the whole idea is that social networking IS about moment

      • Re: (Score:2)

        by Qzukk ( 229616 )
        social networking IS about momentum -- once you have it, it's hard to lose it.

        Oh, momentum is great alright, and if nothing else changes, MySpace will last a long time. But first, consider the "meme"ness of social networks. MySpace's worst nightmare is that someone will post on their MySpace page "Wow! This web3.0networksite.com site is awesome, I'm making a profile there!" How many hours will it take for that to reach their entire network?

    • Netcraft Confirms it: MySpace is dying. (Score:5, Funny)

      by Pharmboy ( 216950 ) on Thursday October 05, 2006 @06:46PM (#16329235) Journal
      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..."
    • The number of people searching for MySpace and related properties on Google is still in a nice uptrend, indicating that MySpace is continuing to grow.

      Google Trends search: [google.com]http://www.google.com/trends?q=myspace [google.com]

      Nice attempt at making up data on your own, though. Maybe it'll work next time.

    • Re: (Score:3, Interesting)

      by 4D6963 ( 933028 )

      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 multilangual versions of myspace it can only get worse. For example, hardly anyone knows MySpace in France, yet.. because so far it was all in english, but now the french section was launched just a few weeks ago..

      • Re: (Score:2)

        by pb ( 1020 )
        Aha--MySpace France? That's like CyberEuroDisney on crack! More proof of MySpace's inevitable downfall! Myspaco Delenda Est!
  • While I assume this lawsuit will go nowhere, I hope the judge sets up an injunction against MySpace and forces them to stop their servers while the lawsuit proceeds.

    And why will the lawsuit go nowhere? You, as shareholders, are investing in the company. Unless you have a controlling share, you have little control over the company. You invested in their ability. When they sell out for less than you hoped, you obviously invested in stupid people. Stupid people give stupid results, regardless of the industry.
    • Actually even minority shareholders have rights at least in the US.

      Quite often there are lawsuits against the company or management for actions against the best interest of the shareholder.

      • Re: (Score:3, Interesting)

        by jfengel ( 409917 )
        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 source for a lot of this is an article from The Economist back in May (link [slashdot.org], but you'll probably have to pay to read it.) Basically, it says that although shareholders have considerable rights in theory, in practice the rules are set up to favor management.
        • I don't care how stupid the owners are, it's their company if they want to run it into the ground they can.

          The managers are simply employees there to run the company the best they can, at the owners discretion.

          Same theory applies to small family run companies to large multinationals. It's the owners to do with as they please.

          Those circles are probaly the "expert management" and not the shareholders.

          I do want a say in how the companies I own stock in are run, part of that is I choose companies with good mana

  • If I had that much money.... (Score:5, Funny)

    by suparjerk ( 784861 ) on Thursday October 05, 2006 @05:28PM (#16328189)
    If I had that much money, I'd consider buying MySpace just so I could shut it down.

  • Ok, who's the wise guy? (Score:5, Funny)

    by shoolz ( 752000 ) on Thursday October 05, 2006 @05:29PM (#16328205) Homepage
    Who's holding down the F5 key on the article's site?
  • 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...

  • Article hosted on a Cablemodem? (Score:3, Informative)

    by gordyf ( 23004 ) on Thursday October 05, 2006 @05:36PM (#16328333)
    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.

  • I've got a site ( http://www.testcompany.com/ [testcompany.com] ) that gets about 30,000 page veiws a month. Does that mean its worth $120K?

    Nobody's offered me 1/100th of $120k...yet

  • or does the water get him instead? (Score:5, Funny)

    by jjeffries ( 17675 ) on Thursday October 05, 2006 @05:38PM (#16328371)
    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?

  • Stupid (Score:2, Insightful)

    by Hillgiant ( 916436 )
    1. IGN and MySpace are similar only in that they are both websites. Comparing their prices is next to meaningless.
    2. Quite to the contrary, I believe that News Corp overpaid. MySpace represents the worst of the worst in the world of user generated content. News Corp would have been better served waiting for a more competent successor.

  • unfriended! (Score:5, Funny)

    by smellsofbikes ( 890263 ) on Thursday October 05, 2006 @05:42PM (#16328425) Journal
    I bet he's no longer one of Tom's friends...

  • TFA mirrors and a link (Score:4, Informative)

    by dpaton.net ( 199423 ) on Thursday October 05, 2006 @05:45PM (#16328459) Homepage Journal
    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]
  • I couldn't read the link from the posted story - slashdot'd - but it looks like (according to him) this isn't the first time that he's been ripped off in a deal with News Corp

    see: http://sunbeltblog.blogspot.com/2005/09/who-is-bra d-greenspan-and-why-is-he-so.html [blogspot.com]

    and

    http://www.insiderstocksales.com/insidersales.htm [insiderstocksales.com] (cool flash if your into that kind of stuff)
  • It seems his myspace wasn't his space afterall...

    or something like that. Guess you have to see it from his point of view

  • Non slashdotted article (Score:3, Informative)

    by DanEsparza ( 208103 ) on Thursday October 05, 2006 @06:24PM (#16328949) Homepage
    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... (Score:5, Funny)

    by Neovanglist ( 566939 ) on Thursday October 05, 2006 @06:24PM (#16328957)
    This is the epitome of MySpace drama. Literally.

  • Oh well (Score:5, Funny)

    by ImaNihilist ( 889325 ) on Thursday October 05, 2006 @06:25PM (#16328959)
    The only fair thing to do is delete MySpace entirely.

  • Bad boys bad boys, whatcha gonna do (Score:4, Funny)

    by BeeBeard ( 999187 ) on Thursday October 05, 2006 @06:33PM (#16329057)
    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?
  • No, I'm Brian! And so is my wife!
  • ... I'm pretty sure the people capable of database work are no longer with the company.

  • Valuation of companies is an artform (Score:3, Insightful)

    by DocJohn ( 81319 ) on Thursday October 05, 2006 @07:56PM (#16330179) Homepage
    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!).
  • So Tom sold his All I know is this dude isn't in my friend list.

  • Comment removed (Score:5, Insightful)

    by account_deleted ( 4530225 ) on Thursday October 05, 2006 @09:49PM (#16331325)
    Comment removed based on user account deletion

    • Re: (Score:2)

      by Lehk228 ( 705449 )
      not to mention that, as a members focused site each pageview is very likely to be from someone who already was on the site that day, while IGN has a bigger percentage of unique viewers per pages served
  • Who wants to pay for ads on some twerps MySpace page? No one, unless it's dirt cheap. Who wants to advertise on a quality gaming site? Lots of people and therefore, the rates are pretty high. Using page views as way to compare two vastly different sites is just plain wrong.
  • Let's take a look at a company called Valueclick. Valueclick wants to buy Fastclick but for a very low price. How do they do it? They get their VCs to get a controling interest in Fastclick, paying a fraction for voting rights. Then Valueclick gets a bunch of execs to transfer over to Fastclick. They informat everyone at Fastclick how terrible Valueclick is.

    Then, suddenly, they sell Fastclick to Valueclick at below market prices.

    How was this accomplished. Possibly with handshakes and back room deals. No one

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