What Does Tencent Want With MySpace?

By Eric Jackson, Senior Contributor04/13/11 - 06:11 AM EDT

NEW YORK (TheStreet) -- There are new rumors out in the last week that Chinese Internet giant Tencent is talking to News Corp. (NWS_) about buying the once-hot social networking site MySpace.

MySpace is a shell of the company it once was. News Corp. bought it at what now seems like a bargain basement price of $500 million in 2005 and rode it up to many multiples of that in terms of valuation. However, it is likely News Corp. would get little to nothing now.

The company has fallen far behind Facebook; it is not even thought of as a distant competitor. It has cycled through many different leaders since the original founders Chris DeWolfe and Tom Anderson left the company. Whatever magic was once there has left.

TechCrunch recently reported that MySpace's unique visitors dropped 14% between January and February, increasing the pace at which the company is losing users.

So why would Tencent want MySpace? Interestingly, it is both Tencent and DeWolfe who are supposed to be close to bidding on the company.

Obviously, DeWolfe believes that he created the original magic of MySpace and he can bring it back. For Tencent, it's a little more complicated.

Tencent is now a $50 billion company; it is no shrinking violet. It is an Internet giant that trades places with Baidu(BIDU_) constantly for which is the largest Chinese Internet company.

Although Tencent isn't as well known in the U.S., it is actually a bigger social networking service than Facebook. Tencent has well more than 650 million users of its QQ service.

Back in China, Tencent is facing competition from Sina and its Weibo service, but Tencent is still almost 10 times the size in terms of market capitalization.

With buying MySpace, Tencent seems to be eyeing global growth. There have been other moves by the company that suggest this. Earlier this year it bought Riot Games, a Los Angeles-based online gaming company, to add to its mix of games offerings.

However, MySpace would be the biggest external move yet by the Chinese leader. Tencent likely sees a way of growing its QQ service internationally through a more recognizable brand. With DeWolfe's help, it also probably suspects it can rekindle some lost magic to the company.

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