How Facebook can Fail in China in 5 Easy Steps (if They Copy MySpace)

If Mark Zuckerberg wants to succeed in China, he needs to do exactly the opposite of what MySpace China did.

Read my full post at Forbes here.

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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.

.......

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Trading Tax Stiffs the Little Guy

By Eric Jackson, Senior Contributor

11/27/09 - 11:15 AM EST

Jim Cramer came out earlier this week with the view that he could live with a trading tax that imposed a 0.25% surcharge on any trade made in America. The main reason he cited for being willing to go along with the tax was that he thought it would help the government create jobs.

He said,

"If we do not create jobs in this country we will fall horribly behind all others in the world. I think we will be doomed to permanently low growth, if no growth at all. I believe that it is incumbent upon everyone to sacrifice at this time."

Cramer also said that if sacrifice is needed, people trading stocks can afford to pay such a tax.

While I support Cramer's interest in seeing job creation flourish in America, I completely disagree that the "trader tax" will accomplish this aim. To the contrary, I think allowing such a tax to take root here would accomplish just the opposite. In my view, such a tax would encourage large amounts of capital to relocate outside of America, jobs would be lost (not gained) and total government tax revenue would likely go down.

For a preview of what could happen in the U.S. if this trader tax was imposed, look at Britain. At the moment, the U.K. is in even worse fiscal shape than the United States. Because of that, its Labour government recently introduced additional taxes that specifically target hedge funds' trading profits. Government bureaucrats assumed this was an easy way of generating tax revenue. What they failed to appreciate is that capital has never been more fungible than in today's global market.

London-based hedge funds immediately announced they were relocating to Switzerland in droves, where they would face none of the new taxes levied in the U.K. With those funds go certain administrative and back-office jobs. But more important, ask London bankers how they feel about losing the many profitable revenue streams attributable to doing business with hedge funds that will now be sent to Swiss banks.

The U.K. banks also will likely lose jobs tied to serving those hedge funds. And the U.K. government, in one fell swoop, just lost a host of capital gains, personal income and payroll taxes. Congratulations. An article in a London hedge fund industry newsletter from earlier this week had the headline: "Will the last hedge fund manager leaving to leave London please turn out the lights?"

Should the U.S. impose a trader tax, we'll see a similar exodus of U.S.-based investment firms and hedge funds to locales that don't require such a tax. And, believe me, many jurisdictions will be competing for the tax revenue those firms bring with them.

But this trader tax also will weigh heavily on smaller traders, as well as the big hedge funds. It's not fair that this tax will stick it to the little guy while the big banks got to run themselves like badly managed hedge funds, taking in mom-and-pop deposits and then leveraging up those assets 32-to-1 so they could trade and then lose billions of dollars on bad bets. If these big banks had actually been hedge funds, or smaller traders trading their personal accounts, they'd be gone right now. They wouldn't have been shown any sympathy. They'd be toast. Instead, they get bailed out, made whole, lent money at zero interest indefinitely, and now they get to report record profits for the year. Their taxes aren't raised, but small-time traders have to pay for their mistakes? Come on. The fairness of that escapes me.

Can you imagine if someone like Rupert Murdoch, chairman of News Corp.(NWS Quote), had been running the Federal Reserve or acting as Treasury secretary when the financial meltdown occurred last year? When the banks came running for a bailout, Murdoch (or any business executive) overseeing the taxpayers' money would have said, "Sure, we can arrange for a loan, but I want equity and warrants, I want control over management, and before you guys pay any bonuses to yourselves for the next 10 years, you're going to pay out a special dividend to me first. If you don't like my offer, try to find another U.S. federal government to help you."

I saw a story the other day that FDIC chief Sheila Bair was urging banks to start lending to create jobs. Urging. I thought of Murdoch again. Do you think if he had control of any bank he would "urge" management to take certain actions? No, he'd tell them what he wanted. And at the moment, he'd be telling the banks to lend money instead of stockpiling cash.

Finally, as much as I want to see job creation (as Cramer does), I don't see how paying any more taxes to the government is going to directly lead to creating more jobs. Look at the track record so far. After Congress approved $800 billion in stimulus last year, only 24% of that amount has been spent to date. We have no new jobs -- just slowing job losses. The administration keeps telling us about jobs saved. I can't recall ever hearing that statistic quoted before this year. Wouldn't it be quicker and more immediate if the Fed told the banks -- which they control -- to start lending out money to small businesses again, instead of stockpiling cash and cutting their credit lines?

There is a problem looming on the horizon for the U.S. and all Western countries. Debt as a percentage of gross domestic product is on the rise, big time. The current spending trends, combined with expected lower tax revenue, cannot continue indefinitely. The time to pay the piper will come. As a society, we are going to need to sacrifice in the years ahead. This sacrifice will come through lower benefits due to lower government spending on programs, or it will come from higher taxes.

Personally, I'd rather see less government spending, which would allow taxes to stay lower to spur business investment. This will require politically unpopular decisions, however, and it's not clear that short-term-thinking politicians will have the stomach for that.

If higher taxes are needed, we should all pay up -- not just traders. But the banks who got us in this mess -- and who are still on the government dole while paying themselves record bonuses -- should pay more.

At the time of publication, Jackson had no positions in any stocks mentioned.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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New York Times Could Use Mogul Aid

05/13/09 - 12:36 PM EDT

NYT , GOOG , CVC , MEG , NWS

The New York Times Co.(NYT Quote) continues to struggle. Even after raising $250 million from Carlos Slim at a 14% interest rate and selling its own building and leasing it back for another $225 million, the company is facing a bleak future in a bleak industry.

Advertising revenue keeps grinding down. It dropped 27% in the first quarter alone compared to the year before. The company has stopped paying its dividend and is looking at unloading its stake in the Boston Red Sox. Yet, even if it does this, the Times will continue to be forced into major cost cuts next year to avoid bankruptcy, if current advertising trends persist.

For some people, those difficult economic realities don't change their love of the country's biggest newspaper. Entertainment mogul David Geffen tried recently to buy the 19% stake in the NYT owned by Harbinger Capital. No deal was struck because Geffen was reportedly unwilling to pay above market price for the shares.

It's likely that moguls will continue to look at buying some of the NYT. Equally likely is that the Ochs-Sulzberger family will agree to sell part of the company to these interested parties because it will be much more palatable to them than the prospect of losing control of the company entirely through a bankruptcy filing.

There are several reasons why Harbinger Capital would want to sell its stake in the newspaper. Harbinger bought its stake with great fanfare in late 2007. At the time, NYT was one of several large established media companies that Harbinger owned, with an eye to pushing them to adopt certain changes that would positively impact their stock prices. They took large stakes in Media General(MEG Quote) and Cablevision(CVC Quote), making their views known immediately on what needed to be done.

Yet, the world has changed for Harbinger since then and the NYT investment certainly hasn't worked out well for them financially. They've been hit with redemptions like any big hedge fund, and they've turned their back on media, drastically reducing their Media General and Cablevision stakes.

Harbinger's founder, Phil Falcone, is now spending a lot of time looking at starting a new satellite phone service and might raise a dedicated fund for that purpose. Selling its stake in the Times would be another turning of the page for Harbinger.

The most likely suitors for Harbinger's stake will be moguls like Geffen. For some reason, moguls appear to be drawn to the newspaper industry. Sam Zell bought Tribune. Geffen and Eli Broad were interested in the Los Angeles Times. Broad and Ron Burkle sniffed around The Wall Street Journal, before another mogul, Rupert Murdoch, closed the deal with the Bancroft family.

Besides Geffen's interest in the Times, and Slim's existing ownership stake that could potentially grow over time, Bloomberg LP has apparently been looking at buying a stake, as have the Google(GOOG Quote) founders (although Scott Galloway, one of Harbinger's two representatives on the NYT board, denies there have been discussions with Google).

The Ochs-Sulzberger family has given every indication that it wants to hang on and ride this out. The dividend used to be a major source of income for some family members. There are also several younger members of the family working their way up in the organization with hopes of taking on key leadership roles in time.

Yet, time isn't really on the side of the family. The current economic environment likely will continue to pressure the company. The Times could start charging for online content or make cutbacks in the newsroom, but it's likely it will still be facing a cash crunch next year.

If it's a choice between cutting the NYT's journalistic standards and selling an equity stake to a mogul who views the ownership stake like a bauble to brag about to friends, I think the family will take the money.

Some moguls like trophy real estate assets; others like trophy newspaper assets. The New York Times is the biggest newspaper trophy in the world. My guess is that the Ochs-Sulzberger family will stay involved in the paper, but there will be two new moguls sitting on the board by this time next year.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

Originally published in TheStreet.com

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Van Natta a Good Hire for News Corp's MySpace

The two co-founders of MySpace, Chris DeWolfe and Tom Anderson, have stepped aside or been pushed out by News Corp's (NWS) Rupert Murdoch and new digital boss Jonathan Miller.

Kara Swisher is reporting that former Facebook No. 2 Owen Van Natta will get the top job.
It's a good move for NWS. After buying MySpace for $500 million, and hearing cat-calls from critics, Murdoch's purchase was soon viewed as one of the biggest steals of the decade, given the social networking site's early explosive growth. Soon, MySpace signed a $900 million advertising deal with Google (GOOG), which essentially paid NWS back for the entire purchase and then some.

Yet, the GOOG deal is coming to a close, and there's little chance of renewal at similar terms. MySpace, despite huge traffic, has stalled in terms of its growth relative to Facebook and Twitter. It's no longer the shiny new toy it once was.


Van Natta is a well-respected exec who has worked closely with Jeff Bezos (his former boss) and Steve Ballmer (with whom he worked on partnership deals when he was the No. 2 at Facebook). On paper, he's the right guy with the right experience to lead MySpace now (and hopefully stick it to his former boss, Mark Zuckerberg).

MySpace may be a laggard in the social networking space, but its size and user base could still be turned around to the benefit of the NWS mothership again.

Originally published in RealMoney.com on 4/23/2009 7:53 AM EDT

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