MySpace to acquire Photobucket image-sharing site

Social-networking site MySpace, owned by Murdoch's News Corp., has agreed to acquire Photobucket, the Web's No. 1 photo-sharing service, according to a source close to the deal.

The source, who requested anonymity because he isn't authorized to discuss the deal publicly, confirmed a story about the acquisition in the blog Valleywag on Monday. Before the deal is announced, the two sides must wrap up a few details, the source said. Financial terms weren't available, but it is widely known that Photobucket, with 40 million registered users, has been shopping itself in recent months and asking for about $300 million. Late Monday, a Reuters report quoting a source familiar with the deal said a preliminary agreement had been reached for around $250 million.

Representatives from both companies did not respond to interview requests.

The deal comes just a month after the two companies crossed swords in a very public public-relations battle. MySpace accused Photobucket of violating its terms of agreement by "encouraging" users to include advertisements in the slide shows they posted to MySpace. Photobucket said that without notice, MySpace began blocking the image-sharing site's photo slide shows and videos.

At the time of the fight, which ended with both sides agreeing to strengthen lines of communication, some industry insiders suspected that the block by MySpace might signal an imminent acquisition. The theory went something like this: MySpace was trying to drive down Photobucket's price by dramatically illustrating how much Photobucket relied on the social-networking site for traffic.

What Murdoch, News Corp's chairman, is getting for his money is a company that appears to be following a path forged by YouTube. Photobucket has seen its number of unique monthly visitors more than double to 18 million in the past year, placing it firmly among the Web's top 50 sites and is seeing about 45,000 videos added to the site daily. Part of Photobucket's appeal is similar to what drew so many to YouTube: Palo Alto, Calif.-based Photobucket employs a technology that enables users to post photos and videos to any Web site.

Photobucket's rapid rise paralleled MySpace's own meteoric growth. That wasn't a coincidence, observers say. Photobucket is among a group of companies--as is YouTube--that emerged at a time when MySpace users were looking for ways to customize their profile pages with video, photos and music.

Of such companies, YouTube is the biggest success story--it's no secret that Murdoch wanted very much to obtain the Web's largest video site but was thwarted when Google swooped in last October to walk away with the company for $1.65 billion.

If Murdoch did pay in the $300 million range for Photobucket, he certainly didn't overpay, said James McQuivey, an analyst with Forrester Research. Even if MySpace bought the company purely for the traffic, McQuivey said after crunching the numbers that MySpace is sure to get its money back.

Because estimates about how many users the two companies share in common vary from 25 percent to half, McQuivey looked at a worst-case scenario. If MySpace only sees half of Photobucket's 18 million monthly visitors, that's still 9 million new users. He said that if MySpace paid $300 million for 9 million new customers it paid about $35 for each.

"That's a very reasonable acquisition price," McQuivey said. "They can make that back through advertising sales without much trouble. But that's not the reason you'd buy. You do it if there is some benefit that you can't offer the market unless you combine the two services. I don't know what kind of synergies there are; whether it's driving up the attention of users or prompting people to share more with friends. The question now is how is MySpace going to use Photobucket?"

Last week, while also in acquisition mode, News Corp. offered to buy out Dow Jones, the parent company of the Wall Street Journal.