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Flixster/Rotten Tomatoes/MySpace mystery solved

A complex, potential deal centers on News Corp.'s Rotten Tomatoes merging with Flixster, a social-networking site for movies. The resulting company's content could then be threaded throughout News Corp.'s MySpace.

I recently wrote about interest by News Corp. and its MySpace unit in Flixster, the popular social-networking site for movies.

Titled "MySpace and News Corp. Eye Flixster (But for What?)," I wrote:

Whether this is an acquisition or more of a larger partnership deal with News Corp. digital entertainment sites is unclear. Several sources said a purchase was a possibility, while others talked about a more complex deal that did not necessarily mean a purchase.

Sources said any such deal is not imminent, but that News Corp. itself has been conducting extensive due diligence on the San Francisco-based Flixster, part of a plan to combine it with Rotten Tomatoes, another News Corp.-owned site run by its IGN Entertainment division.

Well, BoomTown did more gumshoeing. It is indeed shaping up to be a very complex deal, according to many sources I spoke with, centered on Rotten Tomatoes merging with Flixster, in exchange for a stake in the combined independent company by News Corp.

Flixster has attracted a huge audience--upward of 50 million--who trade all kinds of recommendations, ratings, news and even post user-generated movie reviews on its Web site and via widgets on social networking sites, mostly on Facebook. Founded in 2006 by CEO Joe Greenstein and CTO Saran Chari, Flixster has raised $7 million in funding from Lightspeed Venture Partners and Pinnacle Ventures, as well as garnering an angel investment from Silicon Valley entrepreneur and LinkedIn founder Reid Hoffman.

Rotten Tomatoes features mostly premium content, including professional reviews, trailer videos, and news. It has community feature that is just in beta, so it would be a nice fit with Flixster.

In addition, in a separate but related deal, the resulting company could then have its social, user-generated and premium content threaded throughout MySpace, which is in the midst of transforming itself from a social networking site and into a social media site for music and other kinds of entertainment.

Several sources noted that this deal being contemplated is typical of the overall strategy at News Corp., which has been targeting digital units, which are not an obvious fit inside the company any longer, for sale or other disposition.

In fact, the deal is not unlike one News Corp. did recently, flipping photo-sharing Photobucket into mobile photo service Ontela, with the media giant holding a large equity position in the the new entity.

The possibility of interlinking of MySpace and the combined social movie site is interesting and also yet another signal of one of the new strategies of MySpace, as one source described it, "playing on other platforms."

For example, MySpace recently announced it was adding its data stream into real-time search results on Google.

And, it seems dead obvious that MySpace is likely to adopt Facebook Connect sooner than later, perhaps beginning with a smaller implementation early next year. Focusing less on Facebook, which has long surpassed the once high-flying MySpace as the top-of-mind social network, MySpace is likely to value the massive cross-distribution for its much richer media content.

But that's not all for MySpace, said several sources, all of whom noted it would be rolling out a range of significant design and other feature initiatives over the next 45 to 60 days.

They are all aimed by its news managers at juicing MySpace's prospects, which have declined over the last several years, as have both revenues and engagement with consumers.

"This is not a rocket-ship ride to the moon," said one person with knowledge of the situation. "It's building again step by step."

A Flixster spokesman declined to comment, as did News Corp. I am awaiting a call back from MySpace's spokeswoman, but she is stuck in a security line at the airport.

(Full disclosure: News Corp. owns Dow Jones, which owns this AllThingsD.)