Matthew Garrahan
Los Angeles — FT.com Published on Monday, Nov. 09, 2009 8:14AM EST Last updated on Monday, Nov. 09, 2009 11:44AM EST
News Corporation NWSA-Q is paying more than $1-million (U.S.) a month to rent an empty office complex in Los Angeles that it has been unable to sub-lease since scrapping an ambitious plan to move MySpace and its other digital businesses there.
The company is locked into a 12-year lease worth about $350-million that it signed in August 2008, when the number of people using MySpace was increasing and the social network was running out of space in its Beverly Hills offices.
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The deal commits News Corp to 420,000 sq ft of space in Playa Vista, near Los Angeles International airport. When it was signed Peter Levinsohn, the former president of News Corp’s Fox Interactive Media unit, used a memo to staff to hail the deal as “the single biggest real-estate transaction in Los Angeles in the last 25 years”.
But since then, MySpace has lost market share to Facebook, while News Corp revealed last week that its social network will receive $100-million less than it anticipated from a search deal with Google after failing to hit traffic targets.
The lease for the complex began in June this year but, following a change of management at News Corp, the move into the building was scrapped.
Mr Levinsohn moved to a new role within News Corp and the FIM unit was quietly disbanded, while Jon Miller, the former chief executive of AOL, was appointed to oversee all of News Corp’s digital operations. Together with Owen Van Natta, the new chief executive of MySpace, he decided to pull the plug on the office move.
The decision came as part of a restructuring which led to the company cutting 40 per cent of the MySpace workforce. News Corp said this year that it would take a $180-million charge following the restructuring “as a result ... of excess facility space that we no longer need”.
Although office rents in Los Angeles have tumbled by as much as 20 per cent this year, attempts to sub-lease the property have been unsuccessful. A News Corp spokeswoman confirmed that the company was actively looking to sub-lease the office space.
But News Corp continues to be liable for the lease and faces an increase in its payments as it is allotted more space in the complex, which was agreed in its contract. The rent will rise in January and again next June, when the payments will be close to $2-million per month.
The company’s inability to sub-lease the property comes as other businesses owned by News Corp are cutting costs in response to tough economic conditions and a weak advertising market.
Copyright The Financial Times Limited 2009.
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