SEE DISCLOSURE APPENDIX OF THIS REPORT FOR IMPORTANT

DISCLOSURES AND ANALYST CERTIFICATIONS.

U.S. MEDIA

OCTOBER 19, 2007

Weekend Media Blast: Is MySpace Getting Swift Boated?
• michael.nathanson@bernstein.com • +1-212-756-4451
• craig.moffett@bernstein.com • +1-212-969-6758
Jeffrey Lindsay (Senior Analyst) • jeffrey.lindsay@bernstein.com • +1-212-407-5990
Drew Borst • drew.borst@bernstein.com • +1-212-756-4656
Judah Rifkin • judah.rifkin@bernstein.com • +1-212-756-4557
Michael W. Parker • michael.parker@bernstein.com • +1-212-823-8460
Aaron Byrd, CFA • aaron.byrd@bernstein.com • +1-212-407-5953
Brian T. Nowak • brian.nowak@bernstein.com • +1-212-969-6649
Michael Nathanson (Senior Analyst)

Craig Moffett (Senior Analyst)

By Michael Nathanson
Heading into the 2004 Presidential Election, a key "positive"
element of John Kerry's biography was his military service record
which resulted in three Purple Hearts, a Bronze Star, and a Silver
Star. Given that the country was (and still is) at war, many
political analysts expected that Kerry's admirable record of valor
would lead him to victory.
Of course, as happens in life, the unthinkable occurred. Due to the
effort of a quickly-formed organization named the Swift Vets and
POWs for Truth, Kerry's account of his service account was called
into question and his "positive" attribute was turned into a
"negative." To their credit, the Swift Vets used the tools of new
media to their benefit. The issue was unearthed not by traditional
avenues like The New York Times, CNN or CBS News, but by a
self-motivated interest group who built a nice web site with cool
pictures, produced and aired their own documentary on the subject
and bought spots on cable news networks. All were very effective
strategies to get their message out. Soon, Kerry's military record
became an "issue."

"In the 12 months prior to our acquiring MySpace, the site
generated $23 million in revenue. Today on the back of its
durability and success, we are forecasting that MySpace alone will
generate in excess of $800 million in revenue in fiscal '08.
Overall, FIM in fiscal '07 generated revenues of $550 million and a
profit of $10 million, even after absorbing $80 million in retention
and amortization costs. We would be surprised if FIM revenues
this fiscal year do not exceed $1 billion with margins well above
20%."
Last month, at an investor conference on September 18th, Mr.
Murdoch was asked by Goldman's Anthony Noto about this
statement and was a bit less emphatic.
Noto asked, "Where are you in terms of monetizing MySpace as
advertising inventory? I know you have a relationship with
Google. You said you'll generate more than $800 million in
advertising this year. Can you give us a little bit of context about
the $800 million - how much will be from non-Google revenue?"
Mr. Murdoch's response: "Did I say 800? I probably did. Okay."

As many investors know, Rupert Murdoch pulled off a massive
coup in July 2005 when he paid $580 million to acquire a littleknown company called Intermix, which owned 53% of a web-site
called MySpace and had an option to acquire the balance. At that
point in time, MySpace had 21 million unique users in the U.S.,
and has now grown to over 68 million.

So against this rather "positive" (like Kerry's war record) backdrop,
enter the new world order. On September 28th the Silicon Alley
Insider website published a report by Peter Kafka that made many
question the accuracy of what we thought. The report, entitled
"News Corp. Internet Unit FIM Missed July, August Revs," said
that FIM "missed its internal revenue targets for July and August,
several sources say. Unless FIM has an extraordinary September,
therefore, it will miss Q1." In the next paragraph, the report went
on to say that: "More broadly, we understand that people on FIM's
sales team feel that the $1 billion FY08 goal for the division that
Rupert Murdoch laid out in August won't be attainable without
some kind of financial engineering."

The success of MySpace, which is housed in News Corp.'s Fox
Interactive Media division, has been identified by us as a key
driver of profit, along with Sky Italia and News Corp.'s cable
networks, in fiscal 2008 and 2009. On News Corp.'s last earnings
conference call on August 8th, Mr. Murdoch alluded to the
impending strength of these assets when he said:

Later, deeper in the report, the writer both lays out the implications
of FIM's miss on other online players (i.e., bad for AOL, Yahoo!,
Facebook), but rightly hedges himself that September could offset
the first two months and that the shortfall is immaterial to earnings.
However, the seeds are sown that MySpace's growth appears in
trouble.

So, what has this got to do with media, you ask? Fair question.
We don't intend to sit in judgment of John Kerry or the Swift Vets;
rather, we see a new paradigm in how financial markets get
information and how that information impacts our markets. Take
News Corp., for example.

BERNSTEIN RESEARCH

OCTOBER 19, 2007

WEEKEND MEDIA BLAST: IS MYSPACE GETTING SWIFT
BOATED?
So with this as background, the negative sentiment on MySpace
reached a crescendo yesterday. First, in a posting on Silicon Alley
Insider titled "Did Murdoch Cut News Corp.'s Internet Goals?"
Kafka reports that another website (Valleywag) reports that
Murdoch, appearing at the Web 2.0 conference reduced his
revenue forecasts by 20%. Kafka than adds that Murdoch may be
setting two targets for FIM – the first at $750 to $800 million in
revenues next year and then a $1 billion stretch goal that could be
tied to senior executive contracts. The posting also cites their
previous reporting of FIM's weak July and August sales and notes
that the downgrade to expectations is a logical extension of this.
Like the Swift Vets, these comments entered the main stream
debate as many clients called and e-mailed us yesterday to see if
News Corp. had indeed reduced guidance on both MySpace and
FIM. In this case, some clients had been alerted to this posting by
certain brokerage salespeople looking to re-affirm their own
negative view of News Corp. In short, a small degree of panic set
in and NWS shares started to fall.
Realizing the brouhaha this story caused and News Corp.'s quick
denial of Murdoch's actions, Silicon Alley Insider, consulting with
Reuters, rechecked the audio transcript of the Web 2.0 presentation
and found that Murdoch had said that he projected MySpace
revenues of $750 million next year, which indeed is lower than the
$800 million affirmed on the last earnings conference call in
August. In essence, even if this is accurate and was his intention,
Murdoch reduced his revenue targets by $50 million on a company
with an estimated $32.2 billion in total revenue for FY08! That's a
1.6% reduction. Even the Silicon Alley Insider acknowledged that
this was not as significant as first thought.
But, the reporting of this action – done without investors or
analysts in the room – and further unspecified "insider" reports of
weak July and August revenues has taken a positive element of the
News Corp. story and raised near-term doubts. These doubts have
been aided by recent MySpace traffic statistics showing stagnate to
declining unique visitor growth. Sequential growth in monthly
U.S. unique visitors was only 0.1% in September and sequential
growth was -1.2% in July and -1.8% in August.
Our belief is this: Our estimate for FIM's FY08 operating profit to
grow from $10 million in FY07 to $263 million in FY08 is mostly
predicated on the step-up in Google search fees from an estimated
$50 million in FY07 to $250 million in FY08E. Our estimate for
MySpace's display advertising to grow by 75% to $541 million in
FY08E is a contributor as well. We have assumed that the growth
in display advertising will be driven predominantly by an
improvement in monetization rates vs. a step-up in usage trends.
Clearly, this is a new business model with a somewhat
unpredictable outcome. However, we believe that as advertising
networks, like Advertising.com, seek out cheap, low-CPM remnant
inventory, MySpace's positioning at the bottom of the pricing
ladder will drive revenue growth.
Whether these reports about MySpace are true or not, we will have
to wait and see. Similar types of "reports" last week about Yahoo!
ultimately proved to be erroneous after its quarterly results came
out. This is the new world. It makes our job as equity analysts and
investors more difficult and will likely drive increased stock
BERNSTEIN RESEARCH

2

volatility, particularly in the very short-term. It will also make the
truth more valuable than ever. MN
Quote of the Week: Promise... or Threat?
"I underscore that I am completely prepared to continue to lead
the company into the future as a public company if the transaction
is not approved."
-- James Dolan, President and CEO of Cablevision Systems,
October 16, 2007
Source: Multichannel News, 10/16/2007
Current Company Views & Weekly News
U.S. Media Conglomerates (Nathanson & Borst )
DIS
M: Tough studio comps in FY07 and waning momentum at Parks and ABC
NWS
O: Fastest earnings growth in group and lowest forward PE
TWX
O: Catalysts include Cable IPO and better than expected results at AOL
VIA
O: Superior brands transcend distribution shifts; estimate appear achievable
CBS
M: Assets have structural growth issues; risk that CBS network will mean revert
CCU
M: Bid appears to fair; do not expect other bidders to emerge
Global Advertising Agencies (Nathanson, Borst & Nowak)
OMC
O: Best mix of assets and should post the highest long-term growth rates.
IPG
M: Less diversified asset mix leads to slower growth and higher risk.
WPP.LN O: Attractive asset mix and best-in-class cost management.
U.S. Telecom, Cable & Satellite (Moffett , Parker & Rifkin)
CMCSA O: Compelling value, expect positive catalysts in 2006 around VoIP rollout.
CVC
O: Lower than expected capital intensity to translate into attractive FCF yields.
DISH
U: Facing significant cost disadvantage relative to cable's "triple play."
Expect multiple compression as subscriber growth decelerates.
DTV
U: Facing significant cost disadvantage relative to cable's "triple play."
Expect multiple compression as subscriber growth decelerates.
TWC:
O: Solid sector bet. Valuation on par with Comcast.
T:
M: Continued earnings growth will get more difficult with key drivers –
wireless margin expansion and synergies – priced in or starting to run dry.
VZ:
M: FiOS investment drags down ROIC for entire company long term.
M: Long term turn-around story. High sub-prime exposure creates real short
S:
term risk.
U.S. Internet (Lindsay & Byrd)
AMZN
M: Higher margin third party sales drive overall operating margins higher
EBAY
O: Strong growth in PayPal and non-GMV businesses plus big share buybacks
GOOG
O: Revenues from new initiatives (GMail, Apps, YouTube) drive continued growth
IACI
M: Problems at HSN are intractable, bearish on TicketMaster, bullish on Ask.com
YHOO
M: Right Media and Panama are pluses, but loss of DSL subs will hurt

This
Week’s
Reports
bernsteinresearch.com)

(available

on

Firstcall

or

• TWX: As We Enter The Home Stretch, More Questions Than Answers
• YHOO, EBAY, GOOG, AMZN, IACI | Our Expectations for the Upcoming
Quarterly Earnings Reports
• YHOO | Long on Style, Short on Substance - Some Upside From Alibaba and
Yahoo! Japan but Core Business Still Flat
• Initiating Coverage on U.S. Telecom: Show Me the Money... Capital Discipline
Will Determine Winners and Losers
• EBAY | Strong Q3 Performance Gets Skyped but Guidance Suggests Good
Q4 - Reiterate Outperform, PT $42
• U.S. Broadcast: New Media Math; Does Your Head Hurt Yet?
• GOOG | Revenue Locomotive Still at Full Power Plus Strong Margin Recovery
- Raising Price Target to $720

10/15

10/17

10/18

10/19

OCTOBER 19, 2007

WEEKEND MEDIA BLAST: IS MYSPACE GETTING SWIFT
BOATED?
• AMZN: 3Q Earnings Report
• OMC: 3Q Earnings Report
• CMCSA: 3Q Earnings Report

This Week’s Rating / Price Target Changes
• TWX: Price target raised to $22.50 from $21.50
• YHOO: Price target raised to $29.00 from $25.00; 2007E EPS raised to
$0.44 from $0.43
• Initiating coverage on U.S. Telecom:
T: Price target $47; VZ: Price target $44; S: Price target $21
• EBAY: 2007E EPS raised to $1.48 from $1.37; 2008E EPS raised to $1.61
from $1.59
• GOOG: Price target raised to $720 from $625; 2007E EPS raised to $15.55
from $15.33; 2008E EPS raised to $21.05 from $20.35

10/15
10/17

3

10/25

Risks
Risks to media, cable and satellite companies globally include execution, economic and
technological. Any economic weakness will hurt the advertising market and these consumer
cyclicals. Technological changes will transfer value in to, from and between companies.

10/18
10/19

Next Week’s Calendar
• U.S. Telecom Launch Conference Call
• T: 3Q Earnings Report

Valuation Exhibit 1:

10/22
10/23

U.S. Telecom, Cable & Satellite Valuation Summary (Moffett, Parker & Rifkin)
EV/2007E EBITDA

SCB

10/18/2007

Target

Prem.

YTD

Shs

Mkt Cap

Current

Target

Rating

Price

Price

(Disc.)

Rel. Perf.

Out.

($ MM)

Consol

Consol

CMCSA

O

$24.07

$34.00

41%

-23%

3,164

76,145

8.3x

11.5x

7.7x

10.9x

CVC

O

$31.97

$40.00

25%

4%

292

9,325

9.7x

9.6x

8.3x

9.2x

TWC

O

$33.01

$46.00

39%

-28%

977

32,257

8.1x

10.5x

8.1x

10.5x

DISH

U

$49.73

$40.00

-20%

22%

453

22,512

9.0x

6.8x

9.0x

6.8x

DTV

U

$26.06

$19.00

-27%

-4%

1,234

32,157

7.6x

5.9x

7.4x

5.6x

Ticker

SPX

Current

Target

Cable/DBS Cable/DBS

$1,540.08
EV/2008E EBITDA

P/FE (2009E)

SCB

10/18/2007

Target

Prem.

YTD

Shs

Mkt Cap

Current

Target

Current

Target

Rating

Price

Price

(Disc.)

Rel. Perf.

Out.

($ MM)

Consol

Consol

Consol

Consol

S

M

$17.62

$21.00

19%

-15%

2,772

48,843

6.6x

7.2x

12.4x

13.9x

T

M

$41.81

$47.00

12%

8%

6,099

254,999

6.4x

6.2x

16.0x

15.7x

VZ

M

$44.97

$44.00

-2%

12%

2,903

130,548

5.8x

6.6x

16.7x

19.9x

Ticker

BERNSTEIN RESEARCH

OCTOBER 19, 2007

WEEKEND MEDIA BLAST: IS MYSPACE GETTING SWIFT
BOATED?

Valuation Exhibit 2:

4

U.S. Media Conglomerates & Global Advertising Agencies (Nathanson, Borst & Nowak)

10/18/07

Current
Rating Price

2008E
EPS

2008E
P/E

2008E
Target
Rel.
Mult*

Target
Price

Upside

FCF
FCF
FCF
Yield Yield Yield
2007E 2008E 2009E

US Media Conglomerates
Disney
News Corp. (NWS.A)
Time Warner
Viacom (VIA.B)
CBS Corp.
Clear Channel

M
O
O
O
M
M

$34.78
$22.06
$18.37
$40.22
$29.41
$37.96

$2.17
$1.49
$1.17
$2.63
$2.07
$1.61

16.0
14.8
15.7
15.3
14.2
23.6

115%
120%
n/a
115%
100%
n/a

$41.00
$24.50
$22.50
$46.00
$31.00
$37.00

17.9%
11.1%
22.5%
14.4%
5.4%
-2.5%

6.3%
5.4%
6.6%
6.2%
8.8%
6.1%

6.9%
7.5%
8.4%
7.1%
8.6%
6.9%

7.7%
9.7%
8.3%
7.7%
8.9%
7.9%

Global Advertising Agencies
Omnicom
Interpublic
WPP (U.K.)

O
M
O

$52.83
$10.14
£6.94

$3.27
$0.63
£0.52

16.2
16.1
13.3

110%
100%
110%

$59.00
$12.25
£8.60

11.7%
20.8%
23.9%

5.8%
1.8%
5.9%

6.3%
7.6%
6.9%

7.0%
10.7%
7.7%

1,540

$97.00

15.9

5.8%

6.2%

6.5%

S&P 500
MEMO:

* Target prices are based on 2008E relative PEs except for TWX and CCU, which are based on sum of the parts.

Valuation Exhibit 3:

U.S. Internet (Lindsay & Byrd)

Company
Rating
Amazon.com
O
eBay
O
Google
O
IAC/InterActiveCorp
M
Yahoo!
M

BERNSTEIN RESEARCH

10/18/2007
Price
$89.85
$38.10
$639.62
$29.25
$29.35

YTD Rel.
Performance
127.7%
26.7%
38.9%
-21.3%
14.9%

Market
Cap ($M)
37,108
51,740
202,760
8,863
39,329

Target
Price
$102.00
$42.00
$720.00
$33.00
$29.00

Upside
13.5%
10.2%
12.6%
12.8%
-1.2%

2008E
EPS
$1.78
$1.61
$21.05
$1.83
$0.51

2008E
P/E
50.5x
23.7x
30.4x
16.0x
57.5x

OCTOBER 19, 2007

Disclosure Appendix
SRO REQUIRED DISCLOSURES

References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC and Sanford C. Bernstein Limited, collectively.

Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration,
productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating
investment banking revenues.

Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for U.S. listed stocks and
versus the MSCI Pan Europe Index for stocks listed on the European exchanges - unless otherwise specified. We have three categories of
ratings:
Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.
Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.
Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.

As of 10/10/2007, our ratings were distributed as follows: Outperform/Buy - 41.5%; Market-Perform/Hold - 47.1%; Underperform/Sell 11.5%.

Accounts over which Sa ford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, and/or their affiliates exercise investment discretion
own more than 1% of the outstanding common stock of CMCSA / Comcast Corp, DIS / Disney, TWX / Time Warner Inc, VIA / Viacom Inc,
VIA/B / Viacom Inc, CBS / CBS Corp, WPP.LN / WPP Group PLC, IPG / Interpublic Group of Cos Inc, GOOG / Google Inc, EBAY / eBay
Inc, IACI / IAC/InterActiveCorp.

Sanford C. Bernstein & Co., LLC currently makes a market in CMCSA / Comcast Corp, DISH / EchoStar Communications Corp, TWX /
Time Warner Inc, AMZN / Amazon.Com Inc, EBAY / eBay Inc, YHOO / Yahoo! Inc, IACI / IAC/InterActiveCorp.

The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment bankingsecurities related services and received compensation for such services DIS / Disney, TWX / Time Warner Inc, VIA / Viacom Inc, VIA/B /
Viacom Inc, CBS / CBS Corp, IPG / Interpublic Group of Cos Inc.

An affiliate of Bernstein received compensation for non-investment banking-securities related services from TWX / Time Warner Inc, IPG /
Interpublic Group of Cos Inc.

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CERTIFICATIONS

I/(we), Michael Nathanson, Craig Moffett, Jeffrey Lindsay, Senior Analyst(s), certify that all of the views expressed in this report accurately
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Approved By: ASP
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