As possible Myspace sale nears, a tale of how Rupert Murdoch ditched its founders

As News Corp. closes in on a deal to unload its also-ran social network, Myspace, Businessweek's Felix Gillette delivers a must-read account of the precipitous rise and fall of the erstwhile online juggernaut.

The confluence of factors that contributed to Myspace's decline, according to Gillette's account, are varied: bureaucracy and mismanagement within News Corp., which acquired Myspace in 2005 from co-founders Tom Anderson and Chris DeWolfe; pressure to monetize the site through low-quality, intrusive ads; sensational press about sexual deviants trolling minors on their all-too-accessible profiles; and the migration of core users to more streamlined, intuitive social hubs such as Facebook, Twitter and Tumblr.

But the story of Myspace is also one of two men who fell from grace with the big media company that absorbed them.

As Gillette reports, Anderson and DeWolfe found allies early on in a number of powerful News Corp. figures, including head honcho Rupert Murdoch, Peter Chernin--who resigned his post as president and COO in 2009 following a breakdown in contract negotiations--and even Fox News chief Roger Ailes, of whom DeWolfe remarked to Businessweek: "I learned a lot from Roger Ailes about trying to buck bureaucracy."

But it wasn't long before things began to go south. Centering his narrative around a telling appearance the founders made on the "Charlie Rose Show" in February 2009, Gillette writes:

In the early days, during the honeymoon period, Murdoch had lavished attention on them. Any dispute with their overseers at Fox Interactive was promptly addressed. But after 2007, when Murdoch accelerated his pursuit of Dow Jones and the Wall Street Journal, DeWolfe and Anderson dropped off his list of pet executives. Their contracts were set to expire in October, and negotiations on new deals were going nowhere. The Charlie Rose appearance was a last bid for Murdoch's ear.

Anderson told Rose that, yes, he was glad, looking back on it, that Myspace had done the deal with News Corp. "I'm personally happy," said Anderson. "We got a lot of money. We're happy at that level.

"News Corp. for us has always been easy to work with," Anderson continued. "They respect our opinions, and they let us run the site we wanted to. … They were buying into what Myspace was, and the founders. It's been very good for me. That was my main concern. That it would be taken away from us. And it wasn't."

The following month, Murdoch hired a former AOL executive named Jonathan Miller for a new position, chief digital officer. At the same time, Peter Chernin, the second-most-powerful executive at News Corp., who was based in Los Angeles and had served as DeWolfe's mentor and supporter, announced that he was leaving the company. Suddenly, Myspace found itself without a protector.

Two months later, Anderson and DeWolfe were out. You can read about what happened next here.

Meanwhile, two weeks ago, AllThingsD, a tech blog owned by News Corp., reported that its parent company was "down to one possible investing group in its quest to make lemonade out of the lemon that its Myspace social entertainment hub has become." The dark-horse bidder? A team of investors led by the chairman of video game giant Activision.

But Gillette's sources tell him there is another finalist in the mix: DeWolfe. In either case, whoever inherits Myspace might consider seeking some advice before embarking on the seemingly herculean task of reviving it.

[DISCLOSURE: Ross Levinsohn, who used to run the News Corp. division that oversaw Myspace, is now an executive at Yahoo!]

(AP Photo/Virginia Mayo)