January 22, 2008 | 1419 GMT

By Peter Zeihan

Russian President Vladimir Putin and his anointed successor, Dmitri Medvedev, were in Bulgaria on Jan. 17. The point of the trip was to put the crowning touch on a Russian effort to hook Europe into Moscow’s energy orbit. After a touch of bitter rhetoric about how Russia and Bulgaria were “doomed to be partners,” Putin agreed to grant equal rights to the South Stream natural gas pipeline Moscow hopes to lay through Bulgaria. Yet the tension of the meeting and the concessions that Putin had to make simply to get permission are symptomatic of a broad unraveling of Russian foreign policy toward Europe.

The Russian Scheme

Russia often has had a love-hate relationship with Europe. Dating back to the time of the czars, Moscow has had to aim for a mix of economic integration and military intimidation to make its voice heard. In the aftermath of the Cold War and the degradation of the Red Army, the military intimidation factor has largely fallen away, leaving economics as the primary method of impacting Europe. In this, Russia has forces at its disposal every bit as useful as Soviet tank divisions. Cold War-era infrastructure provides the 27-member European Union with roughly one-quarter of the natural gas and oil it consumes. Such dependence might not be sufficient to force European deference, but it certainly guarantees that Europe will hear Russia out.

Related Special Topic Pages
Russian Energy and Foreign Policy
Central Asian Energy: Circumventing Russia

Natural gas is unique among the various industrial and energy commodities. The combination of its gaseous nature and the sheer bulk that is required to power large economies (the European Union uses more than half a trillion cubic meters of the stuff a year) means that it can only be efficiently transported via pipeline. While oil and coal and alumina and wheat and platinum can all be loaded into trucks, rail cars and tankers — allowing any producer to supply any consumer — natural gas can travel only along existing pipeline networks. Canada therefore only supplies the United States and Russia only supplies former Soviet republics, Turkey and Europe. This contained relationship gives Russia leverage in a way that its mineral and oil wealth do not. And so it is here that the Europeans have tried — with some success — to slice through the ties that bind.

Putin has sought to strengthen this energy leverage via two pipeline projects in particular. The two natural gas lines — Nord Stream, which would run under the Baltic Sea from St. Petersburg to Germany; and the aforementioned South Stream, which would run under the Black Sea from near Novorossiysk to Bulgaria — would increase the European dependency on Russian natural gas from 25 percent to 35 percent of its total consumption.

Economically, neither of these projects makes sense. Building long underwater pipelines to Europe — a region with which the former Soviet Union shares a land connection — is simply asinine; landlines typically cost less than a third of their underwater equivalents. Additionally, Nord Stream would be the world’s longest underwater natural gas pipeline and South Stream the deepest.

But the Russians did not plan these projects with profitability in mind — having tripled their natural gas export prices since 2000, they have profit aplenty. Instead, they are thinking of the Americans. The Kremlin’s Cold War mantra has long been that if the Europeans can be neutralized, then American influence can be purged from Europe. Ergo, American presidents dating back to Ronald Reagan have opposed (explicitly or not) any expansion of trade and energy links between Europe and Russia. And there also is the minor detail of Russia hating to involve transit states such as Belarus and Ukraine that are able to siphon off Russian energy en route to hard-currency-paying Europeans.

Given the political nature of these projects, then, the numbers have always been a touch wacky. The Russians have underestimated the costs of both of the natural gas lines to a humorous degree (likely by a factor of four or more), they lack the technological ability to build the lines themselves and they have insisted that the Europeans foot the bills. Specifically they expect ENI to pay for South Stream, and BASF, Gasunie and E.On to cover Nord Stream. Topping it off, they expect themselves — not the countries on which the pipes will lie or the companies that finance and build them — to own the projects when they are completed.
The European Response

The Europeans certainly exchanged some worried looks when these projects were proposed and Russia started assembling consortia to work on them. But in January 2006 an event happened that galvanized European action to wean the Continent off of Russian energy. A natural gas pricing dispute with Ukraine resulted in a brief suspension of deliveries to Europe (Russian natural gas deliveries to Europe currently transit Ukraine and Belarus). Russia attempted to leverage this energy crisis to force the Europeans to back Russian policy in Ukraine. Specifically, Moscow wanted Europe to repudiate Ukraine’s Orange Revolution against Russia’s preferred Ukrainian government and recognize Russian suzerainty in the former Soviet Union.

The strategy backfired and sparked intense interest across Europe in diversifying sources of petroleum and reducing total demand. European states and firms launched alternative supply lines, rafts of terminals were built to import natural gas shipped by tanker in more expensive liquefied form, a new fleet of nuclear reactors were commissioned, and the European Union adopted ambitious alternative energy and conservation programs (which incidentally dovetailed nicely with Europe’s anti-greenhouse-gas plans). The formal European goal is now to reduce total energy consumption by 20 percent — with 20 percent of the remaining total coming from alternative sources — by 2020. The EU states are still squabbling over who needs to bear what specific burdens, but there is no disagreement as to the goal — or the reasons it exists in the first place.

There are two questions remaining.
The Question of Time

First, how long will it be until the Russians realize that their energy tool is no longer sharp? The answer is, longer than you might think.

The Russians have persevered in their pursuit of these projects despite increasingly obvious signs that the Europeans not only are not interested in the projects, they are not interested in the Russians. In part it is because, if Moscow’s plan were realized, it would be a very good plan indeed, as it would harness Europe irrevocably to Russia.

But mostly the lack of realization is because of Russia’s historical blind spot. Russia’s wide-open geography means that it has few barriers to invasion. Consequently, Russian history is one of occasional foreign occupation, which has resulted in a culture that mixes xenophobia, bitterness, persecution and a sense of entitlement in equal measure. This idea of “we have suffered so much so you should do what we say” — a sort of superiority complex based on an inferiority complex — clouds Russian strategic thinking and contributes to the seeming inability of the Kremlin to sense that the Chinese are stealing Central Asia from under the Russian nose.

It also explains why the Russians have not realized that the Europeans are moving away from them in as expeditious manner as feasible. The European reactions to Russian entreaties on these natural gas projects can best be summated as humoring the Russians. Few states want an out-and-out breach in their relations with Moscow, which could result in an actual and immediate energy cutoff before the Europeans are prepared to sever economic ties. So they have been taking advantage of Russia’s cultural blind spot while quietly developing alternatives.

This is doubly true for firms such as E.On and Gasunie, which supposedly are involved in consortia to build the projects. All are key purchasers of Russian energy exports and have found it easier to feign support than to be bluntly honest and so risk losing reliable deliveries of Russia natural gas. The one possible exception might be ENI, which is desperate for any source of natural gas to maintain its market position in Italy. But even here, it is far from clear that a single firm — even one as large as ENI — can shoulder realistically the massive burden of financing and building a project as questionable as South Stream by itself.

Years from now, Putin’s Jan. 17 trip to Bulgaria will likely be seen as the turning point in the European-Russia power balance, because that is when the humoring broke down. As Putin was en route to Bulgaria, Sofia insisted that, should South Stream come about, it will be Sofia — not Moscow — that holds a majority share in the portion on Bulgarian territory. A compromise — a 50-50 ownership split — was ultimately struck, simply because there is little Moscow can do to punish Bulgaria without deeply damaging its own interests. Bulgaria does not border Russia (or any former Soviet republic) and since it is a transit state for Russian natural gas to third countries, it cannot simply be cut off.

Bulgaria is hardly the bravest or most powerful of the EU states. It also is not among the crop that has done the most to diversify its energy consumption away from Russian sources. Consequently, it stands to reason that the nod-and-smile approach that has dominated European attitudes toward all things Russian is starting to crack. In the first 10 months of 2007 alone, total European demand for natural gas already dipped sharply, according to International Energy Agency data — reversing a 50-year upward trend.

Add in increased alternative supplies that are not merely prospective (such as the Nord and South Streams), but actually under construction — within three years Europe will have established alternatives for at least two-thirds of the natural gas Russia currently supplies — and Russia’s energy grip on Europe is slackening quickly.

In short, Europe is reorienting its entire energy sector to eliminate the “Russian factor.” This is allowing the Europeans to take a firmer line on Russia in other areas as well. For example, on Jan. 17 the European Union gave Ukraine the green light to join the World Trade Organization (WTO). Until recently the Europeans had expected Ukraine under a pro-Russian government to join the WTO at the same time as Russia, so the Europeans played softball with the Russians in accession negotiations. But now that a pro-Western coalition has returned to power in Kiev, and since a pro-Western Ukraine will have the ability to block Russian accession on its own, the Europeans sense an opportunity to pry Ukraine out of Russia’s economic orbit and lash it into Europe’s. Consequently European negotiators have switched to hardball tactics on economic issues ranging from timber to transport, pushing back — yet again — serious efforts to bring Russia itself into the WTO.

Such isolation is far more damning than it sounds. According to the European Commission, if energy is shorn from Russian-European trade, then the new (much reduced) total value of that trade shrinks to an amount equal to that of the European Union’s trade with Iceland, a country with fewer than half a million people.
The Question of Response

That brings us to the second question. What will the Russians do about it?

For Russia, the challenge is not about the lost income — between rainy day funds and currency reserves, Moscow has socked away nearly $700 billion — but lost influence. Russia’s other exports, primarily metals, minerals and weapons, still fetch a pretty penny and put Russian fingers in pots the world over, but none grant it influence where it truly matters: in Europe.

Russia faces a near future in which the economic might of Europe will reinforce the geopolitical ambitions of the United States. Washington’s desire to whittle Russia back to a more manageable size is nothing new, but few realize that Brussels has its own ambitions. The Europeans would like to expand their economic reach into the bulk of the territory between the EU border and Moscow, as well as into the Caucasus. Europe does not see this as an imperialist venture, but simply as the natural order of things. The Russians, of course, see the world through a different lens, and European plans would be even more damaging in the long run to Russian interests than will American efforts, as they would make these border territories not only politically unreliable, but rather like the Baltics: firmly integrated into a rival system.

If economic tools no longer are relevant, Russia will be forced to fall back on political and military tactics, including:
Military intimidation of the Baltics and Finland.
Reunion with Belarus and a return of the Red Army to the Polish border.
Overt intervention in the Russian-speaking portions of Ukraine.
Active and public participation in Georgia’s secessionist conflicts, both to block European influence and to disrupt some of those alternate energy supplies.
Support for Europe’s various secessionist regions.

None of these options is clean and easy, and all are laden with consequences. Two of those consequences are critical enough to warrant mention here. First, any action from this list would rejuvenate NATO to the point that a Western military response, likely resulting in a new containment strategy, would be a foregone conclusion. Second, a renewed Russian confrontation with the West would certainly provide ample opportunity for China to make inroads into Central Asia and the Russian Far East, a region where Russia’s own intelligence services warn that Chinese squatters already might constitute the majority of the population. Yet with Russia’s economic toolkit impotent, such options are all that remain before the Kremlin.

Russia’s best hope is to recognize, before it is too late, that the tide is irrevocably turning. But Moscow faces one other complication in wrestling with the changing geopolitical reality — one that could critically delay an adjustment in strategies: itself.

Though Putin is undoubtedly the man in charge, he is not the only one with ambition. His inner circle is split roughly in half by a clan war between Vladislav Surkov and Sergei Ivanov. Both are loyal to Putin, but their battles have absorbed the majority of the state’s ability to deal with any issue. While the two overlords clash, the Europeans make ever-greater strides toward freeing themselves from dependence on Russian energy, steadily closing the window of opportunity for the Russians to adjust.

And when that window closes, Russia will face a world in which the United States no longer is consumed with all things Middle Eastern and the Europeans no longer are afraid of all things Russian.



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January 8, 2008
MEMO FROM TEHRAN
A President’s Defender Keeps His Distance

By NAZILA FATHI
TEHRAN — A rift is emerging between President Mahmoud Ahmadinejad and Iran’s supreme religious leader, Ayatollah Ali Khamenei, suggesting that the president no longer enjoys the ayatollah’s full backing, as he did in the years after his election in 2005.

In the past, when Mr. Ahmadinejad was attacked by his political opponents, criticisms were usually silenced by Ayatollah Khamenei, who has the final word on state matters and regularly endorsed the president in public speeches. But that public support has been conspicuously absent in recent months.

There are numerous possible reasons for Mr. Ahmadinejad’s loss of support, but analysts here all point to one overriding factor: the United States National Intelligence Estimate last month, which said Iran had suspended its nuclear weapons program in 2003 in response to international pressure. The intelligence estimate sharply reduced the threat of a military strike against Iran, allowing the Iranian authorities to focus on domestic issues, with important parliamentary elections looming in March.

“Now that Iran is not under the threat of a military attack, all contradictions within the establishment are surfacing,” said Saeed Leylaz, an economic and political analyst. “The biggest mistake that Americans have constantly made toward Iran was adopting radical approaches which provided the ground for radicals in the country to take control.”

Iran had been under increasing international pressure for its refusal to suspend its uranium enrichment program, which can be pursued for either peaceful or military purposes. In separate speeches last year, American and French officials did not rule out a military attack on Iran if it continued its defiance. Those threats have stopped since the intelligence estimate was released.

While the pressure was on, Iranian leaders were reluctant to let any internal disagreements show. Senior officials, including Ayatollah Khamenei, constantly called for unity and warned that the enemy, a term commonly used to refer to the United States, could take advantage of such differences.

The Iranian presidency is a largely ceremonial post. But Mr. Ahmadinejad had used the office as a bully pulpit, espousing an economic populism that built a strong following among the country’s middle and lower classes and made him a political force to be reckoned with. That popularity won him the strong backing of the supreme leader.

But the relationship began to sour, even before the intelligence estimate was released. A person close to Ayatollah Khamenei, who spoke on condition of anonymity for fear of retribution, said the ayatollah was especially disappointed with Mr. Ahmadinejad’s economic performance, which has led to steep inflation in the cost of basic necessities, from food to rents to property values.

“Mr. Khamenei supported Mr. Ahmadinejad because he believed in his slogans of helping the poor,” said the person. “But his economic performance has been disastrous. Their honeymoon is certainly over.”

Economists have long criticized Mr. Ahmadinejad’s economic policies, warning that his reliance on oil revenues to finance loans to the poor and to buy cheap imports would lead to inflation and cripple local industries. Inflation has increased to 19 percent currently from 12 percent in October 2006, according to figures released by the Iranian Central Bank.

Ayatollah Khamenei said Thursday in a speech in the central city of Yazd that “the government has certain unique characteristics, but like any other government there are mistakes and shortcomings.” He added that continuous criticism can undermine the government, but he refrained from praising it as he has in the past.

There have been several other signs lately that Mr. Ahmadinejad is falling from favor.

Recently, the supreme leader appointed a hard-line military leader, Mohammad Zolghadr, as deputy head of the armed forces for Basij, a volunteer militia force. Mr. Ahmadinejad had dismissed Mr. Zolghadr last month as deputy interior minister for security affairs. Mr. Ahmadinejad appeared angered last week by interference from Iran’s former chief nuclear negotiator, Ali Larijani, who visited Egypt in his capacity as the leader’s representative at the Supreme National Security Council. Mr. Ahmadinejad said Wednesday that his government had a Foreign Ministry that determined the country’s foreign policy, and a ministry spokesman said Mr. Larijani’s trip was personal.

Mr. Larijani’s trip was important because Tehran cut ties with Egypt, a predominantly Sunni country, when Cairo signed a peace agreement with Israel in 1979 and provided asylum for the deposed shah of Iran. Mr. Larijani, who is a close aide to Ayatollah Khamenei, brushed off the remarks from the Foreign Ministry and announced that his talks with the Egyptian authorities had gone well.

In the face of rising criticism, Mr. Ahmadinejad has for the first time admitted that Iran was suffering from rising prices. Previously, he had called inflation a fiction invented by his political enemies. But he blamed the problem on former governments, Parliament and what he called a 36 percent increase in the price of goods in international markets.

Mohammad Reza Katouzian, a conservative and onetime supporter of Mr. Ahmadinejad, said recently that the president “should offer solutions instead of explaining past mistakes,” the semiofficial Mehr News Agency reported.

Hassan Rassouli, head of Baran, a nongovernmental organization created by the previous, reformist president, Mohammad Khatami, after he left office, said Mr. Ahmadinejad tried only to justify inflation, not do anything about it. “Either the president has no idea how inflation has affected people’s lives or he prefers to talk unprofessionally without referring to figures,” he said, according to the Mehr News Agency.

Relations between the United States and Iran will always be difficult — as the encounter between Iranian speed boats and three United States Navy warships in the Strait of Hormuz on Monday made clear — but perhaps not impossible, many here are saying.

Liberal commentators, here and abroad, have long argued that hard-line policies in the West only strengthen hard-line politicians in Iran, and conversely that lowering the threat level enhances the position of moderates. With conservative politicians who supported Mr. Ahmadinejad in 2005 increasingly turning into his fiercest critics, and with Ayatollah Khamenei saying recently that Iran’s lack of contacts with the United States “does not mean that we will not have relations indefinitely,” the pundits would seem, for now, to be on the right track.

http://www.rand.org/pubs/monographs/MG499/

NEW SECURITY THREATS BEYOND IRAQ WILL REQUIRE CHANGES IN
MILITARY DEPLOYMENTS AND STRUCTURE, RAND STUDY SAYS

The complex military challenges facing the United States will require all four military services to rethink the way forces are manned, equipped and deployed, according to a RAND Corporation study issued today.

The report, “A New Division of Labor: Meeting America's Security Challenges Beyond Iraq,” was prepared by RAND Project AIR FORCE, the U.S. Air Force's federally funded research and development center for studies and analyses. Project AIR FORCE is a division of RAND, a nonprofit research organization.

“This is a new paradigm,” said Andrew R. Hoehn, a RAND vice president and director of Project AIR FORCE, who was the lead author of the study. “U.S. forces are being called upon to perform new missions far outside their normal repertoire, from confronting terrorism spawned by radical Islam to the possibility of fighting new nuclear powers.”

Hoehn is a former deputy assistant secretary of defense for strategy and has participated in all major reviews of defense policy and strategy since the end of the Cold War.

The report outlines three key security challenges to the United States, its interests, and its allies: terrorist and insurgent groups; regional powers with nuclear weapons, such as North Korea; and increasing security competition in Asia, which could result in a military confrontation with China.

In order to meet the three challenges, the report says U.S. forces will need to take several steps, including:

Suppressing terrorists and insurgents by capturing and killing them, but more importantly by training and advising the armed forces of other nations being attacked by terrorists and insurgents.
Bringing stability and security to countries and regions struggling to implement democratic reforms.
Developing and fielding more effective means for locating and destroying nuclear weapons and their means of delivery.
Ensuring that U.S. forces can overcome modern anti-access weapons and methods, particularly theater ballistic missiles and cruise missiles. These weapons can create serious problems for military services that rely on traditional concepts for deploying forces and equipment to areas of conflict.
Hoehn said that previous U.S. strategy was centered around a “1-4-2-1” sizing criterion. This strategy directed U.S. forces to be able to: defend the United States; maintain a military presence in four key areas of the world; be prepared to fight in two conflicts not involving occupying enemy territory; and conduct one major conflict involving occupation.

But today, U.S. forces also must be engaged in other, remote areas including Afghanistan, Sudan, Central Asia, Indonesia and the Philippines. Currently, many of the U.S. fighting forces are forward deployed “in the places where the wars of the last century ended,” such as Germany, Japan and South Korea, Hoehn said.

“The era is gone when strategists could divide the planet into regions where the nation has important interests at stake… and where it does not,” the report notes. “In terms of classic geopolitics, Afghanistan and Sudan were beyond the strategic purview of the United States, yet they were the breeding grounds of al Qaeda.”

The conflicts themselves have changed as well. Having American forces “performing highly visible roles trying to solve other nations' problems for them,” often causes local populations to resent the American presence as well as their own government for not being able to solve the problems, Hoehn said.

“The way you win the war on terror is to help other, friendly nations do a better job providing for their own security,” Hoehn said. “A much greater and sustained level of effort is called for here.”

In the future, the Army, Marines and Special Forces will be used more to promote stability – a new emphasis, but not one that can be “done on the cheap,” the report says.

The study recommends that the Army develop stability, support and advisory capabilities – as well as conventional war fighting elements – within its tactical structure to reflect these new missions. To compensate for these added responsibilities, the report assumes that the Army and Marine Corps will remain the same size, but will realign units and personnel to be ready to fight one rather than two conventional wars.

“This is not to suggest that the U.S. will conduct direct stability operations on the Iraqi model,” the study notes. “As a rule, U.S. stability operations should, (and of necessity, will) be indirect, focused on training, equipping and advising friendly indigenous forces as they seek to quell their own internal stability challenges.” These operations will require important support from the Air Force and Navy, according to the report.

The primary roles for the Air Force and the Navy, however, will be to conduct large-scale “power projection” operations – helping combat the forces of enemy nations far from U.S. shores. In the event that the United States would have to defend Taiwan, for example, large numbers of ground forces probably would not be needed, but air and naval firepower and support would be required.

Both the Air Force and the Navy should explore ways to operate at longer ranges and with persistence, especially in conflicts involving foes with nuclear weapons and missiles, the study says. Both branches have invested in numerous shorter-range craft, which may not be effective if their operating bases are within range of large numbers of enemy missiles.

“Finally, while striving to fix what is broken, (the Department of Defense) should be careful not to break what is fixed,” the report notes. “The U.S. armed forces are the most powerful and successful in the world, perhaps in history. Their dominance of the conventional ‘force on force' battlefield is so overwhelming that it has, among other things, rendered a whole class of historically troubling scenarios – massed cross-border aggression by large, armored forces – largely obsolete.”

“America plays a crucial role in maintaining the global security system,” Hoehn said. “This ability to come to the aid of key partners is unrivaled in the world, and that needs to be maintained.”

Hoehn said the military is already working toward some of the goals recommended in the study, particularly now that the U.S. Department of Defense has been implementing the results of its recent Quadrennial Defense Review of U.S. military strategy and policy. But he said more can and should be done.

Other authors of the study are Adam Grissom, David Ochmanek, David Shlapak and Alan Vick, all of RAND.

The study is available at www.rand.org.

January 21, 2008
From MySpace to YourSpace

By BRIAN STELTER
Two years ago, Chris DeWolfe, the co-founder and chief executive of MySpace, was talking about international expansion with Rupert Murdoch, whose News Corporation bought the social networking site in 2005. According to Mr. DeWolfe, an entrepreneur used to moving at Internet velocity, he suggested that MySpace could expand to “four or five” countries in the next year.

“What about 13?” Mr. Murdoch said.

That was one of Mr. DeWolfe’s first lessons in just how fast business is done inside the News Corporation. MySpace ended up adding 15 local versions in the year. It is now up to 24 — “we just launched in Brazil,” Mr. DeWolfe said in one of his first interviews since signing a new two-year contract with the News Corporation in October.

In addition to expanding, MySpace is evolving. While it is introducing new musicians and playing host to amateur filmmakers, it is also signing artists to its own record label and developing online video series. It introduced a content guide, MySpace Celebrity, last week.

The world’s largest social networking site, MySpace has grown far past being merely “a place for friends,” as its slogan states. With an estimated 110 million monthly active users, MySpace is undeniably a powerful tool for advertisers who seek reach and efficiency.

Richard Greenfield, a media analyst for Pali Research, called MySpace a fantastic acquisition from a return-on-investment standpoint. The site was sold for $580 million; Mr. Greenfield said it was expected to have around $800 million in revenue in fiscal 2008, mostly through advertising.

“Rupert made an important bet,” said Eric E. Schmidt, the chief executive of Google, which signed a $900 million advertising deal with MySpace’s parent, Fox Interactive Media, in August 2006. “He may find that this is the single best investment he has ever made.”

But MySpace has challenges, especially from Facebook, which has leapt ahead of MySpace in technology and has been accumulating users at a faster rate. Facebook, with its cleaner interface and higher demographic profile, is also seen by some advertisers as a better bet. By comparison, the reputation of MySpace — with its cluttered and often sexually tinged personal pages and lingering privacy concerns — has suffered.

“It’s definitely not the sexy pick anymore,” said Adam Kasper, a senior vice president at Media Contacts, the interactive division of Havas.

So MySpace has changed tack. What was seen as a competitor to traditional media platforms is starting to resemble one.

“Some people still perceive MySpace like it was in early 2004, as a niche place for scenesters in New York and Los Angeles. That’s how it started, but it’s become very mainstream,” Mr. DeWolfe, 41, said. “It’s about consuming content and discovering pop culture.”

As a result, the MySpace site resembles a portal like Yahoo or AOL as much as a social networking site. Peter F. Chernin, the president and chief operating officer of the News Corporation, called MySpace a “contemporary media platform” and said the site existed to “create content and connect people to one another.”

Fox Interactive “clearly envisioned them as a portal,” said Alan Rambam, a senior vice president at the ad agency Fleishman Hillard. “I thought they would be much further along with that today.”

The original content may draw advertisers who are wary of placing a marketing message next to a messy profile page, but it is unclear whether the users who make MySpace the most-viewed Web site in America will want to watch TV episodes and chat with friends on the same site.

Making this transformation work falls to Mr. DeWolfe, the business face of the company, and co-founder Tom Anderson, 37, the product specialist. Both recently signed new contracts at salaries reported to be $7.5 million a year, which would make them two of the highest-paid employees at the News Corporation.

Mr. DeWolfe did not enter MySpace with a media background. He led two companies, now defunct, specializing in data storage and Internet marketing, but he had long envisioned a community-based Web site. In 1997, while in graduate school at the University of Southern California, he developed a business plan for the idea, which he called SiteGeist (he received an A-).

Surprising some observers, the News Corporation — one of the largest media conglomerations — has remained relatively hands-off. Mr. DeWolfe said Mr. Murdoch visited MySpace’s headquarters in Los Angeles about once a month — “He’s definitely in tune with the different features on the site, and he’s very aware of the product road map” — but the two founders are still in control of the site.

“Some of the first words out of Rupert’s mouth were about how important he felt it was to protect what Tom and I had built and to preserve the user experience at all costs,” Mr. DeWolfe said. “He said the single most important thing the company could do is to empower MySpace with the autonomy and resources it needed to continue giving the users what they want.” He added, “It was incredibly reassuring.”

But as MySpace expands beyond its origins, its executives struggle as they try to give users and advertisers what they both want. There is a big contrast between the chaos that is comfortable to many MySpace residents and the neatness that appeals to consumer product companies.

“The challenge for MySpace in the future is making it more of a well-lighted environment for the big brand advertisers — the Procter & Gambles and Unilevers,” said David Cohen, the United States director for digital communication for the media buying agency Universal McCann.

Sitting in his Boston office, Mr. Kasper of Havas counted 10 advertising units on the main page of MySpace Music. He said that some appeared to have been placed by third-party networks, creating a cluttered environment.

“I think it’s too much,” Mr. Kasper said. “It’s just not as valuable to the advertiser, and it’s certainly not as good from a consumer experience standpoint.”

The site suffers, at least in some circles, from an image problem. The prevalence of unwanted friend requests, spam and sexually suggestive material has driven some users away, even giving rise to the term “MySpace refugee.” It still has more page views than any other Web site in the world — more than 1.3 billion a day — although that figure dipped for the first time in December 2007, according to comScore. (MySpace executives said improvements to the site’s structure were at fault.)

Mr. DeWolfe does not seem especially concerned about the perception. He points to what he sees as MySpace’s growth potential and new security and customization features. Users will soon be able to tailor their profile for subsets of friends, “so my colleagues will see a much different page than my college buddies,” Mr. DeWolfe said.

New features for mobile devices are being added, as well as new social applications. And in response to concerns about child predators, MySpace unveiled an accord last week with 49 states to tighten privacy restrictions.

To burnish MySpace’s media credentials, Mr. DeWolfe is leaning on his friends in Hollywood. At the Sundance Film Festival this week, he is playing host to industry parties with the band Maroon 5 and the rapper 50 Cent. MySpaceTV has been the launching pad for a number of Web video series, and it is second to YouTube among Internet video sites.

Mr. DeWolfe is nurturing another project that promises to help MySpace grow: an incubator that will form new companies and function like a start-up. The company, tentatively named Slingshot Labs, will be financed by the News Corporation but exist as a separate company. Mr. DeWolfe anticipates that it will nurture four or five consumer Web sites at a given time.

“We firmly believe that it’s very hard to create a disruptive technology within a larger organization,” he said.

Mr. Chernin said he was not surprised that Mr. DeWolfe and Mr. Anderson had decided to stay with the company they created.

“Think about the size and the scale of MySpace and the opportunity to affect people and the opportunity to play a role in the culture,” he said. “There’s really nothing like it.”

January 21, 2008
From MySpace to YourSpace

By BRIAN STELTER
Two years ago, Chris DeWolfe, the co-founder and chief executive of MySpace, was talking about international expansion with Rupert Murdoch, whose News Corporation bought the social networking site in 2005. According to Mr. DeWolfe, an entrepreneur used to moving at Internet velocity, he suggested that MySpace could expand to “four or five” countries in the next year.

“What about 13?” Mr. Murdoch said.

That was one of Mr. DeWolfe’s first lessons in just how fast business is done inside the News Corporation. MySpace ended up adding 15 local versions in the year. It is now up to 24 — “we just launched in Brazil,” Mr. DeWolfe said in one of his first interviews since signing a new two-year contract with the News Corporation in October.

In addition to expanding, MySpace is evolving. While it is introducing new musicians and playing host to amateur filmmakers, it is also signing artists to its own record label and developing online video series. It introduced a content guide, MySpace Celebrity, last week.

The world’s largest social networking site, MySpace has grown far past being merely “a place for friends,” as its slogan states. With an estimated 110 million monthly active users, MySpace is undeniably a powerful tool for advertisers who seek reach and efficiency.

Richard Greenfield, a media analyst for Pali Research, called MySpace a fantastic acquisition from a return-on-investment standpoint. The site was sold for $580 million; Mr. Greenfield said it was expected to have around $800 million in revenue in fiscal 2008, mostly through advertising.

“Rupert made an important bet,” said Eric E. Schmidt, the chief executive of Google, which signed a $900 million advertising deal with MySpace’s parent, Fox Interactive Media, in August 2006. “He may find that this is the single best investment he has ever made.”

But MySpace has challenges, especially from Facebook, which has leapt ahead of MySpace in technology and has been accumulating users at a faster rate. Facebook, with its cleaner interface and higher demographic profile, is also seen by some advertisers as a better bet. By comparison, the reputation of MySpace — with its cluttered and often sexually tinged personal pages and lingering privacy concerns — has suffered.

“It’s definitely not the sexy pick anymore,” said Adam Kasper, a senior vice president at Media Contacts, the interactive division of Havas.

So MySpace has changed tack. What was seen as a competitor to traditional media platforms is starting to resemble one.

“Some people still perceive MySpace like it was in early 2004, as a niche place for scenesters in New York and Los Angeles. That’s how it started, but it’s become very mainstream,” Mr. DeWolfe, 41, said. “It’s about consuming content and discovering pop culture.”

As a result, the MySpace site resembles a portal like Yahoo or AOL as much as a social networking site. Peter F. Chernin, the president and chief operating officer of the News Corporation, called MySpace a “contemporary media platform” and said the site existed to “create content and connect people to one another.”

Fox Interactive “clearly envisioned them as a portal,” said Alan Rambam, a senior vice president at the ad agency Fleishman Hillard. “I thought they would be much further along with that today.”

The original content may draw advertisers who are wary of placing a marketing message next to a messy profile page, but it is unclear whether the users who make MySpace the most-viewed Web site in America will want to watch TV episodes and chat with friends on the same site.

Making this transformation work falls to Mr. DeWolfe, the business face of the company, and co-founder Tom Anderson, 37, the product specialist. Both recently signed new contracts at salaries reported to be $7.5 million a year, which would make them two of the highest-paid employees at the News Corporation.

Mr. DeWolfe did not enter MySpace with a media background. He led two companies, now defunct, specializing in data storage and Internet marketing, but he had long envisioned a community-based Web site. In 1997, while in graduate school at the University of Southern California, he developed a business plan for the idea, which he called SiteGeist (he received an A-).

Surprising some observers, the News Corporation — one of the largest media conglomerations — has remained relatively hands-off. Mr. DeWolfe said Mr. Murdoch visited MySpace’s headquarters in Los Angeles about once a month — “He’s definitely in tune with the different features on the site, and he’s very aware of the product road map” — but the two founders are still in control of the site.

“Some of the first words out of Rupert’s mouth were about how important he felt it was to protect what Tom and I had built and to preserve the user experience at all costs,” Mr. DeWolfe said. “He said the single most important thing the company could do is to empower MySpace with the autonomy and resources it needed to continue giving the users what they want.” He added, “It was incredibly reassuring.”

But as MySpace expands beyond its origins, its executives struggle as they try to give users and advertisers what they both want. There is a big contrast between the chaos that is comfortable to many MySpace residents and the neatness that appeals to consumer product companies.

“The challenge for MySpace in the future is making it more of a well-lighted environment for the big brand advertisers — the Procter & Gambles and Unilevers,” said David Cohen, the United States director for digital communication for the media buying agency Universal McCann.

Sitting in his Boston office, Mr. Kasper of Havas counted 10 advertising units on the main page of MySpace Music. He said that some appeared to have been placed by third-party networks, creating a cluttered environment.

“I think it’s too much,” Mr. Kasper said. “It’s just not as valuable to the advertiser, and it’s certainly not as good from a consumer experience standpoint.”

The site suffers, at least in some circles, from an image problem. The prevalence of unwanted friend requests, spam and sexually suggestive material has driven some users away, even giving rise to the term “MySpace refugee.” It still has more page views than any other Web site in the world — more than 1.3 billion a day — although that figure dipped for the first time in December 2007, according to comScore. (MySpace executives said improvements to the site’s structure were at fault.)

Mr. DeWolfe does not seem especially concerned about the perception. He points to what he sees as MySpace’s growth potential and new security and customization features. Users will soon be able to tailor their profile for subsets of friends, “so my colleagues will see a much different page than my college buddies,” Mr. DeWolfe said.

New features for mobile devices are being added, as well as new social applications. And in response to concerns about child predators, MySpace unveiled an accord last week with 49 states to tighten privacy restrictions.

To burnish MySpace’s media credentials, Mr. DeWolfe is leaning on his friends in Hollywood. At the Sundance Film Festival this week, he is playing host to industry parties with the band Maroon 5 and the rapper 50 Cent. MySpaceTV has been the launching pad for a number of Web video series, and it is second to YouTube among Internet video sites.

Mr. DeWolfe is nurturing another project that promises to help MySpace grow: an incubator that will form new companies and function like a start-up. The company, tentatively named Slingshot Labs, will be financed by the News Corporation but exist as a separate company. Mr. DeWolfe anticipates that it will nurture four or five consumer Web sites at a given time.

“We firmly believe that it’s very hard to create a disruptive technology within a larger organization,” he said.

Mr. Chernin said he was not surprised that Mr. DeWolfe and Mr. Anderson had decided to stay with the company they created.

“Think about the size and the scale of MySpace and the opportunity to affect people and the opportunity to play a role in the culture,” he said. “There’s really nothing like it.”