Social-networking site, MySpace, has signed a preliminary deal to acquire Photobucket, a photo-sharing Web site, for around $250 million in cash, a source familiar with the deal said.

Before the deal is announced, the two sides must wrap up a few details, the source who requested anonymity because he isn’t authorized to discuss the deal publicly said. However, MySpace has agreed to pay $250 million for Photobucket, plus as much as $50 million more if certain performance targets are met, the source said.

Representatives of MySpace, Fox Interactive Media (a division of the News Corporation, the parent company of MySpace) and Photobucket all declined to comment.

The acquisition would represent quite an about-face between Photobucket and MySpace, which just last month the two companies crossed swords in a very public relations battle. MySpace accused Photobucket of violating its terms of agreement by “encouraging” users to include advertisements in the slide shows they posted to MySpace and began blocking Photobucket’s photo slide shows and videos. The fight later ended up with both sides agreeing to strengthen lines of communication

Some analysts suspected that the block by MySpace might signal an imminent acquisition. The theory went something like this: MySpace was trying to drive down Photobucket’s price by dramatically illustrating how much Photobucket relied on the social-networking site for traffic.

James McQuivey, an analyst with Forrester Research said that if MySpace did pay in the $300 million range for Photobucket, the company certainly didn’t overpay. Even if MySpace bought the company purely for the traffic, McQuivey said after crunching the numbers that MySpace is sure to get its money back.

If MySpace will gain even only 50% of the Photobucket’s 18 million monthly visitors, that’s still 9 million new users. McQuivey said that if MySpace paid $300 million for 9 million new customers it paid about $35 for each.

“That’s a very reasonable acquisition price,” McQuivey said. “They can make that back through advertising sales without much trouble. But that’s not the reason you’d buy. You do it if there is some benefit that you can’t offer the market unless you combine the two services. I don’t know what kind of synergies there are; whether it’s driving up the attention of users or prompting people to share more with friends. The question now is how is MySpace going to use Photobucket?”

For MySpace, a deal with Photobucket would be the second acquisition under Peter Levinsohn, the president of Fox Interactive Media, who took over the News Corp. unit in December. Mr. Levinsohn has said that he is willing to go shopping for companies that enhance users’ experiences or help monetize MySpace.

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Entry was posted on Monday, May 7th, 2007 at 11:55 pm under Technology.

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