A great day for the Huffington Post’s investors

Arianna Huffington

My theory as to why Arianna Huffington would sell her successful website to a troubled company like AOL is that her investors wanted to cash in and weren’t particularly interested about the future of the Huffington Post.

Writing for the Guardian, Graeme Wearden says the beneficiaries of Huffington’s $315 million deal will be three venture-capital firms and a few private investors. Wearden adds that “some shareholders must be sitting on very large returns, as the company has received just $37m of funding over the last six years.”

HuffPo’s business model has three prongs: paid, original journalism by the likes of Howard Fineman and Sam Stein; extreme aggregation that summarizes off-site content so thoroughly there’s really not much reason to click through; and free content from numerous bloggers.

I’m guessing that the latter two prongs will be endangered by the acquisition, as media companies take a new look at HuffPo’s aggregation practices and bloggers who were willing to write for free for a site that they saw as somehow theirs balk at doing it for a corporation like AOL.

Check out this piece by Mayhill Fowler, HuffPo’s star of the 2008 presidential campaign, explaining last September why she would no longer write for free. Although I still think Samuel Johnson put it best.

Perhaps skeptics like me will be proven wrong, but I don’t see what AOL brings to the table. Yes, it has acquired content sites like TechCrunch and Engadget, and its hyperlocal Patch sites are springing up everywhere. But I don’t understand how adding HuffPo creates the “synergies” AOL chief executive Tim Armstrong is talking about.

Indeed, “synergy” has become a punchline from years past, with the ill-fated merger of AOL and Time Warner being a prime example.

Ken Auletta recently wrote a terrific story on AOL for the New Yorker, which, unfortunately, is not freely available online. Auletta portrayed AOL as a company that may be on the brink of financial collapse, and Armstrong as a smart, energetic leader whose content-heavy strategy may nevertheless prove to be flawed and outdated.

By far my favorite part of the story was the revelation that AOL still gets 80 percent of its profits from subscribers, and that perhaps 75 percent of them are older people who don’t realize they don’t need the $25-per-month service now that they have broadband. Not exactly a recipe for success.

With few exceptions, media sensations like the Huffington Post have their moments and then fade away. Arianna may prove she can defy gravity. But she has just made her job harder, not easier.

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11 thoughts on “A great day for the Huffington Post’s investors

  1. Steve Babcock

    Good insights about the biz aspect, Dan. But I would like to add a consideration that cuts to the true heart of the movements of media conglomerates: ego. Arianna Huffington is out for nothing more than helping Arianna Huffington take over the world. 20 years ago, she was a conservative! Then suddenly she’s the most bleeding heart liberal there is? Give me a break! I could see her calculus easily: ‘I reinvent this company that once dominated the world. Then I will be revered in the business community as the woman who reinvented the Internet. Finally, Rupert Murdoch will have to listen to me!’

    Only trouble is, she now has the unfortunate stain of having sold out to a larger power that will probably make her content shift to the center to do so. But hey, it’s not like she’s never sold out before…

  2. Paul Bass

    • She may have made her job harder — but surely she shared in that incredible financial bonanza?

    • Nice analysis, Dan — and I thought this was insightful too: http://tpmlivewire.talkingpointsmemo.com/2011/02/aol-buying-the-huffington-post-for-315-million-video.php?ref=fpb

    • Best quote: “Steve Case, AOL’s co-founder and former CEO, sounds a cautionary note: “AOL to Buy Huffington Post; Tim Armstrong says ’1 + 1 will equal 11′ … Really? That wasn’t my experience.”

    • Finally, while I disagree with part of the HuffPo?AOL strategy — gin up the numbers through SEO or whatever means, rather than the quality of engagement — I do think Huffington showed a lot of guts and foresight in building her site; and she embraces new technology and new ideas with a refreshing openness and enthusiasm. Plus, she’ll probably bring some better people in to run operations like Patch.

  3. Christian Avard

    I’m a Huffington Post blogger and I think what bugs me most is that the sanctity of independent journalism is compromised. I also think the content went down hill once they started posting videos and pictures of the lives of actors and actresses nobody’s ever heard of or even cared for. And as Dr. Samuel Johnson said, “No man but a blockhead ever wrote except for money.” H/t John Carroll.

  4. Mike Benedict

    @Christian: We need to stop thinking of “news” as this rigidly defined body of information to which only professional journalists hold the key. “News” is wars and protests and commodity prices and arts and celebrity sightings and the rest of it. If people want to read it, why not provide it versus letting them (and the advertising dollars) go somewhere else?

    In an era where self-righteous cons like Limbaugh and Beck keep telling listeners that no one wants to hear from the liberals, HuffPo has by all traffic metrics become a Top 10 Website. Instead of worrying about what it is not, shouldn’t we be praising it for what it is: an extraordinarily popular and sharp stick in the eyes of the neocon blowhards?

  5. Stephen Stein

    I don’t understand the geniuses in charge of AOL. If they couldn’t make the media thing work with Time f-in’ Warner, what are they going to do with HuffPo.

    But Mazel Tov, Arianna, on the payday!

    1. Dan Kennedy Post author

      @Stephen: AOL executives saved themselves with the Time Warner deal. AOL was about to crater. Without the merger, AOL would have been just one more dot-com meltdown corpse. Their strategy for Time Warner was to attach themselves to it like a lamprey eel.

  6. Stephen Stein

    @Dan, that’s not how some at Time saw it, at least in the Time IT department. AOL was the *buyer* in that deal, if I recall correctly, however strange that may sound (or sounded at the time). Steve Case became chairman. It was more like the lamprey that swallowed the shark.

    I have no idea what it looked like to the Time journalists, and I certainly don’t know what was in the Time-Warner execs heads.

    If “media content” was what AOL wanted, that’s what it got. But Case had no idea what to do with it. 10 years on, AOL is *still* a basket case.

    1. Dan Kennedy Post author

      @Stephen: Yes, AOL was the buyer. As I recall, it purchased Time Warner with worthless stock. Perhaps Case couldn’t have predicted what would happen, but the deal had the practical effect of saving his shareholders from the dot-com crash while doing great harm to Time Warner.

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