Is AOL-Huffington Post deal doomed?
The online portal continues to revamp its editorial strategy, charging Arianna Huffington and her team with the daunting task of improving news content.
By Jeff Reeves, Editor, InvestorPlace.com
The move is interesting for a number of reasons. It's the latest move by AOL chief exec Tim Armstrong to right the struggling web-content arm of his company, and it's a deal that has some observers calling the politically active Arianna Huffington a sellout.
But perhaps most interesting is the fact a fledgling website like HuffPo was seen by AOL not just as a buyout target but as a strategic partner that can revitalize a company many times its size.
How? By keeping the feisty Huffington at the helm of content rather than forcing her to bend to the wills of her new corporate bosses.
It's a fascinating move, and it's also a bit embarrassing for AOL. The company is still soundly profitable, but that is almost entirely thanks to a legacy dial-up Internet business. Just last week, AOL reported a 26% drop in earnings for the fourth quarter, coinciding with a 30% drop in ad revenue across its media family. AOL sites include personal finance portal WalletPop.com, entertainment site PopEater.com and sports blog FanHouse.com, among others.
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In short, if the company ever hopes to see growth, it has to do it by improving its editorial quality and by selling more ads.
AOL had expected to meet those goals through in-house initiatives, but clearly Armstrong has changed course. AOL bought the popular technology and electronics blog Tech Crunch for $30 million last fall. Now HuffPo joins the fold at 10 times the price. And with $720 million in cash on the books, AOL has the clout to continue to wheel and deal.
But perhaps most telling is that AOL and Armstrong aren't snatching up other companies just for their clicks and readers. They are also buying the editorial staffs in hopes of finding a model that works. Because, frankly, AOL's model hasn't.
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But the Huffington Post deal is not without its challenges. Huffington clearly has her own liberal ax to grind, and it's going to be interesting to see how she transitions from working behind the closed doors of a private company to being the editor of a very public and scrutinized stock.
Also interesting will be whether AOL truly means to listen to Post leadership on content or whether it will forge ahead with a rather soulless corporate structure Armstrong is apparently rolling out, as evidenced by the leak of a 58-page AOL content strategy presentation last week.
Whatever the outcome of the Huffington Post buyout, one sure thing is that more media companies will follow it into the AOL fold. The online giant is comfortably profitable with a lot of money on its balance sheet and a top exec who is committed to overhauling the editorial mission of the site sooner rather than later.
Of course, whether AOL is profitable five or 10 years from now will depend on whether Armstrong is being smart with these strategic buyouts or just throwing money at a problem he doesn't really know how to solve.
Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter via @JeffReevesIP.
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