AOL's announcement Monday that it is buying The Huffington Post for $315 million raises many questions. Chief among them: Can this marriage work?
After AOL's 2000 merger with Time Warner ended in disaster nine years later, one might think the company would be gun-shy about taking another trip down the aisle with a high-profile media company.
But NPR Media Correspondent David Folkenflik says there's much to recommend the two to each other: AOL, which has been struggling to establish itself as a content company, gets an upstart news site that has mastered the art of click-worthy headlines. And Huffington Post gets access to a whole new audience — plus a big pay day.
Here, Folkenflik answers some key questions the merger raises.
AOL is paying $315 million to buy Huffington Post, a highly trafficked site. One has to ask: Is HuffPo worth that much? How much money is it generating now?
It's hard to know precisely how much the Huffington Post is worth.
As a privately held company, it doesn't release detailed figures.
The $315 million sale of the company is reported to put the value of the company at three times what it was worth about a year ago, when a private investment firm gave the company a new infusion of cash.
That's a premium, to be sure. That said, AOL is acquiring Huffington Post's know-how as much as its content. It has figured out how to draw search engines and mix low-brow but popular content with enough original reporting and edgy political commentary to sustain its reputation for an interest in substantive matters.
AOL has high hopes for its future earnings. AOL's chief financial officer, Arthur Minson, said this morning in a statement that the company expects Huffington Post to earn more than $50 million in revenues this year – and to make profits of about 30 percent – or presumably $15 million. "Even on a standalone basis, we think this is a very good deal for us financially," he wrote.
At the moment, AOL's biggest single source of revenue is still the people who pay for dial up Internet service and e-mail. AOL has been trying to change its focus to content instead. How have those efforts panned out so far?
Not so well. CEO Tim Armstrong has been a major advocate of hyperlocal blogs in AOL's Patch network, seeking to offer community news and information once found in fading papers, and of Seed, which provides information to questions people seek on topics from fashion to sport to politics. AOL also owns some other respected websites that blend aggregated copy and original posts, such as Politics Daily and Engaget.
It is a greater content play, but not necessarily a coherent one. None of them are runaway hits.
The last time AOL had a high-profile merger with another media company, Time Warner, it was, it's fair to say, a disaster. Why would one expect that a merger with Huffington Post would be more successful?
Obviously, the scale is far different – this involves hundreds of millions of dollars – the cost of the AOL takeover of Time Warner exceeded $100 billion. That was the largest, and worst, merger in American corporate history.
Armstrong says there are significant savings to be had for AOL. And more important, AOL will rely on Huffington Post's insights on how to drive up traffic. Though the Huffington Post is known for its liberal bloggers and some original news reporting, its success relies heavily on staffers who write headlines that propel it to the top tier of Google searchers and create photo galleries, often of lightly clad celebrities, that get visitors to keep clicking.
It's all about the "clicks."
Besides a big pay day, what's in it for HuffPo?
For co-founder Arianna Huffington herself, quite a bit. She will become editor in chief in charge of all content at AOL. It will introduce Huffington Post content to an entire new realm of potential readers – in particular, AOL subscribers or people who rely on the AOL portal for their use of the Web. They are perhaps less adventurous in their use of the Web than many current Huffington Post readers.
But don't dismiss the idea of a big pay day. The Huffington Post's founders, investors and a small number of early staffers who offered sweat equity now stand to profit handsomely from this deal.
Arianna Huffington herself is well known for her outspoken liberal views. Does AOL risk alienating a lot of current and potential users with Huffington at the content helm?
Sure – if the liberal sensibility of her website were to suffuse all AOL content. That's not likely, but possible. It's just as likely that Huffington Post would itself lose some of its partisan and ideological identity, or that there would be institutional pressure to add more and stronger conservative voices. (AOL's Politics Daily, which is expected to vanish inside the Huffington Post, has offered readers an ideologically varied array of writers.)
In today's conference call with investment analysts, neither Armstrong nor Huffington alluded to her political beliefs a single time. That may suggest how much importance they've placed on ideology. Or it may say they haven't figured it out yet.
But as Huffington has noted, she's reinvented herself repeatedly over the years, most impressively from the supportive spouse of a Republican congressman to an impassioned liberal critic of then-President Bush and digital media innovator. She says this is her last chapter. And it could well be a re-write. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.