Can Huffington fix AOL's identity crisis?
By Sean Callahan
It wasn't exactly a blockbuster $118 billion merger with Time Warner.
But when AOL Inc., even a decade after its dot-com glory days, announces a deal, it's still big news.
This time the transaction, announced last week, was AOL's $315 million acquisition of the Huffington Post, the news site founded in 2005 by Arianna Huffington. AOL is paying $300 million in cash and the rest in stock for the left-leaning property that was built on a lot of free content, savvy SEO and Huffington's personal brand.
AOL said its infrastructure and scale will be combined with Huffington Post news to deliver international, national and local news across an array of digital formats.
“Our strategy, which we have spent time on, and spent time on with investors and employees and partners, is really around building a global media company that's built on high-quality content that's engaging and magical for consumers,” AOL Chairman-CEO Tim Armstrong said in a conference call outlining the deal.
AOL said the combined entity will have tremendous reach, with 117 million unique monthly visitors in the U.S. and 270 million globally. Huffington will become president-editor in chief of the Huffington Post Media Group, which will combine Huffington Post and AOL content. In her new role, Huffington will oversee such brands as Moviefone, PopEater and TechCrunch.
While the deal is about audience and gaining access to the affluent visitors attracted to Huffington Post, a major portion of what Armstrong, the former Google ad sales director, is buying in this deal is the Huffington Post brand. Huffington Post is associated with up-to-date Web concepts such as blogging and social media. AOL, however, is linked in the minds of many to dialup and CD-ROM mailers.
“AOL hasn't been acting like old Web, but it's perceived as old Web,” said Stephanie Sandberg, CMO of operations consultancy SSA & Co. She said AOL has been moving away from low-CPM ad networks and its subscription Web access in Europe.
The job of transforming AOL from its subscription Internet access roots to a content company is a big one. “It's a daunting task,” Sandberg said. “I applaud [Armstrong] for thinking big.”
Part of the task is figuring out how such disparate brands as Engadget, Mapquest and Huffington Post will fit together. “They're getting to the point where they're going to have to start thinking about the architecture of these brands,” said Tim Robinson, managing director of branding consultancy CoreBrand.
Al Ries, chairman of branding consultancy Ries & Ries, said it may be an impossible task. “What does AOL stand for?” he asked. “It's become unmanageable because it's too many things.”
In a report about the deal for Outsell Inc., analyst Ken Doctor wrote: “There are a lot of moving pieces in this deal. ... We'd have to say that given all the complications, the new AOL Huff Po (or is it HuffPo AOL or really just HuffPo+?) has more odds against it than for it.”
The financials of AOL's deal for Huffington Post also left industry observers dubious as to its prospects. “They paid a hefty price for it,” said Jeff Dearth, partner at media investment bank DeSilva & Phillips.
This year, the Huffington Post, said Arthur Minson, exec VP-chief financial and administrative officer of AOL, is expected to generate about $50 million in revenue. He anticipates that the business will reach $100 million in annual revenue by the end of the year, with 30% margins.
Still, a six-times revenue price is viewed as steep. “I wouldn't call it a Hail Mary, but it is an aggressive play,” Dearth said of the deal. “It's pretty much all or nothing.”