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FEBRUARY 7, 2011 12:59PM

Huffington is to AOL as AOL was to Time Warner

Rate: 11 Flag

A late Sunday night in winter and the surprise announcement of a big merger, with Kara Swisher one of the key people breaking the news: No wonder the Huffington Post/AOL announcement last night gave veteran tech and media-biz reporters a flashback to 2000 and the colossally ill-fated AOL/Time-Warner deal.

The events are similar in another way: despite all the CEO happy-talk about synergy, we are once again watching two companies in trouble taking a big gamble that the other will solve its problems.

People think of Huffington Post as the leading popular liberal-Democratic news site. Huffington is now at least suggesting that the progressive point of view isn’t a part of what she’ll be pursuing at AOL. “Ms. Huffington said her politics would have no bearing on how she ran the new business,” says the NY Times story. Really? This strikes me as strange, disingenuous, and about as credible as Roger Ailes claiming that Fox is not a partisan-driven institution.

One possibility is, Huffington is just saying what the corporate script requires and actually the plan is to position AOL as a sort of Democratic alternative to Fox News/Drudge — which I think would be a really interesting move. I have to assume Arianna has big TV ambitions; I have yet to meet a new-media empire builder who didn’t secretly yearn to do an Ailes (or an Oprah).

The other, more likely possibility is that this whole thing is about the money, the investors needed to cash out, HuffPo’s numbers weren’t looking good enough for an IPO, and Huffington is basically improvising. She’ll spend a couple years at AOL and then move on. This means that, in 2011, Huffington Post will be playing the same role in relation to AOL that AOL played in relation to Time Warner back in 2000: selling itself at the top of a market bubble, pocketing the profit from a sale that couldn’t be earned from customers, and leaving a bigger, older company with all the headaches.

I was one of the few outspoken skeptics of Time Warner/AOL back in 2000. This time around there are more — see Om Malik, who looks at some numbers; Dan Lyons, who’s funny; and Ken Auletta, who views the deal as AOL CEO Tim Armstrong’s “hail Mary pass.”

Having all this company in doubt gives me a little pause. Maybe Huffington and Armstrong will prove a great team: the queen of low-cost SEO-driven content paired with the guy who built the Google ad machine that made SEO-driven content pay. But I still think this union is unlikely to end well. AOL remains a generic blandness factory when it comes to journalism. Huffington’s brand could change that; far more likely, it will just dissolve into the corporate miasma.

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I just posted this comment on Leah Lane's post on the same subject. I am posting it here to make a point, which will follow:

At first, I was disturbed by the idea of a public company taking over the privately held Huffington Post....but then I remembered that HP is essentially inconsequential.

Arianna Huffington's liberal credentials are highly suspect to begin with. I remember when she was a major player in the Bush I administration's faith-based initiative.

The most salient critique of this merger is that AOL has always been a politically neutral site since, by and large, they have not been a significant content creator.

On the business level, once again, for some strange reason, AOL has made a bad merger. It was a mistake to buy Time-Warner, and it's a mistake to buy Huffington Post.

This reminds me of Chrysler's purchase of American Motors, which they bought solely to obtain the Jeep brand. They also got the American Motors dealer network and a brand new manufacturing facility in Montreal....but the real reason for the purchase was that Lee Iaccoca wanted the Jeep label and the newly developed Grand Cherokee.

Unlike American Motors, the Huffington Post has neither powerful brand image nor significant manufacturing facilities, or a dealer network.

What AOL gets for it's money is a collection of bloggers, a few paid staff writers, and a really bad layout.

The worst element of the current Huffington Post layout is its outright busy-ness, which make it difficult to find the really important articles that are buried in the garbage.

Frankly, Open Salon's format is, in my opinion, a much better one because it focuses attention on meaningful posts over the garbage.

Like Chrysler's purchase of American Motors, AOL does get a lot of cheap content.....but they could have had that content for nothing, simply by changing their format to feature the blogs of unpaid contributors.

I'm an original AOL member, been with them from the very beginning...and I will hold onto my AOL screen names for as long as both AOL and I exist...but I am no more likely to go to HP than I was before, which means rarely if ever.

I was just about to post my own article on this subject...thanks for saving me the trouble.
The point I wanted to make is that there's a serious issue here with respect to the closing of significant blogger outlets and the commercialization of the blogosphere.

One of the characteristics of AOL's content is its refusal to take sides on any issue, leaving that to individual bloggers.

The good of that is that AOL has therefore become a more objective news outlet than many actual news outlets because the company has always been careful not to take sides on social or political issues.

The bad of that is that we have to be clear which is the dog and which is the tail in this situation.

The content providers - such as Huffington Post - should be the dog, but they are almost invariably the tail in any given situation. Business always trumps politics.

Huffington has always been suspect as a liberal spokesperson. I think she's simply a media opportunist who has parlayed her political access into media career.

What we should remember is that this isn't a purchase of one publicly-traded corporation of another. In this case, the profits from the sale will accrue to the private parties who own the Huffington Post, which means Ariana Huffington and her partners.

That's a huge pay day for them, considering that they originally went into business with a $1 million investment six years ago.

There is however a sub-text. When one publicly traded corporation buys out another, there's usually a stock exchange in which the shareholders of the bought company get cash, stock in the buying corporation, or a mixture of shares and stock.

In this case, some of the capital stays in the newly merged corporation.

In this case, 100% of the sale prices goes into the pockets of the partners who own the Huffington Post.

Its a fine distinction, but it means that AOL, a cash strapped company in its own right, is spending flesh, not fat, to accquire a property of dubious value.

If the Huffington Post continues to post liberal articles, it will alienate the center of the road AOL members. If they move closer to the center, as they have been doing for months, they will antagonize their liberal following.

Agreed, Huffington Post has no more control over content than Open Salon does, but Open Salon allows members to follow incoming posts from without editorial interventions controlling the nature of the material they are publishing.

Huffington does control the tone of its home page by the choices they make about who and what to feature there. Open Salon has editor's picks, but the home page doesn't limit us to that view.

Congratulate yourself. Your model isn't perfect, but it is a damn sight better than what AOL just paid $315 M for.

I hope you're not turning green with envy. I would be.
I thought Ms Huffington was opposed to big conglomorates.....
I'm with you on this. I was very alarmed when I saw this. The problem is that if Arianna is right that she won't be offering any political angle, then she is throwing away a primary credential that she has as a thought leader and saying that she will fritter her talents away doing vanilla operations management. If, on the other hand, she plans to apply any political thought to what she's doing, she'll likely see opposition in an organization like AOL whose purpose is more like that of a common carrier. I personally like Arianna's politics, but that isn't to say I think everyone does, or that it has any purpose in AOL. The right way for her to make her case is in the free market of ideas, not by fiat as part of an acquisition. I don't like it when the Political Right does it and I don't think the Political Left should be doing it either.

I suspect you're right that she's just cashing out. I'm sure she'll do well by this. But the rest of us will be poorer for it, especially since like Olbermann, she may be blocked by non-competes from going back to what she does best. In the upcoming very critical election, it's a bad time for such people to be out of the spotlight.

Thanks for featuring this issue.
I recall that AOL had dirty books, but know that isn't what you're saying in this case. I can't stand the site. Never could. It's mania. How long can you go on fooling people when finally you run out of fools? This gives "Arriana" the opportunity to reach the limit of how far she can go. I find her incredibly grating. Sometimes I think I see a tatoo on her forehead with the word "ambition" written in red ink. The best thing that could happen is that she goes away.
I don't know if this latest news has the same overarching "media conglomerate merger" feeling that the Time Warner / AOL deal inspired at the time. AOL was certainly bigger with more potential back then and Time Warner had enormous dreams and ideas for what their acquisition of AOL would lead to, none of which really materialized except in a few cases which despite what the naysayers say was pretty groundbreaking when it came to integrating media channels etc.

You make some excellent points, but is the Huffington Post as troubled as you imply? Certainly I think this deal is good news for both AOL and HuffPo in the short term. What it will amount to in the long term is anyone's guess, but other online media sites (like Salon, I dare say) might use Huffington Post as a model, at least for the time being.
I'm reading Chris Hedges' "Death of the Liberal Class" right now. Thus far he hasn't mentioned Arianna as among the traitors to progressivism. Thus far.

Arianna's latest book is titled "Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream."

Yet she has sold The Huffington Post -- whose writers she doesn't pay -- for about a third of a billion dollars.

But it's those POLITICIANS who are "abandoning the middle class and betraying the American dream" -- certainly not liberals in name only like Arianna Huffington, who walk away with hundreds of millions while their workers get nary a fucking penny.
Nick, no question Salon -- and everyone -- could learn a lot from HuffPo. By calling them "troubled," I meant that -- despite huge success in building traffic, expanding their organization and raising capital -- they are still apparently not profitable, or just barely profitable. And their investors plainly were getting impatient: they installed a new CEO a year or two ago to do something, and he did. The cash deal means those investors are now done, they pocketed their gains and made their exit.
nice analysis, Ive had similar thoughts/doubts. however huffpost seems to be selling from a position of strength, supposedly it has been cash flow positive for several years. aol on the other hand, yeah its been a wild goose chase for a decade or more. yeah her statement about her politics not affecting how she runs the biz doesnt make much sense at all.
Note to Nick Leshi: For someone as plugged into media as you are, it;'s a grievous error to write that Time Warner bought out AOL. It was quite the other way around. That's what made the deal so astounding.

Had Time Warner bought out AOL, it would have been an interesting but not spectacular acquisition. Done the other way around, with the upstart AOL buying out the venerable Time Warner franchise, it was astounding.

This reminds me of the strange acquisition of Sears by K-Mart. K-Mart was actually in bankruptcy when it bought out Sears. Sears was troubled, but profitable. K-Mart was a mess, losing money, over-burdened with poorly located stores.

After the merger, hundreds of K-Mart locations were closed, leaving only the profitable locations. I've never seen a modern Sears store closed down.

The AOL -Huffington Post merger falls between these two extremes. Huffington has a lot of cheap (free) original content that AOL can carry....but maintaining Huffington Post as a separate entity raises significant questions about the value of the merger.
For once I agree with Ben Sen
I find it kind of funny because I ignore the Huffington site as a normal part of my Internet life, and I haven't heard a thing about AOL in nearly a decade.
SageMerlin - You're right to a degree. But I still think it's incorrect to say that AOL acquired Time Warner. It was a bizarre merger, and maybe that's way it didn't last. If AOL was the dominant hand in the merge, then it certainly didn't come across that way (except for having their name first in the new company title). The face of AOL, Steve Case, was pretty much pushed out and didn't have much creative control over the company -- some might say that was his choose, but I don't believe it. If they had in fact allowed Case to have more say in the overall company, I daresay it might have turned out to be a bigger success instead of the epic letdown it turned out to be.
Scott: You said it:

"AOL remains a generic blandness factory when it comes to journalism. Huffington’s brand could change that; far more likely, it will just dissolve into the corporate miasma."
-30-
How conflicted do the corporate owners of our news sources have to be before they lose credibility.

/sarcasm

I just read on coca-cola-news.com that Pepsi is only recommended by most 1% of Pediatricians.

had to say sarcasm just in case... you never know