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Arianna’s Power Scaled Back at AOL?

Posted on | May 6, 2012 | 21 Comments

Remember when AOL bought Huffington Post — for a “bazillion dollars,” as Joe Coscarelli says — and everybody’s first question was, “On what planet does this deal make basic business sense?”

Here you had the erstwhile America Online, which had made big bucks back in the original 1990s Internet boom, when dial-up modems were still the deal, before Gmail, before you bought high-speed digital access through your cable company (or logged on at free WiFi hotspots). Having failed to exploit its original massive footprint in the online world, AOL decided to buy HuffPo, a content provider that has “succeeded” — i.e., getting lots of page-views — without ever turning a profit on that traffic.

What’s the value of a money-losing content provider to a desperate declining online service provider? Such were the calculations required to make sense of AOL reportedly paying $315 for HuffPo’s estimated 25 million monthly “unique visitors.” Maybe you need an MBA to figure that out, or maybe I just didn’t do enough drugs back in the ’70s, because it made no damned sense at all to me. Reacting to the $315 million pricetag, I asked: “Did they misplace the decimal point?”

What it looked like, frankly, was the old pump-and-dump mentality of the Dot-Com Bubble era, hyping a start-up company to sell at an inflated price to an investor with more money than sense. And the suits at AOL certainly fit that description. As I noted at the time of the deal, AOL had reported losses of $782 million in 2010. These guys are experts at losing money, so therefore it made perfect sense for AOL to pay 10 times HuffPo’s 2010 estimated gross revenue (not profit, mind you, just revenue) and let Arianna “take control of all of AOL’s editorial content as president and editor in chief of a newly created Huffington Post Media Group,” with “oversight not only of AOL’s national, local and financial news operations,” but even such services as Mapquest.

As might have been expected, that bizarre arrangement couldn’t last long, and there was a report this week that Arianna’s vast powers have recently been somewhat curtailed:

Arianna Huffington acknowledged Thursday that her portfolio at AOL Inc. is being scaled back to include only the Huffington Post, undoing a structure put in place when her website was acquired by AOL last year. . . .
After buying the Huffington Post for $315 million, AOL gave Ms. Huffington editorial oversight of all its properties, including tech-news site TechCrunch, the patch.com network of local news sites, MovieFone and MapQuest. In addition, more than 30 AOL properties, such as Politics Daily, were absorbed by the Huffington Post.The management structure created tensions with staff at some of the properties. Patch management, for instance, differed with Ms. Huffington over strategy for the local news sites, according to people familiar with the matter. TechCrunch founder Michael Arrington quit in a public spat with Ms. Huffington.

Ah, remember that news last September? My headline at the time:

Arianna Huffington Fires Tech Blogger
AOL Paid $30 Million to Buy Out

TechCrunch was a valuable property, because Michael Arrington was a valuable blogger, and the fact that he was willing to walk away from a brand he had created was one of those “Houston, we have a problem” moments, a signal that whatever skills Arianna Huffington brought to AOL, personnel management wasn’t one of them.

Successful people in online New Media tend to value their independence above almost anything else. They spotted a niche, created their sites from scratch and attracted a readership, and you can’t tell them how to do their jobs, because they invented their jobs.

Now try to imagine Michael Arrington, who sold his site to AOL for $30 million, being told a few months later that he’s now got to answer to this infamous Greek gold-digger. Not gonna happen.

The smart move was the one Matt Lewis made: Get the hell out.

Matt had been working for AOL’s Politics Daily, and within two days of the HuffPo buyout, he announced he was joining the Daily Caller, which I praised as a smart move for Matt: ”Say what you will about Tucker, he doesn’t talk like Zsa Zsa Gabor.”

So, we return to the latest developments in the HuffPo/AOL marriage, reported by Keach Hagey at the Wall Street Journal:

The wider separation of the Huffington Post and the rest of AOL, however, has fueled questions about the Huffington Post’s long-term future at the company.
Ms. Huffington said Thursday that she had been approached by private-equity firms interested in buying the Huffington Post, although the overtures went nowhere. She said she had no intention of leaving. Her relationship with Mr. Armstrong is fine, and “all is good,” she said.
The change in Ms. Huffington’s role comes as AOL is facing a proxy battle with activist shareholder Starboard Value LP, which has criticized Mr. Armstrong’s strategy of investing heavily in online content.

Oh, yeah, baby: An investor rebellion against AOL CEO Tim Armstrong’s spending spree, and now Arianna’s shrewdly trying to peddle her wares to “private equity firms” — another buyout to pay her yet another tidy lump sum? She doesn’t stay bought very long, does she?

UPDATE (Smitty): welcome, Instapundit readers!


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Comments

  • http://proteinwisdom.com/ McGehee

    AOL’s mistake was in paying her for the wrong thing.

  • SandraKLevinson
  • robertstacymccain

    The problem was simple: AOL was desperate, and Arianna knew it. Tim Armstrong needed to be able to announce something that would create the impression that AOL’s future wasn’t just going to be an endless series of massive losses. So he was willing to pay a premium for the prestige value of having Arianna’s “brand.” Unfortunately for Armstrong, investors aren’t that stupid, and once it is demonstrated that the value of prestige can’t be translated into profit, trouble is certain to ensue.

    Last I checked, AOL was still at $24/share. This rebellion by Starboard Value LP might affect the value either way, up or down, in the near term. In the long term, with Armstrong as CEO, the prospects are downward. Does Arianna covet Armstrong’s job? And if she’s bragging about being approached by other investors, what does that mean?

    Frankly, I don’t know, but if I had AOL in my portfolio, this little report would cause me to start sniffing around for other signs of trouble.

  • PaulLemmen

     It would have me selling, if I had any stock!

  • http://thepagantemple.blogspot.com/ ThePaganTemple

    Arrianna Huffington looks and acts too much like a graft-clone of Lucy and Ricky Ricardo to take too seriously. A good pie in the face from the right person at the right place and time might shut her up for awhile.

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

     There used to be old rules of thumb for valuing small businesses.  One for businesses not earning a profit but with potential was one to two years’ revenue.  Another was seven times earnings (depending on the field) for profitable businesses.  Now, this was from the buyers’ perspective, buying an existing business isn’t charity work, the idea is to make money on the deal.

    Of course, you can’t really transfer those guidelines to larger concerns, and the whole intertubes/tech craze distorted the very idea of basing value on earnings anyway, but they are still useful as a frame of reference.

    As you and I and others said at the time, “HUH?”

    I still suspect Arianna has video of Armstrong raping babies and puppies while spouting racial epithets and failing to recycle, or something similar.

  • http://casualprofundity.wordpress.com/ elaine

     What I know of AOL comes from someone who works there.  Take it FWIW…

    AOL has been absolutely crazy about acquiring page views since FOREVER.  It’s part of how they’ve propped themselves up all these years: basically, they collect ad revenue simply by a user landing on a page.  So anything they can do to get someone to click through to the next page is more revenue.

    That’s the simple answer to why they bought HuffPo, because HuffPo was absolute genius at getting page views.

    Also, HuffPo manages to get people to work for them for free…  I’m sure AOL would love to figure out how to do that, since their current US employees are pretty handsomely paid.

    BTW… were you aware that right after the HuffPo purchase, AOL fired pretty much their entire Bangalore staff?  I mean… really?  Who works cheaper than a room full of Indian software developers?  Why would you fire your cheap page designers and keep the expensive American labor?  Who do you get to design your webpages now?  Free labor?

  • http://www.leftbankofthecharles.com/ Charles

    Michael Arrington probably expected to be paid, Arianna doesn’t work that way.

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  • http://proteinwisdom.com/ McGehee

    I mean they should have paid her to leave afterward.

  • http://evilbloggerlady.blogspot.com/ Evi L. Bloggerlady

    10x profits…even reasonably anticipated profits might make sense.  This deal was insane from the get.  Ariana is laughing her ass all the way to the bank.  I am not a big fan of her politics, but I cannot blame her for taking advantage of those mokes at AOL.  

  • werewife

    I know less than nothing about investing (and my bank account proves it), but from whence came Arianna Huffington’s reputation as several species of genius? She wrote a gossipy biography of Picasso, among a couple of other things; married and divorced money; turned her political coat; and put her name on an online operation created largely by a genuine genius, Andrew Breitbart. She apparently possesses the same awesome talent as Barack Obama for convincing powerful people that she can advance their interests. Someone correct me if I’m wrong…

  • http://thepagantemple.blogspot.com/ ThePaganTemple

    It would be hilarious if Arianna was to sue AOL for breach of contract. And she might actually have a case.

  • http://nolanimrod.com/ Nolanimrod

    This is a cogent financial analysis and very funny at the same time. Two attributes not often linked. Good job!

  • http://thecampofthesaints.org Bob Belvedere

    Send her to Green Acres where she belongs.

  • http://nolanimrod.com/ Nolanimrod

    There is still an AOL? And it has enough money to spend $315,000,000 on something? Do you suppose that somewhere people are still logging on to Prodigy?  And somewhere in Wales is there an armorer stacking up arrowheads for the next invasion of France?

  • teapartydoc

    None of her type stay bought very long.  Slam, bam, thank you (?) ma’am(?).

  • jwallin

    “She doesn’t stay bought very long, does she?”

    Most whores don’t

  • Gkingthomas

    Perhaps you’re all missing the bigger picture.  As someone who (for some unknown reason) has grudgingly kept and used almost exclusively, my AOL account, since the dial-up days… I can promise you that as biased as AOL was before, the HuffPoo “merger”  pushed/pulled them so far left that Bernays would be embarassed!  The “investment” was never expected to pay off in the form of Free Market Capital… It was an investment by and into the NoWO (New Obama World Order)!!!

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