AOL to buy Huffington Post for $315 mn

Monday, February 7, 2011

NEW YORK - Former internet media giant AOL is buying the online newspaper The Huffington Post for $315 million in a bid to regain its position as a leading producer of web content, the companies announced Monday.

The move marks the second major development in the online news world in less than a week. On Wednesday, media conglomerate News Corp launched its iPad-only newspaper, The Daily, to much fanfare and high expectations that it can finally show a way for old media companies to make money in the digital realm.

Huffington Post was established in 2005 with a just $1-million investment. Under the stewardship of Arianna Huffington, a cable talk-show host, author and politically left-leaning figure, it has become one of the most heavily-visited news and opinion websites in the US.

According The Wall Street Journal blog All Things D, the 5-year-old publication has now received $37 million in investment, employs some 200 people and reaches about 26 million readers every month.

In a conference call on the deal, AOL said it expects Huffington Post’s revenue to reach 50 million dollars this year, up from 30 million in 2010.

The transaction would be AOL’s largest acquisition since splitting away from the Time Warner media conglomerate in 2009. AOL employs some 5,000 people and reaches 110 million web surfers a month in the US and 250 million internationally.

The purchase reflects AOL’s new strategy of buying highly-trafficked sites, or developing its own, in order to build its audience.

In recent months, the company has bought the highly regarded technology sites TechCrunch and Engadget and last month announced a deal with fashion and media star Heidi Klum to develop a new online channel. It is also developing a series of hyper-local news sites in communities across the country.

Under the terms of the Huffington Post, Huffington is to have the post of president and editor-in-chief of the newly created Huffington Post Media Group, taking control of all of AOL’s editorial content. In an online posting, Huffington compared the impending merger to “stepping off a fast-moving train and onto a supersonic jet”.

Huffington said she plans “to do so much more in the living space especially for women, (and) to do more and more original reporting telling the stories of our time and putting flesh and blood on the economic data”.

AOL has been losing money consistently since 2000 as its base of subscribers who paid for dial-up internet access and the company’s guided version of the internet fast disappears. Since its spin off from Time Warner its strategy has been to become a pure content site that makes money from advertising. CEO Tim Armstrong said the deal would create important synergies for both companies.

“This happens to be a one plus one equals eleven kind of thing,” he said in an interview with All Things D.

But analysts and commentators were more skeptical of his reasoning and mathematics. Ken Auletta, a staff writer for the New Yorker magazine who recently wrote an extensive profile of Armstrong, called the move “a Hail Mary pass” designed to show investors that AOL “could come back from the dead”.

“When Armstrong claims, as he did, that the synergies to be achieved by combining the two companies was the equivalent of one plus one equals eleven, I’m reminded of when AOL and Time Warner made similar claims for their 2000 merger,” he said.

But the web content site Mashable said the move would allow AOL to integrate all its content sites and reclaim its place as an internet powerhouse.

“With its blockbuster acquisition of The Huffington Post, AOL has catapulted itself back into relevancy,” Mashable said. “It has sent a clear signal to the rest of the world that it is a media company and it is in this game to win.”

Filed under: Economy

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