Huffington Post, AOL deal: why they did it

Huffington Post and AOL will have a combined base of 117 million unique visitors a month. The two companies inked a deal Sunday at the Super Bowl.

At a luxury suite at the Super Bowl, leaders of AOL and The Huffington Post inked a deal that could change the online news game.

AOL chief executive officer Tim Armstrong and Huffington Post co-founder and namesake Arianna Huffington agreed Sunday to a deal in which AOL is purchasing Huffington Post for $315 million. As part of the arrangement, Ms. Huffington will become president and editor in chief of the Huffington Post Media Group within AOL, integrating Huffington Post and AOL content.

In a comment on her website, Huffington described the combination enthusiastically. “In this case, 1 + 1 = 11,” she wrote.

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Perhaps the most obvious effect of the deal is that Huffington Post is set to become an even more powerful online news source. Founded in 2005, the site has grown to 25 million visitors a month, and in 2010, it posted its first profit. Under the new arrangement, the two companies will have a combined base of 117 million unique visitors a month, AOL's website said.

One draw for that larger audience will be the presence of both Huffington Post content and material that AOL has been producing on its own. This material includes Politics Daily, Moviefone, the tech blogs Engadget and TechCrunch, MapQuest, and its Patch local-news sites in 775 towns in the United States. Ms. Huffington will oversee editorial operations for all the AOL sites.

As Huffington steps into her new role as editor in chief of a larger news organization with more robust content, she is likely to become an even larger figure in US society. For a sense of her presence already on the media and social scene, consider this string of events: Huffington was at a high-level private-equity conference in New York when talks with AOL began; she was at the World Economic Forum in Davos, Switzerland, when Mr. Armstrong made the formal offer for her company; and she signed the deal at the Super Bowl in the Dallas area.

Huffington is recognizable to many Americans because she has made high-profile appearances on political talk shows.

Huffington brings acknowledged expertise in building a vibrant online community at relatively low cost. But she has attracted controversy in doing so, given that the work of Huffington Post's paid editorial staff, pegged by the Associated Press at 70, is supplemented by content from various news organizations and some 6,000 bloggers who write for free.

While Ms. Huffington and The Huffington Post look to gain power and potential audience in this deal, AOL is seeking help in a financial turnaround. The theory is that Huffington Post's content and community-building skills will help boost AOL’s traffic and thus its ability to sell advertising.

AOL began corporate life in 1985 to provide dial-up Internet access to subscribers. It had an ill-fated merger with Time Warner in 2001, a marriage that came apart in 2009. In 2010, AOL lost more than $780 million and laid off nearly 2,500 workers.

Some additional AOL layoffs may be coming. On a conference call with analysts, AOL’s chief financial officer said the firm would save $20 million a year by eliminating operations that overlap with Huffington Post, the AP reported.

The financial dimensions of the deal reveal how modest online advertising revenue can be. The Huffington Post site produced $31 million in revenue last year, according to the organization. Its audience in December was 25 million unique visitors. Huffington Post revenue in 2011 is expected to roughly double to the $60 million range.

The AOL purchase price – representing roughly 10 times 2010 revenue – is “really just the hiring fee to get Arianna,” technology analyst Rob Enderle told AP. “This could put AOL back on the map.”

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