By David Gelles in New York and Matthew Garrahan in Los Angeles
AOL has sharply divided opinion on the web with its purchase of one of the biggest names in the blogosphere.
The US internet company will buy Huffington Post for $315m, the latest and most significant step it has taken to remake itself as a serious player in advertising-supported internet content.
The deal represents a big payday for Arianna Huffington, the political pundit who owns a significant stake in the left-leaning website which she co-founded in 2005. She will now become the face of AOL’s collection of online content, which includes everything from moviefone.com, the film information site, to the local news site Patch, and the TechCrunch technology blog.
But many comments posted on Huffington Post since the deal was announced late on Sunday expressed outrage that the company being sold to a conglomerate. “I think it’s time to take Huffpo out of my favourites,” wrote one commenter. “So disappointed.”
AOL is still reliant on its dwindling dial-up internet access business for much of the company’s profits. Yet it has been building a network of specialist sites, and the Huffington Post will give it access to one of the largest audiences among news websites.
The Huffington Post’s sites have a monthly audience of nearly 25m unique users who come for a blend of comment and news, often written by unpaid bloggers and derived from other sources around the net.
“[The deal] does make sense,” said Shahid Khan, a consultant with MediaMorph. AOL will round out “its offering with a well-respected news and politics site, and it rounds out its demographic with a well-educated and younger audience”.
The Huffington Post’s revenues from advertising were about $30m last year when it was profitable for the first time. It expects revenues to grow in the coming years as website traffic increases and online advertising continues its rebound. Yet its costs may increase as it begins investing in original content and paying high-profile writers.
With AOL paying $315m, nearly all in cash, the Huffington Post has commanded a much higher multiple than TechCrunch, which had revenues of about $10m when it was sold in September to AOL for between $25m and $40m. The Huffington Post was started with backing from several liberal supporters, including Larry David, the creator of Seinfeld, and David Geffen, the film and music billionaire. It has taken an additional $35m in venture capital.
Tim Armstrong, a former Google advertising executive, was appointed AOL chief executive in 2009 with a mandate to reinvent the company as a hub of specialised online content. So far his efforts to cash in on this strategy have fallen flat in the eyes of many analysts and observers.
“This acquisition by AOL is another shot at aggregating more content, but probably not yet knowing quite what to do with it,” said Joel Hollander, former chief executive of CBS Radio.
AOL also has a patchy track record in mergers and acquisitions. It sold ICQ, the instant messaging service, last year for $187.5m – less than half of what it paid for it in 1998. It also made a big loss on Bebo, the social networking site.
Its biggest deal was also widely regarded as the worst in history. It acquired Time Warner in an all-share deal worth $164bn in 2001. Anticipated synergies failed to materialise and a string of writedowns followed including a $100bn charge only a year later. AOL was eventually spun out of Time Warner in 2009.
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