Game-Changer: AOL Has Bought the Huffington Post

From a standing start, Huffpo now commands a higher valuation than the New York Times and more monthly traffic — about 25 million unique visits per month.

Updated

AOL's surprise purchase of Huffington Post marries a listing early-internet brand with one of the fastest-rising content companies on the net — which AOL CEO Tim Armstrong hopes will amount to "an equation of 1+1=11."

The internet portal, which has experienced ongoing decline in users and struggled to settle on a successful content strategy under Armstrong, agreed to pay $315 milion for the news site, about $300 million of which will be in cash.

The move was the kind of game-changing step that Armstrong has needed, and was a triumphant exit for Huffington and her partner Ken Lerer, who started the company in 2005 and built it into the leading progressive news site on the Internet and a new model for a news organization.

There is some irony in the fact that Lerer and another HuffPo investor, Bob Pittman, were top AOL executives ahead of its sale to Time Warner in 2000. That ill-fated merger was disentangled in 2009.

Former AOL chief Steve Case, who was deeply involved in the Time-Warner deal, tweeted in response to Sunday's announcement, "Tim Armstrong says 1+1 will equal 11. Really? That wasn't my experience."

He later added that the deal "makes sense strategically. Was just teasing about 1+1=11. Congrats Tim/Arianna."

From a standing start, the Huffington Post now commands a higher valuation than the New York Times and more monthly traffic — about 25 million unique visits per month.

The news organization is believed to have turned a profit by late last year. 

Meanwhile, AOL just announced that profits were up in the last quarter on cost-cutting, but revenues fell 26 percent to $596 million during the quarter — and ended the year down 26 percent mainly due to declining ad revenue.

Read also: AOL Earnings: Profits Soar on Cost-Cutting, but Revenues Still Down

Armstrong's hope is that buying the hottest news property on the web will give his Web 1.0 brand the kind of cachet with advertisers that AOL currently lacks. 

The new group will have a combined base of 117 million unique visitors a month in the United States and 270 million around the world, according to the news release.

"The acquisition of the Huffington Post will create a next-generation American media company with global reach that combines content, community and social experiences for consumers," said Armstrong in a prepared statement.

It remains to be seen whether Huffington Post's leftist political bent will replace the more consumer-oriented, neutral voice of AOL. 

It also remains to be seen how Huffington herself will fit in a large corporate structure. Indeed, the acquisition transmutes one of the blogosphere's leading independent voices, Huffington's, into that of a paid employee at a major media corporation – not a role that the iconoclastic political activist has ever inhabited. 

Huffington essentially becomes responsible for AOL's content. Her new title will be President and Editor-in-Chief of The Huffington Post Media Group, which will integrate all Huffington Post and AOL content. Some AOL news initiatives, like Politics Daily, Daily Finance, are said to be likely to go away under the new structure. 

AOL, which squandered a market leadership role when it failed to innovate during the rise of Internet competitors like Yahoo and Google, has struggled to redefine itself in the last decade.

Armstrong joined the company in 2009 from Google where he had a technology background, but nonetheless settled on a content strategy, aggressively hiring journalists and launching sites like Patch, for local news.

Last year, he acquired the  technology news blog TechCrunch for more than $35 million to supplement its technology coverage, which already included the blog Engadget.

But on the whole AOL has not found its footing as a content player, and as recently as last week a memo by Armstrong laying down higher output demands angered employees and led to accusations that the portal was about to turn into a content farm.

The acquisition of The Huffington Post gives AOL immediate credibility as a content leader.

The Huffington Post created a new model for news content, beginning by aggregating and rewriting the news reporting done by other legacy news sites, and publishing user-generated (free) blogs from famous figures such as Alec Baldwin, Steve Martin and Norman Lear – from among Huffington's close friends. 

As the site has grown, HuffPo has increasingly hired top-level journalists and editors that do original reporting, while still relying on an inexpensive (and often free) model of aggregating, blogging and news-writing. That has raised criticism in the journalism world, though it has not stopped the site from developing astonishing reader engagement. 

The site, which continually launches new verticals, is expert in leveraging Facebook and Twitter to boost reader engagement, and garners some 4 million comments per month, according to the company. 

The transaction is expected to close in the late first- or early second-quarter 2011. 

Here is the full news release:

AOL AGREES TO ACQUIRE THE HUFFINGTON POST
 
Acquisition Will Solidify AOL’s Strategy of Creating a Premier Content Network
With Local, National and International Reach
 
Group Uniquely Positioned To Redefine the Future of Brand Advertising and Marketing
New York, NY – February 7, 2011 – AOL Inc. [NYSE:AOL] announced today that it has entered into a definitive agreement to acquire The Huffington Post, the influential and rapidly growing news, analysis, and lifestyle website founded in 2005, which now counts nearly 25 million unique monthly visitors*. 
 
The transaction will create a premier global, national, local, and hyper-local content group for the digital age – leveraged across online, mobile, tablet, and video platforms.  The combination of AOL’s infrastructure and scale with The Huffington Post’s pioneering approach to news and innovative community building among a broad and sophisticated audience will mark a seminal moment in the evolution of digital journalism and online engagement.
The new group will have a combined base of 117 million unique visitors a month in the United States and 270 million around the world**.  Following the close of this transaction, AOL will accelerate its strategy to deliver a scaled and differentiated array of premium news, analysis, and entertainment produced by thousands of writers, editors, reporters, and videographers around the globe. 
As part of the transaction,Arianna Huffington, the co-founder and editor in chief, will be named President and Editor-in-Chief of The Huffington Post Media Group, which will integrate all Huffington Post and AOL content.

“The acquisition of The Huffington Post will create a next-generation American media company with global reach that combines content, community, and social experiences for consumers,” said Tim Armstrong, Chairman and CEO of AOL  “Together, our companies will embrace thedigital future and become a digital destination that delivers unmatched experiences for both consumers and advertisers.” 

Armstrong continued, “Arianna is a singularly passionate and dedicated champion of innovative journalistic engagement, and a master of the art of using new media to illuminate, entertain and enhance the national conversation.  Arianna is a remarkable person and she will continue to create remarkable outcomes for the combined company.”

“This is truly a merger of visions and a perfect fit for us,” said Huffington.  The Huffington Post will continue on the same path we have been on for the last six years – though now at light speed – by combining with AOL.  Our readers will still be able to come to the Huffington Post at the same URL, and find all the same content they’ve grown to love, plus a lot more – more local, more tech, more entertainment, more finance, and lots more video. We are fusing a legendary and powerful new media brand with a vibrant, innovative news organization, known for its distinctive voice, a highly engaged audience, an expertise in community-building, and a track record for demystifying the news and putting flesh and blood on the data while drawing our audience into the conversation.”
Huffington continued, “By uniting AOL and The Huffington Post, we are creating one of the largest destinations for smart content and community on the Internet.  And we intend to keep making it better and better.”
Kenneth Lerer, co-founder, said, “The Huffington Post team has created a potent brand with the proven track record of knowing how to grow traffic, inform and entertain its readers and build a one-of-a-kind online community.  Add that to the powerful scale and resources of AOL and you have the perfect combination for today and the future.  Together these two companies will be a premier online content provider.  From local citizen reporting through AOL’s Patch, to The Huffington Post’s national reporting on politics, business and culture, consumers will have access to everything they want whenever they want it.”
AOL has agreed to purchase The Huffington Post for $315 million, approximately $300 million of which will be paid in cash funded from cash on hand.  The Huffington Post is privately owned by its two cofounders, as well as a group of investors.  The proposed transaction is subject to customary closing conditions, including receipt of government approvals.  The boards of directors of each company and shareholders of The Huffington Post have approved the transaction.  The transaction is expected to close in the late first- or early second-quarter 2011. 
 
The Huffington Post over-indexes on educated, affluent users, reaching the key decision makers in C-suites around the globe.  The Huffington Post speaks to this influential audience via a host of prominent voices on its group blog.  The site generates 4 million comments a month.