Tim Armstrong, Arianna Huffington hope merger will restore AOL's diminished brand power
AOL chief executive Tim Armstrong said Monday that the acquisition of the Huffington Post for $315 million was "a big score for AOL" and that the deal would help the company on its path to reestablishing a weakened brand.
Left with a shaky foundation after it split from Time Warner in late 2009, AOL is trying to survive the inexorable decline of its once-massive dial-up business, which still accounts for the vast majority of its profits even though most of those paying subscribers don't even connect via telephone anymore. Hoping to revitalize the company by making it into a major online news and media destination, Armstrong has given AOL a new homepage, and bought up a series of news websites and other online businesses, with Huffington Post as the largest so far.
"We believe this transaction will add significant acceleration to our company, to our strategy and to our shareholder returns," Armstrong, joined by Huffington, said in a conference call with investors. "The Huffington Post is one of the best properties on the Internet."
Armstrong said he wants AOL, with Huffington's guidance, to focus on local news and women's content, both of which he sees as relatively untapped markets online. The company said it expected the deal to help it reach its goal of growth in operating income growth by 2013. (Technically, OIBDA growth -- or operating income before depreciation and amortization).
But investors and analysts have been skeptical about AOL's chances of pulling off a turnaround. That doubt seemed to show as AOL's stock price was down slightly in early trading Monday. The stock has slid nearly 14% in the last three months.
"Management believes that 2011 is the come back year for AOL," wrote analyst Youssef Squali of Jefferies & Co. last week after AOL announced its earnings. "While plausible, this would assume material improvement in Display and Search, neither of which is yet apparent."
But Huffington and Armstrong think the acquisition puts AOL on a path to make those improvements. The company said it expected the Huffington Post to contributed $50 million in revenue in 2011, with a 30% profit margin, and that the combined power of the two brands will help attract premium advertisers willing to pay more to reach the most prized demographics.
"Huffington Post brings another level of ability for us to support brand marketers," Armstrong said, adding that over the next few years, he believes major advertisers will be focusing their online campaigns on a small number of larger portals, instead of shotgunning out advertising to thousands of lesser-known sites in order to reach large but generic audiences.
"If you’re a [marketer] that’s spent 50 or 100 years building your brand," he said, "you need to be around your consumers in an audience-specific way."
In a follow-up interview, Huffington spoke of the new partnership's ability to lure an audience with trusted content. "[Craigslist founder] Craig Newmark said it best when he said 'trust is the new black,'" she said. "Our reverence for facts and the traditional values of journalism -- fairness, accuracy -- is going to continue to make the new site a place where people can really trust to get their information."
-- David Sarno
Image: Homepage of The Huffington Post on Sunday night. Credit: Huffington Post