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1 + 1 really equals 2, plus a whole lot of betting on the future for AOL and Huff Post

1 + 1 really equals 2, plus a whole lot of betting on the future for AOL and Huff Post

News of AOL's acquisition of The Huffington Post ("HuffPo") is just three days old, yet more than enough time has passed for journalists and commentators to critique whether this purportedly monumental deal in the digital news age is really as brilliant as both heads of businesses claim. In the spirit of strategic publicity, HuffPo co-founder Arianna Huffington and Tim Armstrong, chairman and chief executive of AOL, announced the merger during an interview on Super Bowl Sunday--the most annually watched TV event/show in the U.S.--with the gimmicky tagline "1 + 1 equals 11," a shorthand for their vision of exponential growth that sounds good but, well, defies simple math.

With the relatively recent untangling from Time Warner still tarnishing AOL, fresh skepticism arrived Monday in The New York Times, citing this new merger as just another attempt by the company to revive its strategy through revamping the kind of business it is: from Internet service provider to expansive content source. AOL's previous purchase of Patch.com, a hyperlocal journalism enterprise, and TechCrunch, an influential tech blog in Silicon Valley, indicate that HuffPo is AOL's current domino in the ongoing movement from dial-up Internet subscriptions to monetizing its quiver of websites and blogs as a kind of third-party portal. Ad revenue is seen as the company's main profitable activity going forward, as supported by editorial content of popular interest that drives traffic via keywords entered into search engines such as Google.

The problem is, AOL has yet to show signs of progress with this model, according to The New York Times, though executives believe that display advertising will pick up later this year. "This huge transition that Tim Armstrong is trying to pull off hasn't worked yet," said Ken Doctor, a news industry analyst with Outsell and author of the book Newsonomics (a book cited by Armstrong and Huffington as partly inspiring them to make the deal). The suggested problem is decentralization, a general problem with Internet-based enterprises. "They have all these assets that aren't recognizable as a single company."

According to The New York Times, AOL also has doubters among its investors, indicated in its shares falling 75 cents, or 3.42 percent, to close at $21.19 on Monday.

Maybe shareholders had "dilutive transaction" on the mind?

The blog Newsosaur questions, as do many, whether AOL paid too much for HuffPo. AOL forked out $315 million, approximately 10 times the reported HuffPo sales of $31 million in 2010. Financial analysts call this a dilutive transaction because it transfers value away from the rest of the stockholders and delivers it to the owners of the acquired company. Who is this good for? Not the stockholders of AOL. For now.

But Armstrong believes that HuffPo's sales will rise faster than those of his company. AOL gets approximately 3.7 times more web traffic than HuffPo's 13.4 million monthly unique visitors. "AOL can steer additional traffic ... from a wide array of sites ranging from Patch.Com to TechCrunch to Moviefone," writes Newsosaur. Also, AOL has a larger ad sales operation, which could push HuffPo over the anticipated revenues it would have made as a stand-alone company. This means perhaps a tripling of revenues this year to $90 million, reducing down the amount Armstrong paid to only 3.5 times the original value of HuffPo. It could continue to grow from there. (The operative word is "could.") The question is whether HuffPo can bring it in.

But perhaps a more important question is whether HuffPo, and now its parent company AOL, should; or rather should traditional news sources attempt to keep up, as The Guardian has tried to do with its web presence. Deeper philosophical concerns are at stake when looking at this, seen in the way HuffPo repackages news, aggregates cleverly and plays with search engine rankings to appeal to popular keywords (the most recent example is seen in titling a supposed lead story "What Time Does The Super Bowl Start?" that simply delivers the time and date and some basic info about who is playing--nothing newsworthy, no additional analysis ... bottom line, nothing the NFL could not have handled directly with far less fanfare).

The New York Times calls the AOL-HuffPo merger "betting on the news," prompting some thought as to whether third-party content sites are really any substitute for going directly to a news source. Of course there are people who think this is ridiculous, that content will never be a substitute for actual news as generated by actual journalists. But in the midst of strategic aggregates, blogs repackaging stories from reputable newspapers, and content farms, there is a concern that the public might become slightly confused by which organization is actually generating content, mistake it for news, and come to rely on it for news when they shouldn't.

Questions of journalistic integrity and ethics become important. With regard to traditional newspapers being slow to catch up with web hits compared to the likes of HuffPo, Capital New York reporter Tom McGeveran puts the problem well: "The slowness of traditional journalism organizations to adjust to the 'social' part of that equation is only partly attributable to their inertia as businesses. It's also because their very existence is justified by their obligation to readers to vouch for the content they produce. And like it or not, when you're directing the fire hose of Twitter, Facebook, and unapproved user-uploaded content at your comments section, you [meaning the public] are producing their content. What separates the journalist from the commenter or the unpaid contributor? The journalist is being paid a wage to produce the content for an organization whose purpose is to produce content it can vouch for; the journalist is separated from his or her means of living if he breaks trust with the reader. The journalist gets fired."

With the dawn of the Internet and Google, the public is also more in a position to decide what is worth reading. Instead of going to reputable news sources directly they can easily enter keywords surrounding a topic of interest into a search engine. Instead of learning about the political upheaval in Egypt, for example--as might be the headline story of, say, The Washington Post--they are entering "Crocs" or "Paris Hilton" for further reading. Beyond what this says about the sensibilities of public interest, this concern for journalistic integrity is a digression from what seems to have driven the AOL-HuffPo deal. Are they in it to offer vetted, society-enhancing news, or ultimately to make money?

While "1 + 1 equals 11" for AOL-HuffPo, 1 + 1 still equals 2 for traditional news sources concerned with concepts beyond making money, such as freedom of speech, public / private accountability and their contributions to a healthy democracy.

Sources: Capital New York, MediaMemo, Newsosaur, The Guardian, The Huffington Post (1), (2), The New York Times (1), (2)


Links

Author

Ashley Stepanek

Date

2011-02-09 16:57

The World Editors Forum is the organization within the World Association of Newspapers devoted to newspaper editors worldwide. The Editors Weblog (www.editorsweblog.org), launched in January 2004, is a WEF initiative designed to facilitate the diffusion of information relevant to newspapers and their editors.


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