Huffington is to AOL as AOL was to Time Warner

A late Sunday night in winter and the surprise announcement of a big merger, with Kara Swisher one of the key people breaking the news: No wonder the Huffington Post/AOL announcement last night gave veteran tech and media-biz reporters a flashback to 2000 and the colossally ill-fated AOL/Time-Warner deal.

The events are similar in another way: despite all the CEO happy-talk about synergy, we are once again watching two companies in trouble taking a big gamble that the other will solve its problems.

People think of Huffington Post as the leading popular liberal-Democratic news site. Huffington is now at least suggesting that the progressive point of view isn’t a part of what she’ll be pursuing at AOL. “Ms. Huffington said her politics would have no bearing on how she ran the new business,” says the NY Times story. Really? This strikes me as strange, disingenuous, and about as credible as Roger Ailes claiming that Fox is not a partisan-driven institution.

One possibility is, Huffington is just saying what the corporate script requires and actually the plan is to position AOL as a sort of Democratic alternative to Fox News/Drudge — which I think would be a really interesting move. I have to assume Arianna has big TV ambitions; I have yet to meet a new-media empire builder who didn’t secretly yearn to do an Ailes (or an Oprah).

The other, more likely possibility is that this whole thing is about the money, the investors needed to cash out, HuffPo’s numbers weren’t looking good enough for an IPO, and Huffington is basically improvising. She’ll spend a couple years at AOL and then move on. This means that, in 2011, Huffington Post will be playing the same role in relation to AOL that AOL played in relation to Time Warner back in 2000: selling itself at the top of a market bubble, pocketing the profit from a sale that couldn’t be earned from customers, and leaving a bigger, older company with all the headaches.

I was one of the few outspoken skeptics of Time Warner/AOL back in 2000. This time around there are more — see Om Malik, who looks at some numbers; Dan Lyons, who’s funny; and Ken Auletta, who views the deal as AOL CEO Tim Armstrong’s “hail Mary pass.”

Having all this company in doubt gives me a little pause. Maybe Huffington and Armstrong will prove a great team: the queen of low-cost SEO-driven content paired with the guy who built the Google ad machine that made SEO-driven content pay. But I still think this union is unlikely to end well. AOL remains a generic blandness factory when it comes to journalism. Huffington’s brand could change that; far more likely, it will just dissolve into the corporate miasma.

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  1. Mo

    You have the AOL-TimeWarner transaction exactly backwards. AOL purchased Time Warner, not the other way around. For your analogy to work, HuffPo would have to purchase AOL.

  2. Scott Rosenberg

    At the time, it was technically a merger. AOL “purchased” Time Warner only in the sense that its share of the merged company was, on paper, a bit greater than 50% because, at that unusual moment, the NASDAQ was at an insane bubble-peak of something like 4000.

    Within a year or two the AOL piece of the transaction was worth vastly less, the Time Warner people firmly controlled the company, and they realized that they’d handed Steve Case and the AOL shareholders a huge chunk of real value for a mess of worthless paper. In this sense, saying that Time Warner purchased AOL is by far the most accurate description of the deal, understood in hindsight.

  3. Mo

    It was also a purchase because TW shareholders got AOL shares, rather than vice versa. They were also paid a hefty premium, however theoretical, for the acquisition. While AOL was subsumed within Time Warner, it isn’t accurate to say that Time Warner acquired them. It’s apparent now that AOL’s shares were overvalued, but so was Time Warner’s (though not nearly to the same degree).

  4. I thought the AOL/Time Warner deal made a lot of sense– for AOL. Using their bubble-inflated valuation, they were buying a real asset, before the bubble evaporated.

    In this case, I’m astonished. AOL’s strategy, even pre-purchase, makes no sense (produce expensive content in the vague and contraindicated hope that ad revenue will pay for it). They’re buying content, which makes sense in the context of their nonsensical strategy, except that they’re also buying a content platform which relies on contributors providing free content in exchange for exposure.

    In other words, people were happy to write for free for HuffPost for the exposure; will they be happy to write for AOL for free? And if not, how do you remotely justify the $300m+ valuation?

    My personal take is that Tim Armstrong is an idiot. More on account of his AOL strategy than this deal, of course. But then, I pretty much always tend to the Eeyore side on these things.

  5. DT1160

    Yikes. I am not sure you can get by with that little, Scott. I need a little more fact please.

    I only saw growth with what HPost is doing, and bonding with AOL offers millions more viewers.

    I won’t go as far as to say that you’re wrong, but I am not going to bash this deal like some of the other ones AOL has completed in the past 15 years. This one might have some jackpots over the rainbow.

    Lighten up a little on the deal and do say this isn’t nearly as bad as the Time Warner disaster.


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