Is AOL heading for second corp divorce, this time with HuffPo?

Knives have been out since Huffington joined AOL, with abundant rumours of culture clashes between the Huffington Post team and the AOLers.

Kevin Anderson August 01, 2011 15:00:48 IST
Is AOL heading for second corp divorce, this time with HuffPo?

America Online's merger with Time Warner is seen as the worst corporate merger ever. Now, analysts think that AOL is going for a perfect record, two-for-two, in terms of bad corporate marriages. Less than six months after AOL bought Arianna Huffington and the site that bears her name for $315m, Wall Street has cooled to the deal and to CEO Tim Armstrong's turnaround plans. AOL stock has fallen 6% since the purchase, and Marketwatch's Jon Friedman said:

AOL’s AOL shares sank to a 52-week low on Thursday, underscoring the suspicion on Wall Street that its February alliance with Huffington Post has proven to be anything but a godsend.

When America Online bought media giant Time Warner, it was a pivotal moment in the dot.com era. At the time, people thought it was the moment that new media had come of age.

Is AOL heading for second corp divorce this time with HuffPo

AOL's turnaround plan is difficult to pull off when big personalities clash. Justin Sullivan/Getty Image

Sadly, the merger was a pivotal moment for AOL's stock. In early 2002, a couple of years after the deal, AOL Time Warner's stock was trading at $66.27. Time Warner jettisoned its former buyer in late 2009. Now, AOL is trading for just a little more than $17.

From its peak in the 1990s when it had 30mn dial-up subscribers, it now has just a bit more than a tenth of that. However, those folks still left surfing in the slow-lane, make up 42% of the company's revenues.

Ex-Google sales exec Armstrong has been trying to remake AOL, moving it away from its internet service provider roots and recasting it as a media company. It's a strategy that Yahoo tried about a decade ago but never found success with.

AOL doesn't seem to be faring much better. It's first quarter profits this year plunged by a stomach-churning 86%, and the only silver lining in the storm clouds was that its display ad results improved for the first time in more than three years.

The company has cut some 900 jobs this year in a cull of long-established AOL sites as they moved to unify under the Huffington Post banner. Arianna Huffington for her part has gone on repeated raiding parties buying expensive talent away from the New York Times in what has often seemed like a personal battle with former Times' editor Bill Keller, who in a column dubbed her the “queen of aggregation” saying, she:

...has discovered that if you take celebrity gossip, adorable kitten videos, posts from unpaid bloggers and news reports from other publications, array them on your Web site and add a left-wing soundtrack, millions of people will come.

She has hired at least two editors from the Times for salaries in excess of $300,000, extraordinary sums in these lean times for US journalism.

She has also overseen a very aggressive overseas expansion, launching in the UK in July, with more European launches in the works as well as a Huffington Post India.

However, knives have been out since Huffington joined the company with abundant rumours of culture clashes between the Huffington Post team and the AOLers.

With a very prescient crystal ball, Friedman said at the time of the merger:

I’d be surprised if this combination soared. History is against them. Mergers don’t usually pan out unless one person is clearly in charge and sets an agenda for both of the operations.

Catty gossip has been pouring out of AOL-HuffPo. Former HuffPo chief revenue officer Greg Coleman said this about Huffington to Jeff Bercovici of Forbes:

She wanted three things: a big bag of gold, a big fat contract, which she deserved, and … unilateral decision making over her world. And that is where you’re going to have some problems. Arianna hates to be managed.

This all could be disgruntled ex-AOLers speaking from the losing end of the merger. Media is a land of big egos and dishing dirt is part of the game. However, a turnaround plan is difficult to pull off when big personalities clash.

Now, an executive shake-up, including the departure of global ad chief Jeff Levick, is the latest sign of trouble.

AOL’s second quarter earnings come out on 9 August. By then, we'll have a solid sense of whether this merger will put this turnaround heading in the right direction or whether this second corporate marriage is also heading for divorce.

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