AOL and Huffington Post Finally Reporting Revenue

Story first appeared on USA Today -

Two years after it acquired the Huffington Post, AOL still faces challenges in courting consumers and advertisers — but it is beginning to show progress.

While scheduling a business lunch in late 2010, Huffington Post co-founder Arianna Huffington and AOL CEO Tim Armstrong each had a question for the other.

Huffington, who was hosting the meal at her home, asked whether there was anything he didn't eat. (The answer: mushrooms.)

Armstrong asked whether he could bring along his chief financial officer. That made the AOL honcho's intentions clear, and he swiftly expressed them when the group gathered.

"Up front, before the first course was served, he said he wanted to buy The Huffington Post," Huffington said in an interview at her New York office this week.

Soon after that meeting — during halftime at Super Bowl XLV in Dallas — the deal was signed. AOL paid $315 million for the site.

Together, the companies would create "a digital destination that delivers unmatched experiences for both consumers and advertisers," Armstrong said when the deal was announced.

Two years after that acquisition, and nearly four years after Armstrong took the helm, AOL still faces challenges in courting consumers and advertisers. But it is finally showing progress.

On Friday, AOL reported its first increase in quarterly revenue in eight years. Revenue rose 4%, to $599 million, in the fourth quarter. Net income, bolstered by a $16.8 million gain from the sale of overseas assets, was $35.7 million, or 41 cents a share. In 2011, AOL earned $22.8 million, or 23 cents a share.

"We have walked through the valley of the turnaround and have gotten to growth," Armstrong said during Friday's earnings call.

Managing an evolution

Created as a Web portal and Internet access provider, AOL today has evolved into an ad-supported technology and media giant.

To achieve its goals, AOL cut costs, while ramping up consumer- and advertiser-friendly content such as video and apps. Ad revenue for the company hit $411 million in the fourth quarter, up 13% from the same period in 2011. Full-year ad revenue was up 2.8% to $1.3 billion.

The Huffington Post acquisition has helped power its growth.

Across AOL's properties, the level of monthly U.S. unique visitors was 110 million in December, up from 107 million in December 2011, but down from the 112 million in December 2010, according to tracker comScore. The Huffington Post's U.S. monthly unique viewership has steadily grown — to 46 million in December from 25 million two years earlier, according to comScore figures provided by Huffington Post.

AOL doesn't break out profit on The Huffington Post or other media divisions, but for the first time on Friday, it disclosed results of a "brand group" category that includes The Huffington Post, AOL.com, TechCrunch, local-news provider Patch and other content-focused assets.

That group's revenue grew 4% to $213 million for the fourth quarter. Adjusted operating income before depreciation and amortization was down 34% to $8.8 million for the quarter. The drop-off was primarily the result of increased investment in editorial staff and sales representatives and higher marketing expenses, AOL said.

Despite its recent revenue growth, AOL still faces hurdles. It lost share in the overall U.S. digital ad market in recent years, according to industry tracker eMarketer. AOL had a 2.5% share of all U.S. digital ad revenue in 2012, down from 2.8% in 2011 and 3.3% in 2010.

U.S. digital ad spending grew 14.9% in the fourth quarter to $10.58 billion, according to eMarketer estimates. Google has the biggest share — with more than 41% of all digital ad revenue in the U.S. Yahoo has the second-biggest share.

A well-known personality

Like other top media executives, Arianna Huffington is a frequent attendee at advertising and technology events. But the Huffington Post Media Group editor-in-chief is well-known outside the industry. She is present at major political outings and featured in society pages. Her Greek accent and outgoing personality are so familiar that she is sometimes impersonated on NBC's Saturday Night Live.

Unlike AOL, which had a "stodgy and old" image in recent years, Huffington and the company she co-founded are more current and cutting edge, says Robert Passikoff, president of brand loyalty consulting firm Brand Keys.

Passikoff likens AOL to "a kid in high school who isn't cool anymore." But by aligning with The Huffington Post, the AOL brand acquires some rub-off hipness. "There is a halo effect," he says.

The Huffington Post brand, as well as sibling unit TechCrunch, also tend to attract more tech-savvy users than the traditional AOL brand, notes Ben Schachter, an analyst at Macquarie Securities.

TechCunch and The Huffington Post help AOL draw consumers who aren't tethered to laptops, but use mobile devices such as tablets and smartphones, and will view alternative ad-supported content such as videos, he says.

Armstrong told USA TODAY that The Huffington Post's strong brand awareness, as well as its focus on innovation, gives Huffington Post "game-changing global potential."

Huffington: 'Best of both worlds'

Asked if she would want to buy her company back, Huffington says that "there is no reason to even contemplate anything like that."

"We have the best of both worlds," she adds. "We are a stand-alone entity within a great parent company that is very supportive of our big dreams."

But for The Huffington Post to keep its relevancy, she says, "it has to keep growing and evolving and engaging readers in new ways."

To that end, Huffington Post is:

• Extending global reach. Last year, The Huffington Post launched six international editions. It's now in the UK, Canada, France, Spain and Italy. Next up are areas in Germany, Africa and Asia. "We're going to go from international to global," says Huffington Post Media Group CEO Jimmy Maymann.

• Adding more videos. Video network Huff Post Live launched in August. It provides 12 hours of content, such as interviews with well-known personalities, on weekdays.

• Going mobile. Last year, The Huffington Post introduced an iPad app for HuffPost Live and an app for an iPad magazine. It also launched a wellness-focused "GPS for the Soul" iPhone app this year.

• Increasing lifestyle content: The site will bolster its coverage of personal topics such as divorce, weddings, books and travel.

Patch.com Not Doing Well for AOL

Story first appeared in The Wall Street Journal.

Patch.com, a network of small-town news sites owned by AOL Inc., has emerged at the center of a tug of war over the Internet company's future.

The high cost of running the local-news sites has fueled a campaign by dissident investor Starboard Value LP against the AOL Chief Executive's strategy of investing heavily in online content.

Starboard, which is waging a proxy battle to win several seats on AOL's board at next month's annual meeting, says that Patch should be closed, sold or put into a joint venture, with a partner sharing the cost.

Inside AOL, Patch is also a flash point. The creator of Huffington Post, who took charge of Patch and AOL's other news and entertainment sites after AOL acquired her Huffington Post last year, distanced herself from the business after disagreements over how it should be run.

The AOL CEO, has held his ground in defending Patch, which he co-founded in 2007 before he joined AOL, but he recently promised to make it profitable by next year. In a small step toward that goal, Patch said Tuesday it will cut around 20 jobs, or less than 2% of its workforce. The cuts will come from merging the management of its eastern and southern regional reporting operations.

Whether he can make Patch a success could determine his fate at AOL. As the ad-supported network has expanded to more than 850 towns from 30 in the past two years, its annual loss has widened sharply to more than $100 million in 2011, analysts say.

The main problem: It is tough to sell enough online ads to cover the cost of producing local news, especially while maintaining a local reporting staff and a local advertising sales force.

Several big media companies, including Washington Post Co., Politico parent Allbritton Communications, New York Times Co. and Gannett Co., have given up on similar experiments after failing to wrest a profit from online local news.

Others are still trying. Examiner.com, backed by a billionaire, draws roughly the same traffic as Patch, according to comScore, but its approach differs from Patch's.

The website has a full-time editorial staff of fewer than 30 people, who organize articles, photos and other media submitted by more than 85,000 freelance local "examiners." These examiners write about topics ranging from restaurants to running. Patch, by contrast, employs nearly 1,000 full-time journalists

The AOL CEO thinks Patch is on the right track, and just needs time to hit its stride.

Frustrated by the lack of local online news about his hometown of Greenwich, Conn., Mr. Armstrong developed the business model for Patch with Jon Brod, the former president and chief operating officer of his private investment group.

The idea was to target wealthy small communities that generated about $20 million a year in advertising though TV, radio, newspaper and direct marketing.

Patch has fallen well short of that target. AOL says the business is on track to bring in between $40 million and $50 million in revenue this year. That translates to an average of $50,000 for each of its 850 local sites. But the average Patch site costs between $150,000 and $200,000 a year to operate, or a total of $160 million.

The recent withdrawal from overseeing Patch highlights internal divisions over the operation. Following Huffington Post's acquisition last spring, Ms. Huffington set about integrating Patch with the Huffington Post.

She recruited the founder of a successful network of hyperlocal blogs in the New York borough of Brooklyn, to improve Patch's ties to its local communities, and Patch quickly adopted a blogging platform modeled on the Huffington Post's.

The blogging platform attracted more than 20,000 local bloggers within a year, pleasing Patch's local and regional editors. The sites also got a traffic boost when their local scoops were linked by the Huffington Post.

But they sometimes chafed at top-down directives, called "fire drills," that required Patch journalists to pitch in with reporting for national trend stories in the Huffington Post, draining resources from their local mission, according to several people familiar with the matter.

The creator of Huffington Post also ruffled feathers by promising local editors they could each hire associate editors to help with their workload, even though salaries for such posts weren't part of the website's business model, according to people familiar with the matter.

People familiar with her plan said the associate editors would have been paid for with savings in freelance costs.

Within six months of AOL's merger with the Huffington Post, the involvement in Patch had waned, according to several people familiar with the situation. In May, she announced that she was scaling back her portfolio to focus on her namesake news site.

The good news for Patch is that its traffic has grown sharply, swelling to 10.3 million visitors in April from 6.9 million a year earlier, according to comScore. Patch attributes the improvement largely to growth at its established sites.

In addition, more than a third of Patch's content now is generated by users uploading announcements, photos and other content, helping Patch shrink its budget for freelancers.

As well as relying even more on content from the public, Patch is planning to move beyond advertising and into local commerce, and to look for new sources of revenue in partnerships.

Last week it began a partnership with WPIX, a New York TV station owned by Tribune Co., in which a Patch correspondent delivers the area's top local news stories from Patch headquarters during the evening news.

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HuffPost Creator Being Restructured

Story first appeared in The Wall Street Journal.

The creator of The Huffington Post has acknowledged Thursday that her portfolio at AOL Inc. is being scaled back to include only the Huffington Post, undoing a structure put in place when her website was acquired by AOL last year.

After buying the Huffington Post for $315 million, AOL gave her editorial oversight of all its properties, including tech-news site TechCrunch, the patch.com network of local news sites, MovieFone and MapQuest. In addition, more than 30 AOL properties, such as Politics Daily, were absorbed by the Huffington Post.

The management structure created tensions with staff at some of the properties. Patch management, for instance, differed with her over strategy for the local news sites, according to people familiar with the matter. The founder of TechCrunch quit in a public spat with her.

At the same time, she has been gearing up for a major international expansion of the Huffington Post and the introduction of a streaming video network. The shift gives her more control of the Post going forward.

What she had originally asked for was for The Huffington Post to be more independent, to have technology, marketing and business development, so that they can accelerate growth, and to be freed up to just concentrate exclusively on HuffPost.

While various aspects of the restructuring were reported over the past month, these comments marked the clearest indication yet of what her new role would be.

The restructuring was finalized this week because the transfer of the last of the 33 AOL brands that the Huffington Post was to absorb was completed Monday.

The merger has had clear benefits for both the Huffington Post and AOL. Traffic to the Huffington Post has surged to nearly 39 million from 24 million unique visitors, according to comScore.

That has helped offset declines elsewhere at AOL from defecting subscribers and aging services such as AOL Instant Messenger. Search value is declining and could be revived with the help of a professional SEO Company.

The wider separation of the Huffington Post and the rest of AOL, however, has fueled questions about the Huffington Post's long-term future at the company.

Ms. Huffington said Thursday that she had been approached by private-equity firms interested in buying the Huffington Post, although the overtures went nowhere. She said she had no intention of leaving.

The change in the role comes as AOL is facing a proxy battle with activist shareholder Starboard Value LP, which has criticized the AOL CEO's strategy of investing heavily in online content.


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Huffington Post Acquisition A Bright Spot for AOL

Story first appeared in The New York Times.

One year after its acquisition by AOL, The Huffington Post has become a source of growth for the beleaguered company, which is still trying to shed its dial-up Internet image. Now, in what the Huffington creator characterizes as a move to keep the Web site’s growth accelerating, she has taken several of its business functions out of AOL and under her control.

The revamping is intended to help The Huffington Post maintain the innovative spirit of a start-up. Technology, business development, marketing and communications units that were woven into AOL last year will begin to report to her. The advertising sales unit will remain inside AOL at the moment.

The changes appear to give the creator more authority within the closely watched media company, where her title is president and editor in chief of the Huffington Post Media Group. She will continue to report to the AOL chief executive, whose contract was extended last week to run through early 2016.

In the year after the merger, editors reported to the creator, but employees in other departments, like technology and marketing, reported to various departments in AOL.

On Thursday, the Huffington creator is expected to announce that she has chosen a top executive at NBC News to run global strategy, marketing and communications.

In the last year, the Web site started four international editions — in Canada, including a French edition in Quebec, Britain and France — and announced plans for two more in Spain and Italy. It has also added dozens of content sections, which show great potential with SEO optimization.

Those additions have helped the site become a bright spot for AOL. While visitor totals for AOL as a whole have dipped slightly in the year since the $315 million acquisition was completed, visits to the Huffington Post Media Group (a combination of The Post and some of AOL’s sites) have shot up, according to analysis of comScore data. That is a sign of how significantly The Post’s traffic has helped AOL; executives say The Post helped stabilize AOL’s traffic statistics.

The weaving and unweaving of operations may reflect the difficulties that mergers and acquisitions routinely create.

The combination of AOL and The Huffington Post has been a source of fascination for many in the media business for many reasons, chief among them Huffington’s own force of personality and her sites’ tendencies to collect the work of others. They are trying original reporting on The Huffington Post, citing recent series about foreclosures and poverty in America.  Proper SEO implementation would greatly increase the visibility of these new original series.

The Post is preparing to start a streaming video network that will have 12 hours a day of live programming. It is scheduled to start by the end of June. And a former editor for The New York Times who is now the executive editor of The Post, is in charge of a magazinelike app, now in the prototype stage, that would come out weekly and would contain highlights of the site. The app’s creation was first reported last month by Forbes.

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