The sale of The Huffington Post to AOL is 'a big bet' on online news

Is the sale of news website The Huffington Post a gamble on behalf of AOL, which is clearly looking to the future. Noel Young takes a look.

Big news in the online media world today. Huffington Post , the news-led website founded by Arianna Huffington just six years ago with $1 million in capital, is being sold to AOL Inc. for $315 million.

US commentators say the deal represents "a big bet on the future of online news."

The deal will bring AOL an additional 25 million unique visitors a day and will also mean an even higher profile for Arianna. She will be in charge of all AOL content.

The deal "will create a next-generation American media company with global reach that combines content, community, and social experiences for consumers," AOL CEO Tim Armstrong said today.

An advertising insider forecast It would help AOL turn around its display advertising business, which has struggled to grow as the company moves farther away from its roots providing dial-up Internet."

AOL had just 5.3 percent of the U.S. display advertising revenue in 2010, down from 6.8 percent in 2009. Facebook, meanwhile, accounted for 13.6 percent of display revenue last year, up from 7.3 percent in 2009.

Founded in 2005, Huffington Post is owned by Arianna , Kenneth Lerer and a group of other investors. AOL will pay $300 million of the purchase price in cash.

Arianna will be named president and editor-in-chief of The Huffington Post Media Group, which will include all Huffington Post and AOL content, including Engadget, TechCrunch, MapQuest, Patch, Moviefone and more.

AOL, which separated from Time Warner in 2009, last year eliminated 2,500 positions, roughly a third of its staff. . It has since acquired new businesses, launched and relaunched websites, and rolled out a new Web advertising system.

Armstrong said last week he saw 2011 as a "comeback year" for the Internet company .

Huffington Post is now one of the top 10 global news sites. It has a staff of 200 - up from 70 in the past few years - whose work is augmented by content from news outlets and 6,000 bloggers who write for free.

The deal is expected to close late in the first quarter or early in the second quarter, pending regulatory approvals.

An article in the New York Times writers said the deal that "created an unlikely pairing of two online media giants."

By handing so much control over to Ms. Huffington AOL, which has been seen as apolitical, risks losing its nonpartisan image, the writers said.

Ms. Huffington said her politics would have no bearing on how she ran the new business.

The new company has the potential to reach more than 100 million visitors in the United States each month, the Times said.

Mr Armstrong said it was a bold investment, fitting right into our strategy. “I think this is going to be a situation where 1 plus 1 equals 11.”

Ms. Huffington and Mr. Armstrong came to know each other well after they both attended a media conference in November. They quickly discovered, as Ms. Huffington put it, “we were practically finishing each other’s sentences.”

They began discussing the possibility of a sale only last month. Arianna added: “It was really amazing how aligned our visions were.”

One of The Huffington Post’s strengths has been creating an online community of readers with tens of millions of people. Their ability to leave comments on Huffington Post news articles and blog posts and to share them on Twitter and Facebook has been a major reason it attracts so many readers.

"It is routine for articles to draw thousands of comments each and be cross-linked across multiple social networks, " said the Times

Ms. Huffington said the site had its first profitable year last year. Huffington Post executives estimate that the site will generate $60 million in revenue this year, compared with $31 million last year.

Less enthusiastic was Steve Case, the co-founder and former CEO and chairman of AOL, who questioned AOL’s purchase via his Twitter account.

He tweeted, “Tim Armstrong says 1 + 1 will equal 11. Really? That wasn't my experience”.

Case was at AOL in 2000 when Time Warner acquired the company for $164m – seen by many as the biggest media blunder of the past decade. Case resigned three years later, but remained on the AOL board until 2006.

More analysis: first the praise...then the doubts.

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