February 07, 2011, 11:40 AM —
Shares of AOL (NYSE:AOL) dropped more than 4 percent in early trading Monday as investors reacted negatively to news that the troubled Internet pioneer will buy popular online news and entertainment site The Huffington Post for $315 million.
Announcement of the sale was made shortly after midnight, less than two hours after the Super Bowl. Perhaps both parties thought the news would be more palatable to a drunken, distracted audience. Just a theory.
By the time trading began Monday morning, sober investors slapped down AOL's stock to 21.06, more than 4 percent below Friday's closing price of 21.94. Shares rebounded slightly by 10 a.m. to 21.39, still 2.5 percent below Friday's finish.
So what's behind the initial panning of the deal? It could simply be the price tag. Since the Huffington Post is a private company, it's hard to tell what it's really worth. It certainly is popular, ranking No. 128 in the world by Alexa and attracting more than 25 million unique visitors a month, according to comScore. Only the New York Times and its branded properties draw more unique visits a month.
AOL says The Huffington Post's traffic will give AOL's combined sites 117 million unique monthly visitors in the U.S. and 270 million a month worldwide. That's a big boost.
Beyond eyeballs, though, what does HuffPost add to AOL? First, let's step back and review AOL's content strategy, based on a recently leaked memo:
AOL is eagerly embracing the "content farm" approach pioneered by Demand Media -- generate cheap content based on three major considerations: whether it can get page views, whether it can generate sufficient revenue, and whether it can be produced quickly. Other than that, it's all about quality.
Prepare for a tsunami of AOL articles about Lady Gaga, Sarah Palin, American Idol, Jersey Shore, Charlie Sheen and how to carve a pumpkin.
And there it is! That's what HuffPost can bring to the table. Trashy celebrity coverage. That's the site's specialty, not left-leaning political invective, as conservatives like to think. Oh, sure, there's plenty of that. But does anyone in their right mind believe that HuffPost has grown to its current size on the back of op-eds by Noam Chomsky and Al Gore? If that were the case, other liberal sites such as Salon.com and Talking Points Memo would be just as popular, but they're not even close. (And, by the way, in case you're wondering, this is coming from a liberal.)
No, the not-so-secret sauce behind HuffPost's success is its tabloid mentality (not to mention the vast amount of free content it generates through aggressive aggregation, paying regular contributors in "valuable exposure" rather than actual money, and gulling readers into providing user-generated content by offering them shiny virtual merit badges for wasting their lives arguing with each other in comment threads over who is more liberal). Oh, plus HuffPost has perfected the art of the time-wasting slide show.
Here are some recent examples of the "premium news, analysis, and entertainment" -- as AOL put it -- offered by HuffPost:
Designers Question Steve McQueen's Masculinity: 'He Beat Up His Wife'
Pink's Baby Bump
Charlie Sheen's Pre-Hospital Bender, Dance Party (PHOTOS, VIDEO)
WATCH: Cameron Diaz Feeding A-Rod At Super Bowl 45
Gisele: Sunscreen Is 'Poison'
The Top 5 Ways To Go From 'Dateable' To 'Mateable'
Did It Go Too Far? Kim Kardashian's Sexy Super Bowl Ad
Which Major Star Compared Lady Gaga With... John Lennon?
Bill O'Reilly Disses Oprah
PHOTOS: Katie Couric In A Bathing Suit
Kim Kardashian: W Magazine Showed 'Full On Nipple'
Joan Rivers: Charlie Sheen 'Is An Ass'
So there you have it. HuffPost's real formula for success. Combine that with "The AOL Way" -- grind down staffers by forcing them to crank out crap content -- and you have a portrait of the perfect online media marriage.
In her gushy, typically self-congratulatory column announcing the sale, HuffPost founder Arianna Huffington called the deal "a merger of visions."
No argument here.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.