Arianna’s new empire

February 7, 2011

A brash and charismatic household name is brought in to apply magical fairy dust to a struggling media franchise with declining relevance and revenues. Tina Brown has done it successfully three times — with Tatler, Vanity Fair, and The New Yorker — and is now trying again with Newsweek. Arianna Huffington is newer to this game, but Tim Armstrong is surely willing to throw even more money at Arianna than Si Newhouse threw at Tina. Armstrong needs this bet to succeed — he’s placed Arianna in charge of all his media properties, while telling everybody that AOL is a media company first and foremost. And that’s why Arianna is so happy today.

Zach Seward made a very smart point this morning: Arianna, with this deal, is not only massively expanding the reach of her eponymous baby — the Huffington Post is now just one part of the massive Huffington Post Media Group — but is also regaining control of it. The Huffington Post, like any company funded by venture capitalists, always had to be moving towards a hefty exit for its shareholders: Dan Lyons reports today that one of the key backers, Softbank, was “impatient for a return” as long ago as June 2009.

Arianna never had free rein at her company: a large part of the CEO’s job was to manage her flights of fancy (free buses to the Stewart/Colbert rally in Washington!) and to make the tensions between her and co-founder Kenny Lerer as productive as possible.

Now, by contrast, the constraints on Huffington are much fewer. Lyons frets that “all those bright young things with the glamorous job of writing for the Huffington Post are being sent down into the belly of the AOL galleyship and assigned to an oar” — but the fact is that Armstrong bought HuffPo, and TechCrunch before it, precisely because his galleyship model of managing writers was a signal failure. Arianna gets much more bang for her buck — and has happier and more loyal employees.

From the point of view of editorial-side employees at HuffPo and AOL, there’s no doubt that this merger is going to be wrenching — all mergers are. But I don’t think it’s going to be as bad as many think, certainly when it comes to layoffs. Both Armstrong and Huffington have a vision for Huffington Post Media Group that is much bigger than what currently exists, so it should be possible to take any redundancies/synergies/overlaps between HuffPo and existing AOL properties and refocus that extra talent on growth. Arianna’s a den mother when it comes to her own employees: she won’t stand for any harm befalling them. And the AOL employees will finally get to work for someone whose nose for what works editorially has been far more lucrative than the numbers-based management at AOL.

Best of all, from Arianna’s point of view, is that all the extra investment she wants to make in editorial, starting with HuffPost Brazil, is going to be paid for not by rapacious venture capitalists looking for monster returns on their investment, but rather by befuddled and elderly AOL subscribers with broadband connections who don’t understand that they can cancel their $20-a-month subscriptions and still keep their AOL email address. That stream of cash won’t last forever, but it’s never going to interfere with Arianna’s editorial decision-making.

Meanwhile, Kenny Lerer has now achieved his exit, albeit at the low end of the $300 million to $450 million range being mooted back in December. As far as his media properties are concerned, his next big order of business is to manage another profitable exit from The Business Insider, where’s he’s a significant investor. This post is instructive: when one of TBI’s employees said something rude about AOL, getting more than 50,000 pageviews in the process, he was rewarded with a very public smackdown and told that he “did not go through the proper editing process”; Henry Blodget then served up a grovelling public apology of the type I’ve never seen on TBI stories written about companies which aren’t potential acquirers.

As Huffington and Lerer go their separate ways, then, both of them will surely be very happy at how it all worked out — with lots of money for both of them, and no more fights over money or strategy. Lerer might have wanted a bit of a higher sale price, but once Arianna decided she wanted to sell, it was all over: it is her name on the door, after all. And now she has more control of her empire than ever — not to mention a substantially bigger empire than she had yesterday.


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