I Hope HuffPo's Merger With AOL Works Out Better Than The TimeWarner One Did

I've written about my experiences at Warner Bros Records when AOL bought TimeWarner several times in the past, particularly here and here. Had Arianna asked me, I would have suggested she read Nina Munk's incisive book, Fools Rush In, before making the deal with AOL. Of course HuffPo isn't TimeWarner and AOL is reputed to have changed a lot itself. Still, I can't imagine in my wildest dreams that the two corporate cultures have any chance whatsoever ever melding any more smoothly than the cultures at AOL and TimeWarner did.

That merger was an absolute catastrophe for all stakeholders except upper level management. I did well personally. Employees-- now reduced to about one-third of the number they were-- shareholders, artists, customers, society in general... were all ruthlessly ignored, if not preyed upon. Everyone got screwed except Case's smallish circle and a tiny handful of upper-level TimeWarner managers, almost all of whom, like myself, got out of Dodge at the first opportunity.

When the merger first started being discussed I was the only divisional president that I knew of who was actually enthusiastic-- very enthusiastic. I had identified digital downloads as the future of the music business-- one way or the other-- at a time when most top corporate managers in the music industry still considered computers something their secretaries typed on. (Some still do in 2012.) It was clear they/we were about to have our lunches eaten. My boss, the Chairman of Warner Bros Records, recognized the urgency as well. I had hired an aggressive young computer whiz kid as the very first Internet promo guy in the music biz. Everyone rolled their eyes-- except my boss. Now we asked him to come up with a system that would help us sell our artists' music.

He did. We brought it to AOL. I was sure they would love it. They stalled for months and finally told us... it's great and it's elegant but "we don't want to set any precedents." That was the end of Warner Music as a viable firm, and, to my thinking, the end of the Music Industry as it was. The kid who came up with the system went to work at Apple and was part of the team that developed iTunes. He's almost as rich as Hosni Mubarak.

As for HuffPo... I'm happy for my friends who are going to profit from this. And I hope their shared vision for what they've created will be in the future stays on course. Me... I'm looking forward to the comedy-oriented party I was invited to last week that I didn't know at the time was a celebration of the $315 million buy out that the NY Times called an "unlikely pairing."

The deal will allow AOL to greatly expand its news gathering and original content creation, areas that its chief executive, Tim Armstrong, views as vital to reversing a decade-long decline.

Arianna Huffington, the cable talk show pundit, author and doyenne of the political left, will take control of all of AOL’s editorial content as president and editor in chief of a newly created Huffington Post Media Group. The arrangement will give her oversight not only of AOL’s national, local and financial news operations, but also of the company’s other media enterprises like MapQuest and Moviefone.

By handing so much control over to Ms. Huffington and making her a public face of the company, AOL, which has been seen as apolitical, risks losing its nonpartisan image. Ms. Huffington said her politics would have no bearing on how she ran the new business.

The deal has the potential to create an enterprise that could reach more than 100 million visitors in the United States each month. For The Huffington Post, which began as a liberal blog with a small staff but now draws some 25 million visitors every month, the sale represents an opportunity to reach new audiences. For AOL, which has been looking for ways to bring in new revenue as its dial-up Internet access business declines, the millions of Huffington Post readers represent millions in potential advertising dollars.

...The sale means a huge payout for Huffington Post investors and holders of its stock and options, who stand to profit earlier than if the company had waited to grow large enough for an initial public offering.

While Huffington Post has been growing-- it now employs more than 200 people, a threefold increase in just the last few years-- AOL has been shrinking. Last year it eliminated close to 2,500 positions, roughly a third of its staff. Although its most recent earnings estimates beat Wall Street expectations, revenues for the fourth quarter were down 26 percent from a year earlier as dial-up customers continued to disappear. Ad revenue, which is seen as the company’s main business going forward, was down 29 percent from the year before.

Since 2009, the company has untangled itself from its ill-fated merger with Time Warner, a legacy media company with print magazines, a film studio and television channels. AOL, not fully a media company, not fully a technology company, never melded with its corporate partner.

...“The reason AOL is acquiring The Huffington Post is because we are absolutely passionate, big believers in the future of the Internet, big believers in the future of content,” Mr. Armstrong said.

In that sense, the deal carries a risk for the Huffington Post, which has had none of AOL’s troubles and is widely viewed as a business success with its own unique voice and identity. Now that it is to become part of a large corporate entity, what becomes of that unique character is an open question.

“The potential is great; it’s almost overwhelming,” said Howard Fineman, the Huffington Post’s senior political editor. “But the key will be to engage people who really want to be engaged, and make it hospitable to them, draw them in and expand the sense of community without losing them at the same time.”

I'm drowning in Déjà vu.