2011-02-14 AOL buys HuffPo: The good, the bad, and the stock price

Intelligence Report - 02/14/2011
By Mark Glaser & Corbin Hiar




AOL buys HuffPo: The good, the bad, and the stock price

AOL had to do something to end its losing streak. Will the purchase of the Huffington Post do the trick? The long-ailing Web pioneer watched its search and ad revenues plummet 33.7 and 14.3 percent, respectively, since the same period last year. Meanwhile, its dial-up customers -- still the source of some 80 percent of AOL’s revenue -- inevitably continue to upgrade away. Now AOL’s CEO Tim Armstrong has upped his ante on the content-driven turnaround plan leaked to the Business Insider by spending $300 million in cash and $15 million in stock on the six-year-old, popular progressive site, the Huffington Post. In spite of the hefty premium Armstrong paid (about 10 times HuffPo’s 2010 revenues of $31 million), media watchers found much to like about the bold move. As part of the deal, Huffington Post cofounder Arianna Huffington has been given full control of all AOL and HuffPost content. TechCrunch’s Paul Carr praises his soon-to-be boss: “By putting Huffington in charge of content, Armstrong has given AOL the best possible chance” to turn a profit. Her ability to connect with readers will likely be crucial to this endeavor. “The Huffington Post has done an incredible job engaging its readers to become contributors through comments, blog posts, and social features,” notes Carr’s TechCrunch colleague Erick Schonfeld. Together the two companies will have a combined reach of 117 million unique U.S. visitors.

But there are still significant risks for the combined company. The Huffington Post and its outspoken founder come to AOL laden with the weight of political baggage. That, along with the departure of HuffPost’s successful ad sales chief, may limit the potential ad revenue growth Armstrong is banking on to make the investment work. GigaOm founder Om Malik predicts that the traffic growth Armstrong is hoping for is also not likely to materialize. According to Malik, the Huffington Post’s page views have been falling (a HuffPost spokesman countered Malik’s traffic figures with conflicting data). A reason for this, Slate’s Farhad Majoo points out, could be that the search engine optimization tactics HuffPost has used to attract traffic in the past are less useful as Google improves its algorithm and readers rely more on Facebook and Twitter to aggregate content. What about all the bloggers producing free content and commentors sharing it? Reporting by The Daily and The Daily Beast show that many feel betrayed by Arianna’s decision to sell her site to AOL. And the fundamental fact -- one that is not lost on AOL veterans burned by its previous merger with Time Warner -- is that media mergers are hard to pull off. Armstrong told the New York Times that “this is going to be a situation where 1 plus 1 equals 11.” In a tweet, AOL’s former CEO Steve Case questioned his merger math: “Really? That wasn’t my experience.” Investors were similarly skeptical. AOL’s shares closed down 3.42 percent at $21.19 on the news.


German car makers, Packers fans win advertising Super Bowl

In an increasingly fragmented American media landscape, the Super Bowl is one the few events that can still reliably attract the attention of a mass audience. For the second year in a row, the game broke TV viewership records. The rates advertisers paid -- some $3 million for each 30-second slot -- to reach the Super Bowl’s audience of 111 million was also at near-record levels. With so much at stake, how did advertisers make the most of this marketing opportunity? Many Internet companies were willing to pay the astronomical ad rates for the chance to be seen by so many Americans at once. While most were sure to include their website, ClickZ’s Anna Maria Virzi was one of the many commentators who were surprised that “Super Bowl 2011 advertisers, for the most part, failed to integrate their TV ads with social channels.” There were, of course, notable exceptions to this trend. Audi was the first company to feature a Twitter hashtag in a Super Bowl ad. German automotive rivals built up anticipation for their ads by staging a “Twitter race,” in the case of Mercedes, and by promoting its commercial on YouTube shortly before the game, in the case of Volkswagen.

Although many brands failed to extend their multi-million dollar ad campaigns online, social platforms were happy to use the ad spots to drive their own traffic. Twitter experienced its highest traffic in history -- much of it discussing controversial ads like the one run by Groupon. YouTube brought back its AdBlitz page, where users vote on their favorite commercials, and launched a mobile version of the contest for the first time. Hulu offered users a similar opportunity to pick the top spot in its AdZone. Citing data from Lightspeed Research, USA Today’s Bruce Horovitz notes that nearly two-thirds of 18- to 34-year-olds who planned to watch the Super Bowl had smartphones and intended to use them while watching the game. As a result, mobile companies and apps had a big night. StumbleUpon, which only released its iPhone app in August, broke its previous record for mobile stumbles by some 10 percent near the end of the game. Foursquare also had a record-breaking night with its Promoted Venue trial. Upon check-in, users were given badges identifying which team they were supporting and unique redemption codes that gave badge-holders a 20 percent discount on merchandise at NFLShop.com. More than 200,000 users checked in and, like the results on the field, the Packers fans won the Foursquare Super Bowl.

Lawmakers clamor for privacy laws

The FTC has threatened to compel Congress to enact privacy legislation if companies don’t clean up their acts. But now it appears legislators are taking the initiative without the FTC’s final report. Two of at least three bills have now hit the House. Rep. Jackie Speier (D-Calif.), introduced the first piece of legislation. “She left no doubt about the point of the bill in its very personal name: 'The Do Not Track Me Online Act of 2011,'" reports Broadcast & Cable’s John Eggerton. The reason for its strident tone is likely because, according to The Hill’s Sara Jerome, Speier's office worked with many pro-privacy groups on the bill, including Consumer Watchdog, the Consumer Federation of America, Consumers Union and the Electronic Frontier Foundation. The California Rep. also introduced a financial information privacy bill, as well. “These two bills send a clear message -- privacy over profit,” Speier said in a statement picked up by the LA Times’ Dan Saro. A day earlier, Rep. Bobby Rush (D-Ill.) re-introduced a more industry-friendly privacy bill, which he crafted in a previous session of Congress. Rep. Cliff Stearns (R-Fla.), who had worked on a bipartisan package with a Democrat who was not re-elected, has announced his intentions to put forward a similar bill for consideration. The question remains whether any of these bills will ever become law.

Facebook renews push into commenting, advertising

Facebook has changed the way people share news, and now it is working to change the way they comment on it. CNET’s Caroline McCarthy reports that the company is planning a dramatic upgrade to its existing comments plug-in. That option, which is already employed by People.com, verifies users and allows basic comment voting and threading. McCarthy suggests that the new system will be much more robust with “cross-promoting comments on individuals' Facebook walls, and possibly even promoting them as well on media outlets' own fan pages. Undoubtedly, the Facebook ‘Like’ button will be deeply integrated as well.” Based on the comment system Facebook is already employing on its own blogs, Inside Facebook’s Josh Constine believes the new update will assign users a weighted, “aggregated credibility score” based on how many times their comments are voted up or flagged as spam. Comments from more credible commentors would be highlighted and used to steer conversation; commentors with lower scores would get fewer responses to their contributions. And since this score would travel with users wherever the plug-in is integrated, “it should encourage more civil, thoughtful commenting,” Constine predicts. Plus, he says, “Facebook wields a much more powerful weapon: the ability to terminate a user’s account, severing all their friend connections. Most users will be too scared of such social ruin to abuse the Facebook Social Commenting plug-in with their real account.”

Companies with rival commenting systems confirm that they’ve known a serious Facebook competitor product is on the way, but for now at least they’re putting on brave faces. Livefyre founder and CEO Jordan Kretchmer give ReadWriteWeb’s Mike Melanson reason to doubt the success of Facebook’s commenting push. “People generally want the option of commenting with different personas, not ‘anonymously’ per se, but personas that they care about and upkeep in the different communities that they comment on. Not allowing for that will diminish the overall amount of conversation publishers will see,” Kretchmer says. He adds that reports of Facebook’s new system allowing for Twitter and Google log-ins -- which, if true, would allow for multiple commenting personas -- seem far-fetched. Meanwhile, the social network is also threatening to further erode the price for online advertising with its new “Promoted Stories.” This new self-serve advertising option allows advertisers to sponsor "Likes" or links of users to show up in their friends' feeds -- all without payment to or consent from the user. This new stream of advertising inventory may further depress the CPMs by vastly increasing the available supply.

TV tops web in TBD hyper-local shakeup

On the six-month anniversary of the founding of TBD, an ambitious web-centric approach to local news, corporate parent Allbritton Communications announced a reorganization that returns the focus to its TV stations. As GigaOm’s Mathew Ingram explains, “the site was designed to be a hybrid of a traditional news operation and an online-first, community-driven news site.” The shakeup will result in the relaunch of WJLA TV’s own website and the return of NewsChannel 8, which had been rebranded as TBD TV in August. Ingram says Allbritton’s change seems to represent “a scaling back of its original ambitions.” The Washington Post’s Paul Fahri says it “represents a retrenchment” to the TV-driven model Allbritton is more familiar with “and, in some ways, a retreat from the original vision of TBD.” Sources confirm Fahri’s analysis: “According to people at TBD... the restructuring reflects a triumph of Allbritton's highly profitable old-media franchise -- broadcast television -- over its newer franchises such as cable TV and the Internet.” What does that mean for TBD and other hyper-local or web-centric newsrooms? In regards to TBD.com, GigaOm’s Ingram says, “Albritton’s challenge now is to prove that what was once a celebrated hyper-local web startup doesn’t become just another TV station website.”

TBD editor Erik Wemple, who was recruited to the startup from influential independent weekly Washington City Paper, tried to put a positive spin on the moves. The idea behind the website relaunch “is to catch the traditional JLA audience, which is a bit more suburban, and the new TBD audience, which is a little more packed into the inner core of the District and the inner suburbs,” Wemple told Neiman Lab’s Megan Garber. Lost Remote’s Cory Bergman finds this logic compelling: “For the hundreds of thousands of WJLA viewers,” who tend to be older and less web-savvy, “TBD.com was not a place to find extended TV coverage or interact with the familiar people and franchises they watch on TV.” Writing on "We Love DC," a site that is a member of the TBD Community Network, Tiffany Bridge finds Wemple’s assurances unconvincing: “I’ll just point out that his entire team has just been placed under another manager, and ask whether you would be looking to stick around in that situation.” The loudest criticism of the move has come from Jim Brady, who was Wemple’s predecessor in the TBD general manager role that is now being reassigned to WJLA station manager Bill Lord. In one of a series of scathing tweets, Brady wrote, “At good companies, the people who resist necessary change are pushed aside. At bad companies, they are put in charge. RIP, the old TBD.” A tweet from NYU J-school prof Jay Rosen stopped short of mourning TBD’s demise but did predict “a mass exodus of the web talent.”


Smartphones outsell PCs; Verizon boosts iPhone

The future of digital innovation is increasingly shifting to mobile platforms. For the first time in history, smartphone sales outpaced those for PCs last quarter, according to research firm IDC. In part, analysts note, this is due to the fact that PCs have a higher market saturation, but the rate of growth is clear. In fact, this long-predicted inflection point has come faster than many industry watchers predicted. As Fortune’s Seth Weintraub points out, venture capital advisor Mary Meeker predicted that smartphones wouldn’t best PCs until 2012. Pushing the devices over the top was a year-over-year growth rate of 87 percent in the fourth quarter, says IDC.

Many of the smartphones were built on the open-source Android platform, but if Apple’s early sales figures with Verizon are any indication, the iOS may lead growth in future quarters. Verizon had to suspend presales of the iPhone 4 “after registering what it called the most successful first-day sales in the company's history,” CNET’s Jim Darlymple reports. "In just our first two hours, we had already sold more phones than any first day launch in our history,” said Dan Mead, Verizon’s president and CEO. “When you consider these initial orders were placed between the hours of 3 a.m. and 5 a.m., it is an incredible success story," Mead added. Verizon declined to disclose how many iPhones it sold before ending the pre-order period, but “the stock out on the one day of pre-orders affirms the strong pent-up demand for the Verizon iPhone, and bodes well for initial sell-through,” RBC analyst Mike Abramsky said in a research note. Analysts have estimated the number pre-sold at around 100,000 devices and Verizon has asked its employees to hold off on switching to the iPhone so that the company can meet customer demand.

Email use down among teens, Facebook up

Is email dying? You might think so if you're looking at the most recent comScore data on web email usage. In the past year, its use is down 8 percent overall, with a dramatic decline of 59 percent among people between the ages of 12 to 17. “Cue Matt Drudge-style alarm,” TechCrunch’s Alexia Tsotsis writes. Meanwhile, comScore also notes that the time spent on Facebook -- with its streamlined, SMS-like Messages platform -- continues to rise. The total time spent on Facebook in December 2010 was 79 percent greater than the same month a year before. Is one to conclude that email is simply a vestigial technology that will not be adopted by the next generation of web users? No, says Patricia Robles of Econsultancy. “First, it's important to note that comScore's figures cover web-based email,” Robles notes. With smartphone adoption on the rise, it is natural that mobile email access would cause declines in web-based email. Second, many of the young users -- among which the rate of decline is the most remarkable -- “have yet to enter the ranks of the employed, where they will inevitably find that email is still very much a necessity,” she cautions. “When will the ‘death of email’ die?” Robles asks.

Of Note

Nokia Picks Windows (Silicon Alley | Business Insider)
In big boost for Microsoft and Bing, world’s top handset maker says Windows 7 will be its “primary” OS

Time Inc. Working With HP on New Tablet Magazines (MediaMemo | AllThingsD)
In rebuke to Apple, publisher to offer tablet subscriptions on forthcoming HP device

Yahoo Is Said to Move Toward Personalized Content (New York Times)
Sources say it plans to tailor news based on users’ past searches and preferences

Boston Globe’s augmented reality project an example of quick, cheap innovation (Poynter)
Smartphones unlock five animated features on cover of newspaper’s spring arts guide

Gawker’s Christopher Lee Scoop Draws Eyes to Redesign (Media Decoder | NYTimes)
Site lands and leads with biggest scoop in nine year history two days after redesign

Special Series: Online Privacy (PBS MediaShift)
An examination of what government, industry and Facebook are doing to improve privacy


openquoteI’ve got no problem with a competitor developing an innovative algorithm. But copying is not innovation, in my book.closequote

Amit Singhal, a Google Fellow who oversees the search engine’s algorithm, on the allegation that Bing is stealing Google searches

Google: Bing Is Cheating, Copying Our Search Results (Search Engine Land)


The OPA Intelligence Report is a bi-weekly email summarizing and commenting on important news and research for the online publishing industry. As always, feedback is welcome at feedback@online-publishers.org.