By Jennifer Saba
NEW YORK Dec 23 It's the holiday season and
Arianna Huffington, the influential woman behind the popular
news website that bears her name, is busy buying sweaters - some
700 of them - as gifts to her employees.
From brands like J.Crew and White + Warren, the sweaters are
placed at the desks of The Huffington Post staffers who can swap
or trade them before posing for an annual group photo.
When The Huffington Post was sold for $315 million nearly
three years ago, Huffington told her new boss, AOL Inc
Chief Executive Tim Armstrong, that they had to uphold the
tradition she started when she launched the site in 2005 and
personally selected sweaters for her handful of employees.
By the time of the February 2011 takeover, The Huffington
Post had 200 employees and was known as a leading source for
left-leaning political news.
"I told Tim when we discussed the acquisition the one thing,
however big we are, we are able to give sweaters," Huffington,
63, said in an interview early in December.
With AOL's backing - it has injected tens of millions of
dollars into the website - The Huffington Post has been able to
do much more than give out cardigans every year. Its audience
has more than tripled from 25 million people before the AOL deal
to 84 million at the end of October, according to comScore data.
It has branched out to cover lifestyle, entertainment, business
and technology, mushrooming to 60 vertical sites from about 20.
But The Huffington Post has yet to turn a profit for AOL,
falling far short of Armstrong's projection at the time of the
acquisition that the unit would post $66 million in operating
profit in 2013 on $165 million in revenue.
While that has not hurt AOL's share price this year - the
stock is up more than 40 percent - analysts said The Huffington
Post will become more critical next year to AOL's hoped-for
transformation into a digital media powerhouse.
Macquarie analyst Ben Schachter said investors gave AOL's
content businesses a pass this year because its dial-up Internet
subscriber business - where it made its name almost two decades
ago - declined at a slower-than-expected rate. Investors were
also happy with a special dividend and stock buyback from AOL's
$1 billion patent sale to Microsoft Corp.
"Going forward, things like The Huffington Post and the
overall Brand Group will have to show they are real businesses
and profitable," Schachter said. "I've been a broken record
about it: Can they make content profitably? Up until recently
the answer has been 'no.'"
The Brand Group, which includes The Huffington Post,
TechCrunch, Moviefone and Patch, reported an adjusted operating
income before depreciation and amortization (OIBDA) of $4.6
million for the nine months ending in September. For the same
period in 2012, it reported a loss of $41.6 million.
AOL does not break out results for the individual sites.
Mark May, an analyst with CitiGroup Research, forecast The
Huffington Post will post a loss of about $6 million this year
on $100 million in revenue.
AOL executives say The Huffington Post is losing money
because they made a deliberate decision to divert advertising
revenue back into the business to help it grow, and that the
website would be profitable otherwise.
Armstrong, in an interview, said The Huffington Post's loss
is narrowing and he expects the business to turn profitable next
year, helped by the growth of global editions, video, and
lifestyle conferences. He declined to give specific figures.
"Huffington Post has come to the point where it's a
non-replicable asset," Armstrong, 42, said. "It would take a lot
of effort and a lot of money and lot of years to repeat what we
have been able to build with them."
KEYS TO THE CAR
After Huffington and Armstrong shook hands on the takeover
at the 2011 Super Bowl in Dallas, the latter justified the hefty
price tag - roughly 6.3 times 2011 estimated revenue - by saying
The Huffington Post would become the cornerstone of AOL's media
But the merger has had rocky moments, in part because of
tensions between Armstrong and Huffington, who was put in charge
of all of AOL's editorial content. Their strained relationship
had to do with culture clashes, differences over the allocation
of resources and how the other brands would mesh with The
Huffington Post, according to several people familiar with the
Last year, Armstrong considered ousting or sidelining
Huffington, according to two people with knowledge of the
matter, who spoke on condition of anonymity. It is unclear if
Armstrong formally presented those scenarios to the board.
Armstrong and Huffington both acknowledged there were bumps
in the early days of their partnership, but denied that there
was a plan to fire Huffington.
"Tim and I have a great relationship. The first year, when
we worked out a lot of things, it had its hard moments,"
Huffington said. "If you look at The Huffington Post's growth
and innovation it's staggering. It would not have happened
Armstrong told Reuters, "I have gone to the board in support
of Arianna to get resources. She's doing a great job and I
respect the work she is doing."
Instead of replacing Huffington, Armstrong restructured the
business as part of a wider reorganization of AOL. Huffington's
title did not change - she was still president and
editor-in-chief of The Huffington Post - but she lost oversight
of the other AOL editorial brands in April 2012.
Later that year, The Huffington Post was given its own chief
executive, Jimmy Maymann, who was previously in charge of AOL's
international properties. He reported to Huffington but had
operational oversight, including building out a sales team.
Maymann told Reuters that the changes meant The Huffington
Post could operate like a start-up within a larger organization.
It was still part of the Brand Group, but it had its own budget,
technical resources and dedicated sales staff that will grow to
about 40 people from a handful previously.
"The Huffington Post has now got the keys to the car," said
Maymann, who had joined AOL after it bought his video
distribution company, Goviral, in January 2011.
"AOL is still in the car, they are just in the back seat,
whereas for a little bit of time there was some confusion (over)
who was driving. That has made the relationship a much better
one and a much healthier one," he said in an interview.
The restructuring came as The Huffington Post faced growing
competition from other new-media start-ups, such as Buzzfeed.
Buzzfeed has become one of the fast-growing U.S. media sites
- it now employs 300 people and is profitable, according to its
founder and CEO Jonah Peretti, who also helped start The
In explaining the restructuring, Armstrong said, "There were
a lot of areas AOL wasn't moving fast enough in and was slowing
The Huffington Post down."
LIVE, FROM DAVOS
AOL executives are betting on international sales to
increase profits at The Huffington Post next year. AOL
bankrolled the site's expansion in France, Japan and northwest
Africa, and it plans to be in Brazil, India and other countries
that collectively generate almost 50 percent of the world's
gross domestic product (GDP) by the end of 2014.
Maymann said the site decided to partner with foreign media
properties, which take about a 25 percent cut in advertising
sales, to defray costs and to increase traffic. By the end of
next year, executives expect half of The Huffington Post's
traffic to come from outside the United States.
AOL has also invested millions of dollars to install
professional TV studios to broadcast HuffPost Live, an effort
described as the first cable channel on the Web. It combines
real-time shows with audience feedback through online comments.
Programming runs the spectrum from an interview with U.S.
Secretary of Health and Human Services Kathleen Sebelius to
Armstrong said the live programming can garner tens of
thousands to hundreds of thousands of viewers, while millions of
people tend to view the programs on demand. Still, a deal to
carry HuffPost Live content on cable through a partnership with
Mark Cuban's AXS TV is stalled.
The Huffington Post also closed its Los Angeles studio to
redirect resources internationally to cover events such as the
World Economic Forum's annual meeting in Davos, Switzerland.
"We are continuing investments in video and international,"
Armstrong said. The Huffington Post "has very strong prospects
to have a global profitable business as we go through 2014."