Huffpo = $315m. Local implications?

So yesterday AOL shelled out $315m to buy US news property The Huffington Post.

Some notable information around the purchase
– it was virtually all cash
– it was at a 10x revenue multiple and a 20x or more projected EBIT multiple
– the CEO has already left
– the Ad Sales boss won’t be coming across to AOL

So you have a business that has seen solid ad growth and organisation growth through the CEO and the Ad Boss – which has contributed a huge amount of value to the sale price of HuffPo – and these two people aren’t coming across.

Secondly – the purchase was basically all cash.  It’s a clean exit – no earn out and no risk for the investors and Huffington. Financially, it’s of no consequence whether the business performs as future performance has no impact on the sale price.

For HuffPo it’s a nice exit at a nice valuation. Both Yahoo! and NBC were looking at the site but neither were doing it in a particularly speedy fashion. Reports are neither would have given Ariana Huffington the kind of senior role she would have wanted. AOL did – she is now Editor in Chief of the entire company and therefore has properties like Engadget and TechCrunch reporting into her.

HuffPo is a relatively strong site – it’s pulling around 1.9m US people a day. It’s strong on SEO and it churns through content. It runs relatively lean and doesn’t have the content creation costs of most of its competitors. For AOL it’s a site that offers
– high media attention
– strong content learnings that play to their new strategy
– access to “influencers”

AOL has plenty of cash in the bank from their IPO so it needs to be seen to be investing in media businesses. Why? Because AOL has hung their hat on being a media business moving forward and secondly, they need to nurture a revenue stream to takeover from their still viable yet not future-proof dial up internet connection business.

Buy buying HuffPo and its other recent purchases,  it is attempting to establish a foothold within key sectors – women, local, influencers. It is these groups that account for a large chunk of ad spend, and it’s these groups that are underserviced generally when it comes to compelling digital ad options.

From recently being in the US, the only warning siren for me is spending such large money on a media business in a market with such low CPMs. In the US a $5cpm is a win – for Huffpo to seem like a smart bet it needs to be pulling $25-30m in EBIT within the next 24 months and for that to happen it needs some serious revenue. Serious revenue becomes difficult with such low CPMs. AOL must be hoping they can push these up over time with Project Devil.

Second question, will HuffPo be able to continue to pay writers minimal or no money when they have made such a public sell at such a large price to a listed company? It will need to hold contributors and if anything AOL will seek to make ‘operational savings’ by rolling HuffPo into AOL and will want to spend less, not more, ROI wise on content creation.

So – with all this movement around content in the US, and some local acquisition rumours floating around (plus the $40m sale of Spreets) – could we see similar acquisitions in Australia?

Maybe – who knows. It really depends on what company needs to make some bold moves in the digital space to redefine their relevance and plug the hole of legacy businesses that have kept them afloat but are at the end of their tenure.

To me, it feels that the company who needs to look at some bold strategic initiatives is Telstra Media and Sensis.

They have a big opportunity with their reach into households via the ISP business and they have deep pockets that would allow them to make such a bold experiment.

They have cross media access – mobile, internet, TV – which could become powerful. They could – if executed right – leverage strong mediabrands and make them bigger across channels.

It’s just some of these channels feel tired. They need a rethink.

But the opportunity is significant. What other media company in Australia has the potential network, deep pockets and clout that Telstra does?

Could Telstra do an AOL and look to reinvent what it means to both consumer and advertising market as a media company? I believe it can.


12 responses to “Huffpo = $315m. Local implications?

  1. hey Ben,

    nice analysis, and I think you’re right in that Telstra would pony up for the right opportunity. The question that comes to mind, however, is: What would they buy?

    Australia doesn’t have many aggregators similar to the Huffington Post, and those that do exist — such as Whirlpool — either aren’t for sale or are inherently uncommercial — or even anti-commercial.

    The Huffington Post was like an out of control train that somehow kept going at 200km/h, despite bits falling off everywhere. In Australia, most of our sites have problems getting above 40km/h — most likely because of the small population, but also to some extent because of our readers’ preference for dividing their attention between global and local sites — Reddit, Slashdot and the Huffington Post being good examples.

    We have seen some other local investments in recent times — such as the investment by Network Ten in excellent local sports site The Roar. But to my mind, we don’t have much scale locally that would fuel the sort of buyout you’re discussing here.


    Renai LeMay
    Publisher, Delimiter

    PS: Both HuffPo and TechCrunch look to have sold out to AOL at precisely the right time, as your financial analysis suggests — at the top of the market.

  2. talkingdigital

    cheers for the comment renai. i think there are a few sites that could be looked at – the IDM sites (Primped, The Knot), Business Spectator, potentially Crikey/Smart Company, some of the Allure Media sites, Footy Tips, Kidspot, Beauty Heaven, IT News, Mamamia, Best Recipes – not necessarily aggregation sites or curators … moreso sites with a loyal audience that has some scale and a solid ad product (or the makings of one). Feels to me there will be much more attention in a content sense placed on youth, womens lifestyle and technology in a digital sense, and sites that are servicing these well will make attractive acquisitions.

    womens lifestyle is the biggie I think for 2011 – wouldn’t be surprised if someone in this space is picked up for a 15-20x EBIT within next 12 months.

  3. Hmm. I’m not familiar with some of those — but you’re right, checking them out, most have strong communities and well-placed existing ads on the sites from major brands.

    I wouldn’t say Haymarket would sell ITNews though — after all, they already have a family of sites and magazines and are a medium-sized niche publisher themselves. And I would bet that it would be very hard for Allure, whose local sites are primarily based on their licence from Gawker in the US, to sell its sites; nor am I sure that they would want to for a while.

    First Digital Media is a bit complex; its sites are heterogenuous, some have strong communities, some do not, and they’re mostly based on different technology platforms. I would say there is huge scope there for a really large sale if they could consolidate their platforms and achieve a bit more synergy between the sites; common logins, for example, easier commenting and world-class forums and more (higher value) custom campaigns, embedded micro-sites for advertisers and that sort of thing.

    It seems that they’re broadly headed in that direction; I have a lot of confidence that they will do well.

    Out of that list I would personally place my money on Mamamia. It’s got a very strong, highly visible community, it’s in exactly the right demographic, its audience is highly organic, and I’d say it is likely ‘professionalised’ enough now away from just the personality and means of its founder that it can be run by other people and maintain its community.

    Some of the other sites you mentioned in its demographic have a bit too much of a cluttered, artificial feel to me.

    Plus, it’s likely a good time for Mia to cash out; after quite a few years running a site from the trenches, anyone gets a bit tired; many are happy to step down from business ownership, while still publishing a weekly column or something.

    My 2c 🙂

  4. Pingback: Tweets that mention Huffpo = $315m. Local implications? | talking digital – Ben Shepherd --

  5. Jonathon Oake

    I agree with Renai that scale is an issue. Let’s not forget that Aol has a Market cap of $3bn while Telstra is 10 times that size. There’s not too many online publishers in this country that could really support the strategic objectives of a behemoth that size. Once the NBN cash arrives they could scoop up every indie publisher in the country and barely notice. Having said that, I’m not saying it’s a bad idea for Telstra to be looking at this sort of move. I think they need to

  6. talkingdigital

    Scale is an issue but if you scooped up the 10 leading category plays in AU you could find unduplicated reach of around 4m and probably a good 100m pages or more. That gives you significant earning power and the chance to build a $50m a year revenue play on web and possibly spin 2-3 out into bigger cross platform plays. If you could do it right and really leverage the brands there’s no reason why it couldn’t contribute $100m of revenue within 3-5 years.

    Compare the opportunity there in comparison to Telstra’s current media/digital business and it’s a lot more exciting. Take, V8, NRL and a few of the external properties out of Telstra/Sensis and there’s not much there to get excited about the future of.

  7. To me, the real question is: why hasn’t anyone tried an Australian HuffPo clone to exploit this very opportunity? If anyone is going to get a big exit from the likes of Telstra, it’s someone who follows that model. Telstra don’t seem to be able to build it for various cultural and organisational reasons, so they will have to buy it. Surely someone has enough ambition to see that doing Telstra’s outsourced skunkworks in content is the way to bootstrap a winner? But nobody is even trying.

  8. True, Monty — I would say that it is likely quite technically difficult to do. What CMS would you use?

  9. I don’t think it’s technically difficult at all. Any of the big options would be fine if you knew what you were doing with customisation to handle spikiness by shifting static content off your db server.

    Far more difficult would be the Herculean cat herding task of nurturing your content creation community. Huffington and to a lesser extent Kevin Rose were able to do it with star power, but I’m not sure that would fly here, necessarily. Maybe someone who was well connected could manage it, but most of the best connected people are still relatively comfortable in MSM warehouses on fat salaries, and don’t feel the need to take a risk… yet.

    This is where the News vs ABC stoush is actually stifling innovation, because both sides are chucking money at each other with the Drum and the Punch but neither property would survive on its own without extensive cross-subsidisation. Yes, I am equating Murdoch’s corporate indulgence with taxpayers’ eight-cents-a-day. The effect is the same: to distort the market by employing people who could otherwise be forced into creating something different, outside the old media institutions.

  10. This is an interesting post and debate. Thanks for your kind words, Renai re: The Roar.

    Monty – My sense is that no-one is doing a local Huff post rests of two issues:

    1. the 24/7 nature of the news-cycle; which means it’s not really an option for independents. It’d need a bigger player backing it to staff the editorial desk for breaking stories.

    2. the low CPMs in the general news space – as witnessed by Livenews closing with a reported 400k UBs monthly.

  11. talkingdigital

    Zac – Live News closing had nothing to do with CPM. It had a terrible sales presence and it offered absolutely nothing new to advertisers. It’s difficult to succeed if you can’t convince those with money you have something of value or when you barely are a blip on the radar of the key agencies.

    That is why it’s dead. The 400k users is insignificant. It would have met the same fate with 3x those numbers. It just wasn’t very good.

  12. Remember HuffPo is a unique hybrid that couldn’t exist in printland – washingtonpost crossed with national enquirer. It is a pure play on what counts for news online today and that has little to do with what used to appear on the front page of a newspaper.

    Only News Corp has the assets in Australia to do this. They could have owned this space as well as local. Legacy masthead issues are probably the reason they couldn’t do it.

    And telstra + content = a very small number greater than zero

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