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.