Mar 7, 2011 12:36 PM

Does Arianna Huffington Have Enough Magic Touch Left to Save AOL?

The AOL-Huffington Post merger officially closed on Monday, so now it falls to accidental media entrepreneur Arianna Huffington to lead the former internet darling out of the darkness with her trademark brand of media savvy, swagger and charm. AOL’s $315 million purchase of The Huffington Post — and with it Huffington’s services — is the […]

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AOL's $315 million purchase of The Huffington Post -- and with it Huffington's services -- is the latest attempt by AOL to reinvent itself as a news organization, extending the content paradigm that began two years ago when former Google executive Tim Armstrong signed on as CEO.

Wired.com questioned Armstrong's sanity at the time. But a big part of his millstone is long gone. It's been more than a year since AOL spun off from Time Warner, closing the book on what turned out to be one of the most disastrous tie-ups in the history of corporate America. And the web content business is definitely heating up again, as major media companies experiment with paywalls and apps for the iPad and other tablets.

But the economics of the media business remain very tough, and Huffington faces an uphill battle, says Adam Penenberg, a journalism professor at New York University.

"AOL's Achilles heel is the same as it is for all other web-based media companies: online advertising," Penenberg told Wired.com by e-mail. "Billions of ads are served up every year in the U.S. so it's very difficult for advertising to cut through the noise. We media consumers are largely inured to them. I don't even see ads online. Like most people I've been trained to ignore them. So you require massive amounts of pages with ads to make money."

Wall Street did not react favorably to the deal's consummation Monday. AOL shares were trading at a 52-week low by midday.

Neither Huffington nor her spokesperson responded to several requests for comment.

Economics aside, creating a "winning" team in the current environment requires recruiting the right people. Huffington's strategy includes bringing on some high-profile journalists, including Yahoo's respected media reporter Michael Calderone.

One of Arianna's greatest strengths is her ability to surround herself with talented people, especially young people. In building Huffington Post, she relied on folks like her financial partner Ken Lehrer, New York tech entrepreneur Jonah Peretti, conservative media entrepreneur Andrew Breitbart, editors Roy Sekoff, Nico Pitney and Colin Sterling, and literally dozens of ambitious youngsters who labor in her SoHo, New York office, if not actually reporting and writing, then aggregating the work product of others or posting Associated Press wire copy.

Of course, The Huffington Post does have some very talented reporters producing excellent journalism, including scribes Sam Stein and Ryan Grim in D.C. But one need only look at the website to see that the majority of the content is "curated" from other websites, or AP copy, or just random SEO-driven blog posts by Arianna's stable of 2,000 celebrity bloggers and paid news aggregators. (Disclosure: Over the years, I've written a blog post or two for The Huffington Post. I was never paid.)

If Arianna is to succeed, she will need to surround herself once again with talented people to do mundane things like assign stories, report them and write them. One of her key lieutenants will be Peter Goodman, the superstar business reporter who stunned the media world last fall by leaving one of the choicest gigs in all of American journalism -- National Economics Correspondent for The New York Times -- to join Huffington Post.

Goodman did not return a request for comment.

When he took over as AOL CEO, Armstrong seemed to think he could bring in some of his technologically adept Google colleagues and magically apply algorithms and complex models to the high-volume production of quality news and information.

At the same time, Armstrong insisted that he wanted to attract top-tier editorial talent, just as Huffington says today, and then build world-class content from the inside. But Armstrong cut editorial budgets at the company's top-tier news sites, and spent nearly $400 million to buy two high-profile outside brands: TechCrunch and Huffington Post.

Similarly, Huffington is making all the right noises about hiring veteran journalists. In addition to Calderone, Arianna has hired former New York Times reporter Trymaine Lee, New York Daily News politics veteran Michael McAuliff, and Jon Ward, formerly of News Corp.'s iPad newspaper The Daily.

But what about existing AOL editorial staffers?

"There will be job losses," Armstrong acknowledged at a media conference in New York last Thursday.

Rumors that at least two of AOL's flagship properties, PoliticsDaily and DailyFinance, will be folded into The Huffington Post have been circulating, but editorial staffers remain in the dark.

"Everyone is waiting," said one senior AOL editorial insider who added that the uncertainty is growing by the day. "No one even knows what it means to be folded into The Huffington Post."

In a recent interview with Beet.tv, Huffington insisted that she will not "mess" with TechCrunch or Engadget.

"If I were a staffer at AOL I would fear for my job and paycheck," said Penenberg. "Word of advice: better update your LinkedIn profile.

And then there is the small matter of HuffPo's legion of several thousand unpaid bloggers, including some who think that Arianna's multimillion-dollar payday ought to trickle down to them. Don't hold your breath.

Huffington raised eyebrows last week when she dismissed a call by Southern California publisher Bill Lasarow for the website's unpaid bloggers to go on strike to protest Arianna's estimated $50 million cash-windfall from the sale to AOL -- and her apparent unwillingness to share her loot with the writers who helped build her website.

"Go ahead, go on strike," Huffington declared during an event at the headquarters of The New York Times newspaper. Huffington said plenty of bloggers are waiting to take their place, and no one would really miss Lasarow's team of arts writers anyway.

"While Arianna is right that she is not under any legal obligation to pay bloggers who agreed to write for free, I'm disappointed in her Marie Antoinette-like 'let them eat cake' comments," said Penenberg. "Can you imagine what she would've said about a Tea Party-er raking in millions selling a media site built on mostly free labor who didn't share the wealth?"

"At the very least, to belittle HuffPost contributors who are upset because she walks away with millions while they made no money is simply bad public relations," Penenberg added. "Arianna comes across as one of those greedy corporate chieftains she claims to despise."

Of course, Huffington Post's volunteer bloggers aren't exactly "organized," so don't expect to see a Wisconsin-style labor action in Arianna's SoHo offices any time soon.

*(Disclosure: Author Sam Gustin worked at AOL before coming to Wired.com.) *

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