Content is a pawn

by nkronos on February 14, 2011

The ballyhooed sale of the Huffington Post to AOL for $315 million cannot go by without many inferring lessons of great import from it. Before concluding, however, that the sale represents anything serious people should consider seriously–that Arianna Huffington is a shrewd thinker and visionary about the Web, for example, or that the acquisition represents the “birth of a brand new media universe” (one shudders to picture Ms. Huffington arising Gaga-like from an egg)–remember the hucksters involved.

In her own work, Huffington has been accused of significant plagiarism not once, but twice. As a political thinker, she is a complete flake, flitting from one half-baked idea to another (like running in the California gubernatorial recall), and her personal philosophy is the expected mishmash of solipsistic New Age mumbo-jumbo. She was married for 12 years to a closeted “bisexual,” a relationship that nonetheless proved most advantageous to her public life. Her track record is one of making sure her name and persona are associated with many things, even when her contribution is not as obvious.

HuffPo has had an AOL connection since its founding via Kenneth Lerer, who is a past executive vice president of AOL Time Warner, but who began his relationship with the company as part of AOL’s PR firm in the 1990s. As “in-house communications czar” for AOL, Lerer made a fortune and helped sell the idea of the AOL-Time Warner merger–a business event treated like the current acquisition, though the sums of money involved were much greater. According to Wikipedia, AOL’s peak value was about $226 billion, and it lost more than 90 percent of shareholder equity over the next six years.

Lerer, however, managed to cash out with $30 million. AOL and its stockholders are going to be even better to him this time, as he is expected to make $50 million on the HuffPo sale.

Meanwhile, HuffPo’s CEO Eric Hippeau is also collecting his chips and will join Lerer’s firm, which is already planning a new fund to seek other investors and “media opportunities.”

So if it seems as though we’ve seen this film before, we have, and on an even bigger scale. Last time, Time Warner was the old media dinosaur, trying to save its fortunes by borrowing lightning-in-a-bottle from the young juggernaut of AOL. Now AOL is yesterday’s news and HuffPo is the new kid in town.

When AOL was worth $226 billion, however, it represented one of the most valuable companies (in market capitalization, anyway) in the world. Compared with that princely sum, $315 million is a blip, less than the cost of some feature films. The videogame “Call of Duty: Black Ops” grossed more money in its first day sales.

The reason a story like the HuffPo’s sale enthrals journalists is that in the world of writing so little money trickles down (typically) to the content-producer’s level. As the written word has become a commodity and print media has collapsed, the idea that one can out of the nothing of a Web site and mysterious page hits make a fortune becomes sexily alluring. The truth is much grimmer, according to this NY Times analysis, which disputes the idea that HuffPo has “built a blog-empire on the backs of thousands of citizen journalists.” (Whether it’s made a fortune on the backs of gullible investors remains to be seen.)

According to the Times, an average blog post when compared with the advertising revenue it generates is worth $13, the median $3. If we estimate the post at 300 words, then that’s a penny a word–not favorably comparable to pulp writers doing hack work decades ago. Admittedly, a lot of blog writing is crap, although I don’t read enough of the Huffington Post’s contributions to judge its writers specifically.

If the Times is correct, then the HuffPo is comparable to the vanity publishers of the days of print. Most of its writers just want to see their name on a story and could care less if they ever make a dime–and the HuffPo is in the business of providing that outlet for them. It in turn makes a little money but more importantly gains eyeball market share. The unwashed, unremunerated HuffPo bloggers, according to the economics of this piece, are basically people too long-winded for Twitter.

And speaking of Twitter, its recent estimated value of $10 billion puts it at more than 30 times the worth of the Huffington Post. I can’t prognosticate the future of either, but I know which one I’d rather own, which has an actual idea for a business. Anyone can put up a Web site and aggregate content. Anyone with sufficient financial backing could eat into the Huffington Post’s readership; like Yahoo before, the HuffPo has a slice of a pie that their share of, at least, is bound to diminish over time.

Twitter, like Facebook, has a much more significant barrier to entry for competitors. Social networks–like the brain itself–strengthen the more connections form and are used. They become a habit, and only a few players (e.g. Google) have the sufficient position to challenge these habits once established.

That is not to say Twitter or Facebook can’t blow it; the history of information technology teaches nothing so much as companies are more a wave to surf than a faithful horse to rely on for years. Nevertheless, compared with something like the Huffington Post, the ability of Facebook and Twitter to bind users to one another far surpasses providing transient, hyper-topical content.

In today’s cyber society, content is a pawn. Social context is king.

Update: NY Times publishes a contrarian view to its previous opinion linked above.

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