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Summary:

The surprise $315 million union of AOL (NYSE: AOL) and The Huffington Post offers some truly monumental scale, with the new Huffington Post…

Tim Armstrong and Arianna Huffington

The surprise $315 million union of AOL (NYSE: AOL) and The Huffington Post offers some truly monumental scale, with the new Huffington Post Media Group boasting a reach 117 million American internet users and 270 million globally. Both sites have already had relatively enormous scale, by most standards. So it’s worth asking what’s in it for the advertisers?

In talks with several online ad observers and agency execs, the first reaction was that this solves a content problem first. If it addresses AOL’s advertising, it’s not that clear.

“AOL has just placed a big bet on the authentic web at scale,” said Greg Shove, founder and CEO of online branding specialist Halogen. “Their challenge now is to create products and programs that translate the huge impressions they’ve acquired into real influence for brands. If they make this just a volume play for advertisers, they lose.”

In basic terms, this is the combination of a large collection of news sites. Online is always about scale, first and foremost. And while this deal certainly builds significant scale, it’s not clear that it makes for a smarter collection of advertising units that fit seamlessly together.

As most media execs will acknowledge, most news sites do not typically command high CPMs, compared to sites devoted to health, sports and finance. (It’s also worth noting that AOL recently struck a deal to outsource its sports and health content just as it was talking to HuffPo about an acquisition.)

Still, AOL has been focusing diligently on building up the user experience across its homepage, while pushing its individual properties to start driving traffic independently of its homepage, which is still fueled by its dwindling internet access business. At the same time, AOL has been concentrating on moving more towards premium ads through its Project Devil, super-size display ads program aimed at bringing in lucrative branding dollars, and away from cheaper, remnant ads associated with its large scale Advertising.com network.

Those shifts have been categorized as causing necessary pain to AOL’s revenues, while positioning it for a brighter future. AOL CEO Tim Armstrong has pleaded with investors for the past few quarters for patience, arguing that the company’s display revenue problems will turn around by mid-year.

“Now comes the hard part: actually monetizing all of that content,” said Critical Media‘s Sean Morgan. “And profitably. Sure HuffPo is good at it, but video is where the problems begin. ‐¨‐¨If monetization will be through saturating their brands with local video content [per leaked "master plan" on Business Insider last week], we’re looking at a second Time Warner (NYSE: TWX) moment for AOL – the company does not have the infrastructure to efficiently (read: fast and on the cheap) put out news video that will both serve the interest of their readers and make them money. Just read “The AOL Way,” which specifically spells out the ridiculous page view numbers each video on the network requires to gain profitability: 35,000 views for a StudioNow video and a whopping half million views for a “premium” video.‐¨”

Naturally, AOL clearly believes it has the plan in place and scale to do it all very efficiently. Again, the big bet is on being able to attract premium ad dollars. And ad agency execs who agreed to speak publicly said that they’re willing to go along with it, at least for the time being.

“The HuffPo acquisition proves that there is a whole new layer of ‘premium content’ that exists in today’s advanced, highly digital, and often socially curated landscape,” said Tim Hanlon, CEO of Mediabrands’ investment arm Velociter. And AOL is angling to be the hub, spoke, and sometimes wheel of a lot of it, especially in what I call ‘relevance verticals.’ The passion of discourse found on HuffPost, the depth and timeliness of Patch’s hyper-local news, vertical blog/curation channels like WalletPop & FanHouse — it’s quite possibly becoming the next-gen scaled media content company.”

  1. I think “do advertisers care” is an interesting question, but whether or not they see benefit from the additional scale, HuffPo is already successful in attracting ad dollars in its own right, and Aol needs a hedge against the claim that its Seed and Patch projects have amounted to low-quality content farming. For Aol’s vision (to be the place for brand advertising online) to succeed, it needs to raise the stakes in terms of audience aggregation and perceived content quality. HuffPo helps them do that. But by going after brand spending, they’ve chosen to make video central to their strategy, and as you’ve pointed out, the impression requirements are astronomical. That, I think, is the biggest risk in their approach.

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  2. I think that in the medium term, advertisers will still care since about the kind of internet exposure (aka traffic) they will get. But as more advertisers become more web savvy, the lies the challenge for AOL on how they can retain these businesses to get them to continue to pay good money to show up on websites such as Huffington Post, which in my opinion is just a glamorous blog.

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