The Huffington Post’s Tainted Money

The befuddled legacy customers of AOL fund a bubble-era premium for Arianna & Company

Say what you will about Arianna Huffington’s decision to sell out to AOL—and we will below—she’s no dummy.

Of the $315 million price tag, $300 million of it is in cold hard cash. Just $15 million is in flimsy AOL stock certificates. That’s a little-to-lose situation for Huffington’s investors—who get out with cash while the tech bubble is still going—but especially for Huffington herself, who also retains much upside while expanding her empire.

The Huffington Post says it was profitable last year, though it hasn’t said how much it made. But there’s no doubt that AOL paid a bubblicious premium for it. The New York Times reports this morning that the site brought in $31 million in revenue last year. That puts the pricetag at more than 10 times sales. Even if revenue grows as fast as The Huffington Post projects, the price is still high: at 5.25 times projected 2011 revenues. This for the right to serve online ads at dwindling CPMs to millions of people who click on pieces like “WATCH: Christina Aguilera Totally Messes Up National Anthem” and “Candace Walsh Making the L-Word Real After the Big D,” currently Nos. 1 and 5 respectively on the HuffPo most-read list.

And why not, if you’re AOL? Let’s face it, ye olde America Online is a dog of a company that exists only because of ignorance and inertia on the part of the befuddled remnants of its once-mighty customer base.

Ken Auletta reported recently that 80 percent of AOL’s profits come from its old “you’ve got mail” subscription service. Remember that thing? The one that wiped out tens of billions of dollars of wealth and brought Time Warner to its knees?

Business Insider’s Nicholas Carson pointed out this jaw-dropping stat in Auletta’s piece:

A former AOL exec explains that this is AOL’s “dirty little secret” - “that 75% of the people who subscribe to AOL’s dial-up service don’t need it.”

Carson originally called this a “scam” only to have his editors retract that (read Audit Peterson Fellow Felix Salmon on that over at Reuters). But if it’s not a scam it’s awfully close to one. It’s surely not ethical to continue taking people’s money for a service they think they need but really don’t.

Meanwhile, the money of all those old people, dumb people, or careless people is going to pay Huffington and her wealthy investors a rich premium on their capital. And to a considerable extent, Huffington’s future empire depends on how long her new company continues to get these four million suckers to fork over up to $26 a month.

I guess the heart can bleed only so much—all those profits are capital for future expansion.

Which makes me think there could be some nice synergy of right-wing angst and pro-consumer activism here. Really!

If you have a friend or relative with an AOL email address, ask them if they’re still paying for that service. Tell them they don’t need it (unless they actually need a dial-up connection)—that everything on AOL is now free on And cancel it for them if they need help.

You should do this whatever your political persuasion to keep your loved ones from continuing to get screwed over. But if you’re right-leaning, you get the double bonus of starving Arianna Huffington of future capital.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , ,