Why AOL Was So Desperate to Hook Up With Huffington Post

Updated: When AOL (s aol) CEO Tim Armstrong announced the $315-million acquisition of The Huffington Post several weeks ago, he made the deal sound like a nice strategic add-on for the former web portal’s content business — an expansion of the successful branded-media strategy the company has been rolling out for the past year. In reality, however, buying Huffington Post was something AOL had to do, because traffic has been plummeting and losses increasing at most of its major media properties, including the ones it has been banking on to help create a future for the company.

The dismal numbers on traffic to AOL’s major media brands come from comScore, noted in a report at Advertising Age magazine. For some AOL sites, the number of unique visitors in February (a much more precise measurement than page views) was down by more than 40 percent compared with the same month a year ago. AOL Games, for example, saw the number of visitors to the site drop by almost 50 percent (Update: An AOL staffer says that some of the assets of AOL Games were transferred to AOL Tech, which affected those numbers). Even more ominous was the decline in readership at sites such as DailyFinance and PoliticsDaily, two sites that AOL has been pinning much of its content hopes on.

Those traffic statistics help to explain why AOL shed more than 200 editorial staff in a massive round of layoffs on Thursday, a wave of cutbacks that totaled more than 900, or about 20 percent of the company’s total workforce, including most of the India division. According to several reports, many of the writers at DailyFinance and PoliticsDaily — some of whom were hired with much fanfare by the company last year — were let go.

For the past year or so, AOL has been trying to reinvent itself as a content company, using the river of cash its Internet access business continues to produce as a lever to buy assets like TechCrunch and video service 5Min Media, and finally The Huffington Post. It has also spent $100 million on building out its Patch.com hyper-local news operation to almost 1,000 towns and cities, and is expected to spend as much as $120 million more this year. As I’ve described before, Armstrong is feverishly trying to build new businesses that can replace the ones that are disintegrating, before the cash from its legacy businesses runs out and the company collapses under its own weight.

Assets like DailyFinance and PoliticsDaily were supposed to be part of the recipe for boosting traffic — and advertising — to AOL’s content sites, but that doesn’t seem to be happening (although unique visitors were up in February at AOL’s tech properties, which include TechCrunch and Engadget). According to comments made by Armstrong at a media summit on Friday, the news and finance sites were losing $20 million a year for the company. And advertising revenue at the company continues to decline at a fairly precipitous rate, dropping by almost 30 percent in the latest quarter.

At The Huffington Post, meanwhile, both traffic and revenues have been climbing. As I wrote in a post after the acquisition was announced, the site also brings two things to AOL that it desperately needs: an understanding of how much social networks and social features matter to new media, and a sense of personality and brand awareness that sites such as DailyFinance and PoliticsDaily — not to mention cookie-cutter sites like AOL Television and AOL Music — have so far failed to generate. Now all Arianna Huffington has to do is somehow graft all of that into AOL.