15 January 2011
A lots been made about AOL's decision to part ways with the current FanHouse direction and personnel and license/outsource the brand to the Sporting News. I've been getting a lot of inquiries about the implications of the deal, how the deal was structured, and my thoughts on both companies moving forward.
Its been a couple of days since the news broke so below are some of the initial reports that about the deal. I'll be focused more on analysis so check them out. Also thanks to Dan Levy from Press Coverage, for letting me use this nifty graphic.
Sports by Brooks- AOL Folds Fanhouse Brand Into Sporting News
Understanding the Deal
First and foremost its important to understand that Sporting News did not buy FanHouse as some people have been insinuating. Just like PFT is not owned by NBC but NBC essentially rents the brand to fill its football coverage, Sporting News is licensing the FanHouse brand.
Yahoo and AOL have both done deals like this before. In fact AOL also made similar announcements in conjunction with this one regarding their Health and Real Estate channels. Yahoo in the last year partnered with Monster and Match.com for its jobs and personals verticals. Yahoo claimed they didn't pay attention to those 2 verticals and didn't wanted to be irrelevant in those categories which I find funny as how can you forget that a) people needs jobs b) people go on dates.
This one is really hard to find an analogy for as you know that's my biggest blog guilty pleasure. After 12 minutes of looking at this screen, here is what I came with: My first 2 years at Ohio State, they had two official bookstores on campus. At some point the university either realized they were losing money or at least leaving money on the table.
At that point they opted to let Barnes and Noble run those bookstores. They were still the official bookstores of Ohio State and reaped the benefits of being promoted by the university and working closely with the school to have the right inventory and having the school funnel students their way instead of the other bookstores. However they were co branded as Barnes Noble, OSU's official bookstore, or something like that. At a high level Barnes and Noble paid rent, maybe a licensing/franchise fee, took over operations and liabilities, and probably shared some of the profits back with the university as well.
The benefits of the move were lower expenses and guaranteed profits. The cons were lack of total control and possibly losing money in the long term. The same applies here.
AOL Lacked Dedidcation, Decisiveness, Faith, and Accountability
AOL's CEO, Tim Armstrong, who is quite the smooth operator, has done quite the job "selling" this move for AOL. He's got a lot of cute sound bites out there and it seems to have ducked a lot of criticism from the mainstream media around this deal. The truth is that this is just a real "soft" move. Other words come to mind but that's what I'll go with. Below is a video outlining my thoughts on Armstrong's comments on this deal.
I understand and support the idea of focusing your company and making deals to improve your bottom line and your relevancy in that category. But that's just simply not the case. In fact per Comscore, FanHouse reaches nearly 10 million people a month compared to about 3 million for Sporting News. Rule 1 of these type of deals is that you need to trade upstream and not downstream.
AOL has begun to show more competency surrounding online advertising and digital media. Sporting News doesn't exactly have a good track record here. I won't say much about the Sporting News in this blog, as really the only thing they're guilty of is picking up a late night drunk dial from AOL.
The call to Sporting News was sparked by continuing losses from the FanHouse division. Nobody knows the amount they were losing and I actually posted a question on Quora to see if I could dig up something.
Its really the biggest piece to this puzzle. How much was coming in the door revenue wise which would require some traffic figures and ad rate info, both of which I could guess but wouldn't really know with any level of accuracy. I also have no clue how much they were spending a month for all the writers (about 60) in addition to their sales staff, ad ops, etc.
But I will say is that AOL HAS money. They ARE profitable. People always forget that. They HAVE over $600 million in the bank. They've spent a lot of money on acquisitions lately including $25 million on TechCrunch in addition to a handful of other acquisitions in 2010 that add up a good chunk over 9 figures. This pales in comparison to the nearly 1 billion dollars they dropped into acquiring Bebo which they later sold for $10 million.
With that in mind, I think its ludicrous for AOL to wave the white flag on running FanHouse as part of AOL.
The reality is that AOL had completely botched the sports category and the management of FanHouse and just wanted to call it a draw and move on rather then trying to win. Its evident that nobody wanted to stick their neck out there and say "Here is how we make FanHouse and sports work for AOL".
I don't entirely blame them because by doing so they would also be acknowledging that they've pursued bad strategies in the past. Rather than saying "We made mistakes, but we can fix this" they've opted to go with "It just wasn't something that would ever work", probably citing the strong positions of ESPN and Yahoo and the growing importance of blogs which served as a two front war for them.
I'll get into FanHouse's long road that got us here, but thought I'd share a snippet from Alana Nguyen who I worked with at Yardbarker (now Fox). She was one of the early mangers/producers at FanHouse when it initially launched.
"Back when I was producing at FanHouse, our overhead was extremely low. We had about 60 bloggers creating quality content at cheap contractor rates with very little staff editing -- and this kind of content played well to the AOL.com portal audience. Later, FanHouse decided to move to what must have been a very expensive model with marquis writers and the editorial staff and travel expenses needed to support them. I'm not sure why that switch was made -- maybe it was an effort to create a property that could eventually stand on its own without the firehose of traffic from AOL.com (with AOL's dial-up business declining rapidly, you'd have to be nervous that the portal site would tank too). Maybe the original blog model would have had a good shot of surviving -- other sports properties have had success with that kind of content, and the price tag wouldn't have raised red flags with the new thriftier AOL leadership. But maybe FanHouse would have been a casualty regardless -- AOL is a pretty volatile company that still seems to be trying to figure out what to do with itself now that no one wants those CDs in the mail."
Alana is right on the money here. If FanHouse was getting shut down because it costs too much to run, you'd have to point to the marquis writers they opted to bring on as being one of the biggest expenses. But if you're the guy who decided to spend all this money at AOL, do you really want to suggest going back to your former strategy that you shunned in epic faction.
FanHouse 1.0 was actually doing quite well for itself under the stewardship of Jamie Mottram, John Ness, and Alana. They enlisted the best bloggers and the traffic grew quickly. It probably wasn't profitable, but it was growing and exciting.
But then it all fell apart. Mottram left for Yahoo where he's built a juggernut with Y! Sports blogs, which included many of FanHouse's elite voices. Ness left for NBC and Alana did some work for Yahoo and Ballhype before joining Yardbarker.
What I've heard for why they all left was that the AOL sports folks were not too keen on FanHouse stealing a lot of its thunder. This caused friction and the later exodus of management from FanHouse. Brian Cook one of the better contributors of FanHouse paints a good picture of what happened when the AOL Sports management folks took the reigns which also included them mergiing AOL Sports as FanHouse and ofcourse the infamous Fantasy Sports Girls experiment.
"There was a sea change at AOL once some deranged suit decided to bring in sad stripper types to be "Fantasy Sports Girls" and Alana, AKA Miss Gossip, fled from her post as general guru in charge. Alana was of the internet; her replacements were not. Things got corporate. I had a viewpoint as to which way the Fanhouse should go—moreOops Pow Surprise!—that lost out to a more sanitized one. Then my posts started getting edited after the fact without anyone so much as mentioning it to me, which severely depressed my motivation to post further.
From there things took their natural course. Check that link above on Moore moving to AOL: they've hired nine people, only one of whom (Clay Travis) has any profile in the blogosphere. The rest are former newspaper droids. I no longer fit with your Mariottis and Terrence Moores. Thus: this."
That post was from early 2009 and you can argue FanHouse was really at rock bottom around then. The last half of 2008 and most of 2009 were the dark days of FanHouse as it was an akward hybrid of journalists and bloggers intermixed under the AOL Fanhouse banner. The bloggers built that FanHouse brand and now the journalists were its biggest draw.
But things seemed to improve in 2010. Fanhouse was redesigned and the content seemed to improve. I was actually growing more found of the site up until this implosion took place.
So Why did AOL fail?
A few FanHouse people (former and current) have spoken to me and all point to the same thing. AOL constantly had new management and the sports people kept changing in partuclar. I can't get too specific, but there is a very strong general concensus that put to majority of the blame on the higher ups and the lack of any consistent strategy that made sense.
I'll chime in with 3 other things that stick out.
- Lack of community, engagement, and social.... FanHouse articles were always sparse in comments and there were rarely activities like polls, predictions, brackets, etc. Nobody ever made FanHouse the center of their sports web experience unlike other sites. Communities are key to sustaining growth and FanHouse just really didn't have any.
- No differentiation.... ESPN has great video. Yahoo has best in class fantasy games. FanHouse didn't really have any asset that was unique and could keep people coming back.
- Portal traffic just isn't enough.... Everyone is saying "AOL is going back to its portal roots" by getting out of the sports content game. While that's somewhat true its actually a stark admission that the portal strategy doesn't really work. If portals were indeed a hot growing commodity, then FanHouse would be successful as AOL could prop up the entity. Instead AOL is saying that portal traffic isn't enough to sustain a business. They'd rather invest in content sites that have a following outside of portal traffic which is really saying portals don't work well enough for us to have a business.
As for Sporting News
This deal makes them relevant again online and was the first big move for Jeff Price who was brought in to do just that. They'll apparently be adding some FanHouse people but it sounds like the vast majority of FanHouse employees/contractors will be let go.
That's another thing that bugged me about this announcement. AOL is doing a great job deflecting questions about job losses due to this move by saying the decisions are up to Sporting News and they'll work hard to get some people to stay on. That's 100% BS.
Sporting News is probably paying out the nose to rent out the FanHouse brand and has internally been cutting costs for quite awhile including selling/"trading" the Sporting Blog to SB Nation. That's actually kind of funny now because the people who were let adrift due to that move are actually probably the people best suited here to help merge these two brands.
Most reports are saying that not that many folks will be joining. I'm sure SB Nation, Bleacher Report, and Yahoo are on the prowl for some of this talent and I'll throw out that Bloguin's piggy bank might be worth breaking if the right fit presents itself.
A lot of people are throwing stones at Sporting News but I'll reserve judgement for now. Price got a big domino to fall but they still need a lot of things to go their way for Sporting News to be relevant beyond their magazine. We'll see what shakes out here.
- AOL had Jamie Mottram and the best bloggers out there. Now they have nothing except monthly checks from the Sporting News. Just a massive meltdown. If Mottram never left and instead was left to run things without interference, who knows what the online sports media landscape would look like now.
- I thought at first maybe Tim Armstrong just wasn't a sports fan, but then I remembered he invested in and is actually a founder the UFL. Its funny this FanHouse news came a week after Mark Cuban's lawsuit against the UFL went public. Maybe Armstrong lost his zeal for sports when he realized that the UFL was a bad bet. And while we're on the subject, I don't think I could ever hire anyone who invests in a football league played in the fall in the US and not named the NFL. Maybe the UFL gets bought by the NFL, but there are way too many sports going on in the fall months for anyone to give a crap about a secondary football league. Your highlights will almost NEVER be on television so you're essentially completely unknown. Sorry for the tangent, but yeah.....Armstrong just seems to not get sports it seems.
- 10 million folks went to FanHouse for sports coverage. That's meaningful. FanHouse was probably the only touch-point AOL had with a good chunk of that audience. It was a dumb move to give away control of that relationship. I'm totally shocked on a weekly basis how many people get what AOL does now. Even people in tech are unaware they do things outside of ISP. FanHouse was one of the few brands that actually shined for AOL and drew attention to the fact they do something other than dial-up. Now Sporting News is the prominent brand powering that content and millions will again forget that AOL exists.
- AOL will not be acquiring a sports entity anytime soon..... I believe at one point in time AOL tried to buy Scout and or Rivals. Some have speculated they could buy SB Nation as that's where SBN CEO Jim Bankoff made his name. That's totally out of the question now as is most likely any other significant sports acquisition. They're pinching pennies and their acquisitions have been low-mid 8 figures. SBN and Bleacher Report are creeping on 9 figure price tags and that's just too rich for AOL at this time. I know they did buy MMA Fighting, but that was a pretty small and niche specific deal. I would also guess that Sporting News won't be active as they're probably tapped out/pushed all in with this move.
- Any producer of original content of some modest scale gets a little help with this move as 2 competitors become 1 and talent becomes available.
Disclosure (because that's a responsible thing to do)
Bloguin has had some business interactions with The Sporting News as well as some editorial relationships with FanHouse. Doesn't "water down" my analysis imo. AOL screwed up. Needed someone to come in to help them save face. Sporting News gets a gift here and a seat at the table.....