• by Diane Mermigas , November 20, 2009

Arianna Huffington says she will not charge consumers for content, and that her meteoric Huffington Post will rely on interactive advertising and other applications to pay the bills.

"We have plans for mobile, but no plans to charge for it. Our business model is advertising and marketing, as well as a nonprofit approach to investigative journalism," Huffington told MediaPost in a recent interview. "This is a time for reinventing journalism and advertising."

Over the next year, The Huffington Post will roll out new formats that allow advertisers and users to interact and exchange information. Company executives say they are meeting with advertisers to discuss new approaches, such as paying to enter real-time online discussions around sports and entertainment events, political elections, and major issues.

For instance, a pharmaceutical company could pay a premium to contribute relevant facts -- not sales pitches -- to real-time online reporting and discussion of health-care reform. Another example: separate Twitter feeds could be created around the competing Super Bowl teams, and a branded advertiser could be given tools to participate in the discussion.

The Huffington Post intends to expand its work with Twitter and other social networks using new tools to monetize content and community. (It launched Social News with Facebook Connect in August.) It will continue to roll out regional verticals, such as Chicago, New York, Denver and Los Angeles, where it is beating The New York Times and The Wall Street Journal to the punch for parochial readers.

The "Advertising 3.0" efforts to scale and monetize online conversations are spearheaded by newly appointed President and Chief Revenue Officer Greg Coleman, a former ad executive at Yahoo and Time Warner's AOL, and new CEO Eric Hippeau, a Huffington Post board member and investor who was formerly with Softbank.

With advertising sales growing at about 100% annually, The Huffington Post is expected to be modestly profitable on about $15 million in revenues in 2009, industry sources estimate. "We are making money. Our advertising is working," Arianna Huffington says. "But there needs to be a great deal of experimentation with new revenue models."

The Huffington Post retains most of the $37 million in invested capital available from Oak Investment Partners, Softbank Capital Partners and Greycroft Partners. Huffington says she is more focused on growing the company organically than through acquisition. Since launching four years ago, The Huffington Post has mushroomed into a new media asset worth more than $100 million, and as much as $200 million, industry sources estimate.

According to comScore and Nielsen, The Huffington Post is blowing past The Washington Post, WSJ.com and LA Times.com in unique visitors -- it is up 50% from a year ago, and is nipping at the heels of USA Today's Web site. It will continue to launch new verticals, such as the technology and book sections.

But it's not only about how aggressively and innovatively The Huffington Post can monetize its growing user base: 27 million internally clocked monthly unique users. The Huffington Post has a decided advantage over its traditional print brethren because of its digital-only mindset. It has none of the legacy infrastructure and union labor costs, which cannot be easily eliminated. It has a tiny payroll; most stories are written gratis. Plus, The Huffington Post angers traditional publishers by making money aggregating stories from other legitimate news sources, including The New York Times and USA Today -- even with careful attention to intellectual property rights.

By contrast, News Corp.'s global newspaper operation is expected to generate $400 million in operating income on $5.6 billion in advertising and subscription revenues in fiscal 2009. That will continue to decline to nearly $300 million in operating income on $5.5 billion in revenues in fiscal 2010, according to Bernstein Research. The newspaper group's online revenue gains fall far short of its plummeting traditional ad sales, against a backdrop of high printing plant, paper and other fixed costs.

The Huffington Post's virtual operation and low overhead -- anchored by only about 80 salaried administration, advertising, tech and editorial staff -- allows Huffington to "dramatically transform the print model online."

Huffington pointedly argues that she is simply giving digital consumers what they want: their own voice and real-time engagement on relevant topics of their choosing. "We're not going to succeed by putting our content behind pay walls," she said. "People will not pay for news and opinion because it is widely available."

While Huffington is fond of saying that the future will be a hybrid of the best of both traditional and new news media business models, they clearly are separated by harsh financial and philosophical differences. They were on display during her recent debate with German newspaper magnate, Axel Springer CEO Mathias Dopfner.

Little wonder that The Huffington Post endures sharp criticism for providing information and insight by more than 800 unpaid bloggers. An estimated 3,500 users have passwords, providing as many as 2 million weekly comments -- yielding a level of reader interaction unlike any other print or digital news outlet. A rich irony is that The Huffington Post epitomizes some of the recommendations made by the American Press Institute's Newspaper Economic Action Plan  for digital survival.

"From day one, I have seen it as a hybrid model that reflects the best of online, traditional print and new technology. This is not an either-or proposition," Arianna Huffington told MediaPost. Five years from now, The Huffington Post will coexist with -- not replace -- The New York Times, The Wall Street Journal and The Washington Post, she said.

"But what won't work is acting like the last 15 years never happened; that we are still operating in the old content economy as opposed to the new link economy, and that the industry will survive by "protecting" content behind walled gardens," she said. "We have seen the future, and it is here."