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The Dumbing Downfall of AOL

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Mike Arrington is out at TechCrunch, the popular tech blog he founded that was acquired by AOL (NYSE: AOL  ) for $30 million.

We know the details. Arrington's venture-capital fund -- the "CrunchFund," as he calls it -- was to invest freely in start-ups covered by any AOL site, including TechCrunch. Worries over the potential for conflicts of interest arose. AOL responded poorly, resulting in an apparent spat between Arrington and fellow blogger Arianna Huffington, whose Huffington Post is another AOL property.

The affair revealed an ugly, haphazard side of the new AOL that, to me, justifies concerns I've had about the business for some time.

What no one seems to be talking about is what Arrington's leaving TechCrunch really means to AOL investors. I think it's worse than you might realize, and not just because of Arrington's penchant for breaking news well ahead of Big Media competitors such as Gannett (NYSE: GCI  ) , News Corp. (Nasdaq: NWS  ) , and New York Times Co. (NYSE: NYT  ) .

I think Arrington's departure leaves AOL dumber, and I worry that he isn't the only rebel unable to get cozy inside CEO Tim Armstrong's would-be media empire.

The Fool in the mirror
There's a chance I'm spitting into the wind with this story. See, I don't just write for The Motley Fool. Through our partnership with AOL, I also write for It's a good gig. Angering the higher-ups probably isn't in my best interest.

Yet I need to say something. Arrington's original arrangement -- free rein to cover companies he's invested in, so long as, in doing so, he abides by a strict disclosure policy -- isn't all that different from the deal I have as a writer and analyst for the Fool.

I cover plenty of companies I'm invested in. Heck, Apple (Nasdaq: AAPL  ) accounts for almost 19% of our family portfolio, yet each week finds me filing at least one Apple-related story here at the Fool. (Most recently, I commented on yet another lost iPhone prototype.)

There are differences, of course. I write about stocks using public information. Arrington and the other TechCrunch writers break confidential news all the time.

Most other differences are minor, I think. My job as a writer for and as a member of the Motley Fool Rule Breakers team is to think broadly about Big Ideas that could unleash massive returns for our readers and paid members. Arrington has been doing the same thing on a different scale for years. If he had to go, don't I need to go, too?

A rebel without a cause, or a following
Maybe it's Arrington's involvement in the sacrosanct world of venture capital that sets him apart and makes his situation more sensitive. But if so, let's not pretend that journalistic ethics are what caused the break. Rather, AOL's interest in being seen as a Big Media alternative conflicted with Arrington's interest in becoming a VC while remaining a media rebel. So he had to leave. Readers will be the worse for it.

And AOL?  I suspect that the CrunchFund will do well enough to reward AOL as a limited partner. And I believe that TechCrunch under Editor-in-Chief Erick Schonfeld will continue to break news as it always has. I'll keep reading.

Yet if Armstrong and Huffington are being honest about their intentions to create a media empire that topples the establishment, they're going to need more rebels like Arrington. Don't be surprised if AOL suddenly finds it more difficult to hire them.

Do you agree? Disagree? Please weigh in using the comments box below. You can also keep tabs on major media by adding any of these stocks to your watchlist:

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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