AOL's TechCrunch Dilemma: Either Pay Up or Fight

What's stopping Arrington from just starting a new blog?

TechCrunch founder and editor Michael Arrington is in "tense severance negotiations" with AOL, and the talks could pan out in one of two ways. In AOL's best case scenario, they offer Arrington a ton of money, and he leaves the site by himself to pursue his venture capital projects or whatever makes him happy. In its worst case scenario, Arrington flies off the handle and attempts to sabotage TechCrunch. And that would be very bad news for AOL chief executive Tim Armstrong.

Along with the Arrington fiasco, AOL chief executive Tim Armstrong has been dealing with a shower of criticism over a declining stock price, whispers of selling the company to private equity and his floundering interactive advertising idea "Project Devil." After reportedly keeping his new star Arianna Huffington in the dark about the CrunchFund venture project--a project she promptly vetoed which sent Arrington packing--Armstrong is looking scattered, and his future at the company may depend on how he concludes the TechCrunch saga. Arrington already suggested two solutions that would keep him from leaving: AOL could renew TechCrunch's editorial independence from AOL (read: Arianna Huffington) or "sell TechCrunch back to the original shareholders." The fact that Arrington and AOL are discussing the terms of their divorce is a clear sign that these ideas did not fly, and Armstrong is making a power play.

Some think that there's a distinct threat that Michael Arrington is going to walk all over Armstrong. Kara Swisher reports:

Source said the sides are still caught on the terms of the parting, including whether Arrington and other TechCrunch staffers will get the big-money earn-outs based on their staying at AOL, as well what would happen if Arrington were to start a competing blog site and siphon away editorial staffers from TechCrunch.

Essentially, Armstrong has to start scooping fistfuls of cash in order to keep TechCrunch from imploding, and perhaps more importantly, to keep Arrington from going rogue. As former Business Insider writer, now independent blogger Dan Frommer suggested to Arrington earlier this week: "Fuck it man, let's start a tumblr reviewing startup." They could call it CrunchTech.

Of course, AOL and Armstrong will do their darndest not to let this happen. In addition to a boatload of money--money that the already wealthy Arrington may or may not need--we can assume that the severance package AOL would like Arrington to agree to will be filled with non-disclosure and non-compete clauses. However at least one TechCrunch writer, Paul Carr, has promised to quit the site if Arrington's is not allowed to pick his successor at AOL, and all signs point to a state of anarchy with the other staffers waiting in limbo to see what will pan out. If they're unconvinced by Armstrong's offer, TechCrunch could be the next Engadget, a site that was essentially neutered of its relevance after its founders fled AOL earlier this year.

That's the worst case scenario. The best case scenario for Armstrong would be compliance from Arrington and his TechCrunch staffers, likely at a major cost, followed by business as usual at TechCrunch. Farhad Manjoo at Slate mulls these possibilities:

In Fortune, my former Slate colleague Chadwick Matlin writes that if Arrington's departure from TechCrunch leads to the site's decline, the tech startup scene would be better off: "The absence of TechCrunch would allow for more competition," he writes. "No gatekeeper means there's no arbitrary decisions about which are favored and which are not." But I disagree. What's more likely to happen, in Arrington's absence, is that some other power broker will come along to take his place.

In a matter of speaking, the only thing keeping Michael Arrington from flipping off AOL and starting up a competitor is Tim Armstrong. If the embattled CEO can work out a compromise, he'll be able to move on and continue working on the site's myriad problems. If he can't, Armstrong will look ineffective, like just another Arrington punching bag. And boards of directors hate that kind of thing.