AOL to Thin-Out Patch: Will it Now Grow Fruit or Need More Weeding?

By Peter Bernstein August 09, 2013

As I noted earlier this week in a story about AOL buying Adapt.tv and providing financial results for the quarter that were directionally correct, CEO Tim Armstrong is intent on repositioning/re-imagining the once formidable master of the early Internet so that it is a recognized major player again. In that respect it has be no secret that he is interested in continuing the pursuit of ridding the company of under-performing assets to clean up the balance sheet for bigger and better, e.g., more profitable things.

It was not surprising that the AOL Patch local-news operation has caught Mr. Armstrong’s personal attention. However, his pronouncement that the diet he wants to put Patch on, closing or finding partners for 400 of the business’s over 900 community Web sites, and that with his leadership he intends to make the unit profitable by the end of the year, has some folks scratching their heads.

Is this personal or good business?

Here is some context:

Armstrong started Patch in 2007 as a personal venture. He put up $4.5 million of his own money to get it going and sold it for $7 million to AOL, which was then part of Time Warner. When he became AOL's CEO in 2009 he recused himself from the deal, forfeited $750,000 in profit from it, and returned the $4.5 million he recouped from the sale in exchange for shares in the new AOL.

Patch is a money drain with quite a bit of suction. Estimates are AOL has spent over $300 million developing the sites. Revenues doubled this past year to roughly $35 million, but Patch annual costs are estimated at between $126 million to $162 million.

Armstrong gave Patch a haircut earlier in the year, shedding a reported 40 staff positions and reducing the number of regional editors from 20 to nine. 

Business strategists are fond of telling large companies to “Think global but act local!” 

In fact, that appears to have been the driving force behind the formulation of Patch in the first place. It is why Armstrong seems to remain enamored with it despite its rather long (in Internet time frames) gestation period. 

He does deserve some credit. Building up the infrastructure needed to get local and good coverage of really local news is expensive. Putting aside the technology needed, finding talented writers and editors who believe in the vision and value of such an enterprise and then motivating and keeping them is daunting to say the least. The reasons to cite a few big ones are that turnover is high, pay is low (this is about passion not personal profits for the most part) and quality control is difficult under the best of circumstances, which these are not. Let’s face it, to get really good local coverage it is all about establishing personal relationships and credibility.

In fact, it can be argued that when it comes to local journalism getting the facts right may be more important than at almost any other level of coverage.

Tim to the rescue

There is an interesting blog by Jim Romenesko that quotes anonymous sources at AOL who attended a meeting that was the source for a conference call with the entire company today on the subject that is telling. In what appears to be short order, Armstrong:

Said what he called “impacts” but the rest of the world calls layoffs would be a rolling thunder over the next seven days.

Fired a person who sources have identified as Patch creative director Abel Lenz for taking pictures at the meeting. (This resulted in a comment to the blog that this sounded fictitious since who would fire a guy taking pictures named Able Lenz).

Boldly stated that, “Something at Patch has been missing and missing for some time and that’s leadership – leadership with a capital L.”

So there you have it. Armstrong’s strong arms will take the Patch helm. 

The challenge Armstrong is going to have once he is done with his triage of non-performing Patches is deciding how to make a profit with those that remain. This means figuring out how to get a lot more page views and a lot more local advertisers. The problem he is up against is that in the era where everyone and every entity has their own website and where social media fills in the gaps, the opportunity to provide such differentiated value that people will make Patch a first look on their PCs, or an app as well as a bookmark on their smartphones and personal devices may prove to be too strong a headwind to conquer. 

Armstrong is not alone is trying to figure all of this out as the recent disturbance in the ownership ranks of major former print media giants illustrates. The digital age, because of the speed at which it disrupts, can be brutal for ideas that need time to mature. Patch, assuming its role is already not so undermined by other outlets, may be out of time and may be an idea where even money may not be the answer unless it comes very quickly and in very large doses.

Unfortunately, since this is an AOL deal, Patch could be several days late and lots of dollars short. As somebody who would like to have more information about local goings on in my hometown than what we who live here like to call, “the local rags,” it is my sincere hope that I am wrong in my view about this Patch not growing fruit but rather more weeds. Having a Patch to go to where all of what I’d like to know about where I live and what is going on would useful and valuable. Whether I or anyone else would pay for that is an open question based on the perceived value and this is why such services need to be advertiser based according to their judgments about who visits and how often.

I will not reveal where I live except to say I hope they keep my Patch.




Edited by Rory J. Thompson
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