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The newsonomics of Patch’s unquilting

August 20, 2013

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Too much of last week’s Patch news focused on CEO Tim Armstrong.

Sure, it was a memorably punk moment, one of those historic instants (recall that other AOL-related one when then-Time Warner CEO Jerry Levin awkwardlyembraced AOL founder Steve Case? oh so 1999) when things just seem to change. As Patch itself was about to be cut in half — the news of that dribbling out over a week, filling the post-Bezos news-about-news cycle — Armstrong began to unravel, much like the Patch he has enthusiastically worked to build. He rambled, blaming Patch’s woes on “leadership,” a train of people he of course had appointed.

patchYou can listen to Armstrong’s public, on-the-spot firing of Patch’s creative director. On Larry Mantle’s KPCC show last week on the topic of Patch and hyperlocal, a caller said she wasn’t surprised by Armstrong’s outburst. Her experience, and that of many of us, was that many digital media workplaces are volcanos of emotion. Armstrong’s humbling may give us a picture into tech-led media change itself at the moment, but our immediate question is: What does Patch tell us about the future of local news, about continued reliance on advertising, and about the value of technology?

Let’s see what sense we can make out of the move to close about 150-200 sites and pursue “partnerships” for about 150-200 others. AOL says it plans to keep open 400-500 sites, or about half of those around today. None of the surviving or suspended sites have yet been publicly named.

For starters, let’s acknowledge what’s clear here: Patch, as conceived, is in part a failure. Its army of national hyperlocal, arrayed across 20 states, is in retreat. Itmay be a strategic retreat. Just as likely, it’s the beginning of the end. Figure its life support now runs another 12-18 months.

If it is a failure, let’s also note it’s a partly noble one. AOL probably hired more journalists than any other American news organization in the 2011-2012 period. Hiring more than 900 journalists, to much bloggy uproar and sometimes misplaced rage, it defied the trend of local journalists being laid off by the thousands. Despite its sometimes unclear purpose, Patch’s role in paying journalists to do journalism has usually been undervalued. Now half of those Patch jobs appear gone or going, adding to the toll of 17,000 newsroom jobs lost in dailies in a decade. Any journalist’s joy at its half-demise is misplaced.

Patch’s journalism has always been, well, patchy. Early on, it sometimes seemed like more of a search engine optimization play than anything, learning how to outrank local newspaper stories in Google, even those that offered more depth. The sites are still spotty today, further hampered by the cutback of stringer budgets, which has winnowed the amount of reporting on the sites.

Still, Patches have been a net plus. A plus clearly for the journalists, but more importantly for the readers. Those lone editors, shorn of their early freelance/stringer budgets as times got tighter, have produced an astounding amount of news. Often working 50 to 80 hours a week, they’ve managed to find stories uncovered or undercovered by the dailies. Their readership seems to have peaked at 11 million monthly unique visitors. Part of that traffic stall can be blamed on technology execution. All the Patch sites are now on its 2.0 platform, which emphasizes community (free) contributions. It’s got its plusses and minuses, but in its painful rollout, content’s been lost and some contribution processes were made tougher. One major question Armstrong hasn’t quite answered: Will the surviving sites get more resources to add content to the site? Though criticized by Wall Street for spending too much (more than $125 million) on Patch, its inability to succeed is partly based on the fact that it didn’t invest enough to keep the readers it attracts.

Overall, Patches have proven out a truism: More news coverage is better than less news coverage. Patch has added content to the mix that its competitive dailies missed. Now many of those will be gone, along with all the uncountable coverage losses driven by the loss of those 17,000 largely local journalists. Let’s look at a few lesson from Patch.

Ad revenue isn’t enough.

The lesson now dawning on publishers worldwide is that their reliance on advertising as the major support of their news businesses is all but over. As print revenue’s decline has accelerated, growing digital ad revenue is increasingly tough as well. Programmatic buying combined with downward pricing pressure is turning digital advertising into a cutthroat, scale business. Even Patch parent AOL, the fifth-largest company in U.S. digital ad revenue, is struggling to keep up with Google’s and Facebook’s outsized growth, and Twitter may pass it next year.

With those 11 million unique visitors, it has insufficient scale to pay for the high human costs of newsgathering. Most Patch sites aren’t filled with local advertising, but rather pitches from Kayak and Reebok; those are national buys that probably fetch less-than-premium rates. There are exceptions (like the Wilton, Connecticutsite, with more than a half dozen locals), and those may be the models that Tim Armstrong is trying to build on. Those local ads aren’t the super-targeted, hit-my-cellphone mass customization we’ve long anticipated. It’s coming — but it’s not here. Patch got too far ahead of that business and has paid the price.

On the business side, Patch has been CEO Tim Armstrong’s millstone. Without it, its media division, including AOL-branded properties, HuffPost, and TechCrunch, would have turned a decent profit for the first half of the year. Media revenue is up 10 percent, but the division as a whole is still in the red. The Patch cuts will push it into the black. Armstrong is halving his strategy, at least, giving in to investors.

Reader revenue may be an answer.

It didn’t make sense for Patch to charge readers. Too few of them would have paid and the sites would have gotten no traction. As newspapers are proving out the value of All-Access and digital subscriptions, to much financial success overall of circulation revenue growth of 5 percent annually, it is worth someone testing paid hyperlocal. Read more at Nieman Journalism Lab.

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