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Summary:

AOL has said it remains committed to rolling out its Patch.com network of a thousand hyperlocal news outlets across the U.S., but reports about cost-cutting efforts raise the question of how long the troubled former web giant can maintain that commitment to its money-losing hyperlocal project.

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Even before AOL’s future started to look dodgy — with speculation about the future of CEO Tim Armstrong ramping up, as the company’s financial underperformance continues — the rollout of the Patch.com hyperlocal news project seemed exceptionally ambitious. To create a thousand local newsrooms across the country felt a lot like a “boil the ocean” kind of venture, with impossibly high costs and a slim chance of success. According to some reports, AOL is now busy scaling back its ambitions for Patch as well as trying to cut costs, which could ultimately wind up jeopardizing what the project was designed to do in the first place.

A report by Jeff Bercovici in Forbes magazine says the 800 or so editor/reporters who run Patch’s local outlets “have been told their budgets for freelance assignments are being reduced, in some cases severely,” and content is also being re-used across multiple local sites within the Patch network. There have also been some reports that editorial staff within Patch are being asked to help with advertising sales, a move some see as crossing the editorial/advertising divide that exists in most journalistic entities. And there have been a couple of high-profile departures from the ad-sales side of the AOL unit, which doesn’t create a lot of confidence about how that part of the business is doing.

AOL is said to be committed, but for how long?

Patch president Warren Webster, however, has said in a number of interviews that AOL remains committed to the effort, and that reports of its imminent demise have been greatly exaggerated. He told Forbes that while editors in charge of some local Patch units have been working to help come up with advertising campaigns and ideas, this has been a result of their own initiative, not something AOL has forced them to do. And he told StreetFight — an online magazine that covers the hyperlocal sector — that the former web portal is pleased with the progress it has made so far:

We are succeeding on a number of levels, and our users and advertising clients remind us of that every day. Building something as ambitious and important to communities as Patch is a long-term investment… the company is very committed to Patch.

AOL’s management may be committed to Patch on an ideological level — the hyperlocal market has been a fascination of CEO Tim Armstrong’s since before he joined AOL, when he helped to finance Patch as an investor while still at Google — but the question of how long can it continue its financial commitment remains. The project has so far cost the company more than $130 million dollars, and if it reaches its goals, it could cost another $30 million or so (although Forbes says the 1,000-town goal is being downplayed). That’s a lot of money for a company that continues to post disappointing results, after reassuring investors numerous times that its balance sheet was close to turning the corner.

Not only that, but Armstrong has repeatedly promised that some Patch outlets would be profitable by the end of this year, and that window is quickly closing. According to some reports, the company is even spreading advertising sales around so that Patch’s better-performing offices look profitable, although Webster denied that this was happening in his interview with StreetFight. If AOL can’t show that hyperlocal advertising is a workable strategy, then the skepticism about the viability of the project is going to accelerate, to the point where Armstrong could find himself facing unpleasant questions from his board — like the ones Yahoo CEO Carol Bartz faced just before she was ousted.

Can Patch cut its way to profitability?

Webster told Forbes that the reduction of freelance content at Patch’s sites was always part of the larger plan, and posting content from other Patch outlets across the network also made sense, even if it stretches the concept of what local means. But those steps also feel like an attempt to get a handle on the millions being spent on the project — along with a recent shift in focus that is aimed at getting more bloggers to post their content to Patch’s sites free of charge (including one controversial effort that is targeted at high-school students), in the same way many contributors do to Huffington Post.

But are there enough bloggers who can fill that gap? And will AOL be sharing any of the advertising revenue it hopes to generate with them?

Huffington Post has also been rolling out more locally-themed topic pages, including several recent ones aimed at readers in Detroit and Miami — and these efforts have also caused speculation about whether the company is more interested in an aggregation approach rather than unique content, since the former is substantially less expensive. The problem for Patch is that the more its sites become lookalike aggregators rather than having a unique voice, the less likely they are to appeal to the market they are aimed at, and the less desirable they will be as an advertising vehicle.

AOL’s management may be committed to Patch for now, but the company can’t continue pouring money into an unprofitable entity forever, no matter how much Webster talks about a “long-term” investment. AOL doesn’t really have the luxury of thinking long term at the moment — Armstrong has to show some positive movement to investors or his job is likely in jeopardy, and without him Patch loses its biggest champion.

Post and thumbnail photos courtesy of Flickr user Stewart Chambers

  1. Amira Alex Amira Thursday, October 6, 2011
  2. So many questions, so few answers…

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  3. It is failing miserably. Shoveling shit against the tide as it were. The editors have to be reporters, photographers, community liasons, and ad sales people — and most are only commited to one thing (after the first few months of trying to work the plan)… and that thing is “getting a paycheck”. Typos, poor grammar, incorrect “facts” (since they have no local fact checkers), and “how to lick an ice cream cone” type articles. It’s sad. The core problem is AOL is a greedy dishonest corporation that can’t be trusted — and Huffington is plagiaring flip-flopper. They fake the adverting sales by putting up the same ads on multiple sites to give the impression people are advertising — but any real ad buyer can see through the thinly veiled attempt. They don’t give advertisers any real numbers (audited by a 3rd party), so after a month most advertisers who DO get suckred into spend a few bucks realize there is little to no return and pull their ads. Maybe Arianna can go home and save Greece. An Timmy can get a caddy job in Westchester. Bye bye Patch — you never got off AOLs tit — maybe Warren can open “unpatched” in the same way Michael went with “uncrunched”… AOL will kill anything it touches — it’s a virus on the internet. Hey, AOL — You’ve got mail! It’s your investors saying “bye bye”.

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    1. Yes indeed! You speak the truth my friend! Unfortunately – I know this first hand.

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  4. Bun E. Carlos Friday, October 7, 2011

    I’m glad there was a journalist finally brave enough to ask all of the tough questions everyone else was already asking and find a bunch of non-answers in some other previously reported publications.

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    1. Joseph Oxenbridge Friday, October 7, 2011

      Tough questions? There is not a lick of original reporting in this rehashed drivel.

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      1. Michael Fisher Friday, October 7, 2011

        Yeah, Carlos, what the heck are you talking about? This is barely reporting and quite honestly, this site and this writer has no credibility writing a Patch hit piece when he can’t even do his own original work. He’s a member of a club that consistently writes anti-Aol stories, often citing the infamous Business Insider, known best for his single-sourced “I hate Patch” stories. I wish these people would just move on.

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  5. It’s sadly ironic that Tim Armstrong wants shareholders to take the long view regarding Patch now, when immediate positive results are needed, but 2 years ago, when the long view was reasonable, he kept promising an immediate payoff. When it didn’t happen, he cut costs to make the poor revenue appear profitable by laying off employees in other areas of the company. Back then, when he could have set reasonable goals for the company as a whole, and a reasonable profit timeline for shareholders, he chose to make pie-in-the-sky promises instead. He could have turned the company around by focusing on the better performing properties and investing in them. But no… he drank his own kool-aid and decided to swing for the fences. Just the thing an egomaniac would do… not a team player… and certainly not a true CEO who had the shareholders’ best interests in mind.

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  6. ” The editors have to be reporters, photographers, community liasons, and ad sales people ”

    This is true of many in the industry outside of Patch. I don’t consider it a bad thing, but it’s impossible to pull off without passion and some lunacy.

    Good on those inside and outside corporate structures who are learning new skills to be successful at the local level in the 21st century.

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  7. Rebecca Rosen Lum Friday, October 7, 2011

    I’ve served as interim editor for a number of Patch sites and have been knocked out by the grit, passion, commitment and exacting standards of the permanent editors I’ve come to know. I also enjoyed the collegiality between editors. It distresses me to see Patch and God knows how many other excellent enterprises held to that American quarterly-returns standard that conspires against steady progress. Patch is young. That it doesn’t turn a wham-bang profit overnight means nothing. My hope is that those who pull the strings will continue to see consistency as critical to longterm success, and quality as a vital element well worth paying for.

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    1. Michael Fisher Friday, October 7, 2011

      Rebecca, I feel the same way you do. I’ve been a journalist for almost 20 years and I have no clue where all of this animosity and anger toward Aol/Patch comes from, but then I remembered how large Aol used to be and how many employees did lose jobs because of poor management decisions. There are a ton of bitter people out there who hate AOL and that impacts Patch. SOme Patch sites are decent and better than what’s there and some are just plain crap, but that was to be expected when you hire 850 journalists in 16 months. When people like “fozzy bear” comment, it makes me cringe—not only because he’s an idiot whom Earth would be better off without, but he doesn’t have any clue what he’s talking about.

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      1. Um, the animosity comes from a very large, visible, obvious thing:

        AOL IS A GINORMOUS CORPORATION.

        Leading neighborhood news sites is a spectacular thing to do. You should NOT be doing it for a GINORMOUS CORPORATION. Each and every one of those editors is capable of running his/her own site. Before giving another drop of their own blood/sweat/tears to a GINORMOUS CORPORATION, they should bolt and start their own sites. Hope they didn’t have to sign some stupid noncompete when they signed on.

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      2. Michael Fisher Saturday, October 8, 2011

        Trevena, Each and every one of those editors is not capable of running their own site. Where are they going to get insurance coverage for dental and medical? Who will pay their gas use? Who will buy their printer, scanner, and computer? Who will pay for the internet connection? Where will they get the money? Who will sell ads? If you think a 25 year old could do this on their own, then why aren’t they? For one, they would need at least 6 months of pay saved so they could take the risk and still survive. Two, they would need to sell ads and that’s a huge conflict when a journalist is involved with selling ads—and those who do it and say they can do it ethically are full of shit.

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      3. Partly because their main motivation is greed. They see the newspapers stumbling and they’re trying to be the ones that can put in the knock-out punch. In the quote above, how is patch “important to the communities” when most of them already have a local newspaper that actually checks their facts and gets the stories right? Not that they don’t have problems with that from time to time. They are trying to become the Walmart of the news world and honestly, America doesn’t need another company coming in to knock out smaller businesses.

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  8. Why would the world need the Walmart of news?? And why is it important to communities when they already have local newspapers that regularly do a better job?

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    1. Karen Best Forman Friday, November 25, 2011

      The local papers DON’T do a better job. I used to work for the local papers and they print week-old news. I also worked for Patch for a year and we post stories that are happening NOW.

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  9. How long can AOL stay committed to Patch? http://t.co/yj8PM8CH

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  10. Interesting comment on “How long can AOL stay committed to Patch?” @gigaom: http://t.co/yncGI53Y via @gigaom

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