Summary:

Tim Armstrong continues to believe local news network Patch is not only viable, it is vital to Aol’s future. He promises a new data-driven product in development now will wow Patch watchers and users in the fall.

Tim Armstrong, CEO, AOL
photo: Getty Images / Michael Kovac

Unless something very unexpected and dramatic happens, don’t hold your breath if you’re waiting for Tim Armstrong to pull the plug on Patch. During Wednesday’s second-quarter earnings call, the Aol chairman and CEO repeatedly stressed his support for the local news network — and played up projections of $40 million to $50 million in revenue for 2012 for the 850-plus sites.

“Revenues are growing quickly and costs are coming down,” Armstrong told analysts and investors, who spent a significant chunk of the earnings call talking about the controversial local effort that some argue should be shut down. It was a flashpoint for activist investor Starboard Value, which forced a proxy fight that it lost.

Patch is still in red mode after more than $200 million in investment since 2009, with more money going into a new data-driven product Armstrong says will make its debut sometime this fall. It’s been in development for at least the past six months. Armstrong promises the new version will change the way people see Patch and what it can do, telling them:

“When you see it, you’ll understand.”

Asked if Aol is ahead or playing catchup with Patch, Armstrong raised an interesting aspect of being in the local marketplace. “When I look out across the traditional landscape, almost every traditional company in our space is in a turnaround of their own.” He mentioned newspapers reorganizing or selling to get away from pension costs. “We’re ahead of the marketplace — in terms of scale, doing it in a differentiated way.”

Armstrong brought Patch into Aol and he is still a true believer, even though the latest reorg put him a step away from overseeing it. He noted that Patch is “a very closely watched investment,” and added, “It’s obviously a bold step for us as a company.”

Artie Minson, the former CFO on his first call as COO, said that some cost cutting continues: “Expenses on Patch are down a little bit sequentially. We’ve been trying to optimize the operating structure of Patch; at the same time, we see strong revenue growth from Patch.”

Armstrong said Patch is seeing some success with national advertisers and continues to work on e-commerce as well.

Minson and Armstrong didn’t provide more explicit details on current investment or revenue numbers; Minson says they haven’t broken those out. The earnings report mentions “double-digit” gains in traffic and engagement sequentially and year over year.

One more sign Armstrong isn’t backing down: his prediction that “it’s going to be a very interesting next couple of years for Patch.”

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