Winding Down Investment In Patch, AOL Writes Off Millions

AOL earnings fell sharply in the third quarter due to large write-offs related to the continued challenges at the company’s hyperlocal news network Patch. During an earnings call Tuesday, the company said it took a $19 million charge due to recent restructuring costs at the hyperlocal media division as well as a $25 million charge related to non-cash asset impairment, or decrease in the valuation, of the project.

The write-offs mark the financial end to an ongoing shift in the company’s strategy toward Patch from a focus on growth and investment to one centered on winding the closely-watched property down so that it can hit profitability. In August, the company fired chief executive Steve Kalin after only three months, and began a major restructuring that saw over 500 employees laid off in the early fall.

AOL’s chief executive, and Patch co-founder, Tim Armstrong also told employees in August that the company planned to shut down, partner off, or sell about 400 of the 900 sites. In October, the company began the process of closing down underperforming sites, consolidating some with neighboring communities and shutting down others entirely. During the call Tuesday, Karen Dykstra, chief financial officer at AOL, said that the company reduced its investments in Patch “in the range of $6-10 million” during the third quarter.

However, the cuts to Patch might not be over yet, as the company reaffirmed its at-all-costs commitment to bring the network to profitability by the end of the year. As of today, the company has managed underperforming sites internally, but Dykstra says AOL is open to shedding these underperforming properties by partnering them off or selling them completely: “We continue to look at the cost structure [of Patch] and are committed … to either a partnership or model or transaction by the end of the year, bringing Patch by the end of the year to profitability.”

If the past few months were about shaping up Patch’s internal operations, expect the fourth quarter to see news of deep partnerships, or even, sales of assets to other companies, likely with competing local media properties.

“The team at Patch has held a number of partnership conversations … and received interest. at a national, regional and local level,” Armstrong told investors at the onset of the call. “We expect Patch to move to run-rate profitability by year’s end, through a combination of operational changes and a partnership model for operations or strategic alternatives.”

AOLs winding-down of Patch may prove the nail in the coffin for a first wave of corporate, and even independent, hyperlocal media projects. MSNBC shut down EveryBlock earlier this year, the Daily Voice, a well-funded startup in Connecticut filed for bankruptcy in May, and last week Sacramento Press, an independent news site once held up as a potential hyperlocal success story, sold after ongoing struggles to sustain profits.

In a sign of AOL’s growing disinterest in the hyperlocal network, Armstrong barely touched on Patch beyond his prepared remarks, leaving Dykstra, the cost-cutter, to respond to questions.

“We are committed to making difficult decisions” said Armstrong, closing the call. “And we’re going to continue to make sure our shareholders get great returns.”

Steven Jacobs is Street Fight’s deputy editor.