AOL’s Armstrong: ‘We’re Not Giving Up on Patch’ | Street Fight

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AOL’s Armstrong: ‘We’re Not Giving Up on Patch’

0 Comments 06 February 2014 by

tim_armstrong_lgAol’s tenure as Patch’s sole owner may be over, but the company’s chief executive is not giving up on the hyperlocal network just yet. During an interview on CNBC Thursday morning, Tim Armstrong, who helped found the initiative and spearheaded the Aol acquisition in 2009, said that the company has retained a significant stake in Patch and called reports that the company “jettisoned” the struggling property to Hale Global incorrect.

“We’re not giving up on Patch. We’re working with the Hale group to rebuild the Patch platform, and reports that we basically have jettisoned Patch is exactly the opposite — we basically want to restructure it,” said Armstrong Thursday morning on CNBC, as the company released its strongest earnings in over a decade. “It’s a big market. We have 20 million users on that product, and what you’ll see from us and the Hale group is continued investment in Patch on the platform side and growing it out to more users.”

In January, Aol announced that Hale Global, a private equity firm specializing in distressed technology businesses, would take over control of Patch after the local media property failed to reach run-rate profitability by the end of 2013. As part of the agreement, Aol incurred $5.8 million in restructuring charges related to massive layoffs announced by the firm on January 29th, the day the deal closed.

Thirty minutes after the CNBC interview, Aol’s leadership spoke to investors on the company’s fourth quarter earnings call, touching only briefly on the Patch partnership. Armstrong reiterated his position on Aol’s continued involvement in Patch as a “significant minority stakeholder,” saying that the company still believes in the broader local opportunity.

Revenue growth at Patch appears to have stalled in the past 24 months. Karen Dykstra, chief financial officer at Aol, told investors that the property generated $37 million in display revenue in 2013. It’s unclear whether the network generated revenues from other channels, but the figure even falls short of what the company had projected for 2012 — not to mention 2013.

However, the core issue facing Patch, and hyperlocal media as a whole, are the unit economics of producing content at a local level. Even after dramatic cuts made by the company during 2013, the property lost over $3 million during the 29 days Aol retained ownership before closing the deal with the Hale Group. Local advertising spending tends to fluctuate over the course of the year, but it indicates that the company was still a far away from the goal of run-rate profitability, which Armstrong promised investors since 2012.

Armstrong appears to remain optimistic about the local market, positioning Patch’s failure as execution-related rather than a strategic error.

“On the large local basis, we have one of the largest advertising systems to target local advertising. We’re still in local, we’re still focused on it,” said Armstrong during the earnings call. “But we’ve augmented the Patch strategy as one piece of it.”

Steven Jacobs is Street Fight’s deputy editor.

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