Street Fights of 2012: Making Sense of Content Economics

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Figuring out the correct cost basis for content remains a concern for hyperlocal media, as a few of the most promising concepts of years past were put to the test in 2012. Some of the more telling moments during the year, like the Journatic scandal, revealed the ethical quicksand that can accompany innovation. Others, like the iterations at AOL’s Patch network, affirmed what many suspected — that original local journalism produced by professional journalists is difficult to scale.

And 2012 was a growing-up year for Patch that included all of the pains and triumphs of a closely watched adolescence. The company kicked the year off with the addition of a chief content officer in what would become the first of a series of personnel changes. By year’s end, the company would see its editor-in-chief and communications director step down as it restructured its leadership team, adding a head of content operations, head of strategy and business development, and head of U.S. sales, as well as a chief operating officer.

Patch came under fire throughout the spring as its parent company, AOL, was mired in a very public proxy fight with activist investor Starboard Value LP. The minority shareholder called for the company to pull the plug on Patch, publishing a 96-slide presentation that exposed staggering losses at the hyperlocal network. AOL CEO Tim Armstrong stood by the division (which he had co-founded), and managed to put the issue to rest with a shareholder vote in June.

The numbers exposed during the battle, namely a projection that put Patch’s 2011 losses at $150 million, however, further highlighted the ongoing issues with the company’s hyperlocal content model. With his feet again underneath him, Armstrong announced a “Phase 2” for Patch, which began with the launch  in September of a redesigned site, piloted in a handful of communities, that modified its traditional editorial structure with a more social and user-generated focus.

Just as Patch was licking its wounds from the proxy battle, hyperlocal content syndicator Journatic found itself in another sort of fight. In late June, NPR’s This American Life took a microscope to the company’s practices, revealing that it had used fake bylines on its sister site BlockShopper as well as in articles that ran in numerous local newspapers. The scandal led some of the start-up’s biggest clients — newspaper companies like Sun-Times Media, Gatehouse, and Tribune — to suspend work with Journatic, leaving the future of the company, and its model of outsourced journalism, in question. Tribune would later resume working with the company.

Somewhere in between AOL’s battle with Starboard and the Journatic debacle, Datasphere, a three-year-old startup based in Seattle, hit its stride. The company, which provides TV stations with tools to develop and monetize community-level content, scored $8 million in a Series D round that brought its total funding to $28.8 million. With more than 50 million unique views across its network, Datasphere’s model showed strength at scale in 2012.

Meanwhile, Joe Ricketts-backed was another success story in hyperlocal media this year. After losing a managing editor-to-be right ahead of launch, the neighborhood news project finally in November expanded from New York to Chicago, capping off an impressive three-year run that saw the news network carve out a an impressive audience, with upward of 1 million UVs in New York alone. With national media brands like The New York Times pulling the plug on hyperlocal efforts and start-ups getting to scale in 2012, next year should provide some color on whether the models can become self-sufficient.

Steven Jacobs is deputy editor at Street Fight.

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