AOL’s Armstrong: 1/3 of Patch Sites Currently Have ‘Viable Business Model’

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PatchOne-third of the 900 Patch sites, which the AOL-owned hyperlocal network currently operates, has “a viable business model” that the company “wants to pursue,” Tim Armstrong, the company’s chief executive, told investors during an earnings call Wednesday morning. Armstrong, who founded the network and pushed for its acquisition in 2009, said that the remaining 600 or so sites are split between properties that are on their way to viability, and sites that will likely not reach profitability by the end of the year. The news comes as AOL works to bring the closely-watched hyperlocal media network to run-rate profitability by the end of 2013, a commitment that Armstrong says the company still plans to meet.

“We’ve been able to spend a significant amount of time with Patch recently and look at the profit commitment and how we get there,” said Armstrong. “Our goal is to get Patch to profitability, and we plan to make the hard decisions to get there.”

Armstrong attributed the performance of the struggling sites to poor market selection and a lack of concerted investment as the company built out the network. During the second half of the year, the company plans to merge a number of sites, combining markets, which might overlap readership or share a commercial center, as well as partner with traditional media properties to offload some of the costs.

“As we’ve gone through and looked through the data, there’s a bucket of markets [that are less attractive than others], and those are the areas where we’re really trying to optimize,” said Armstrong. “It’s an important part of the future of Patch to get to scale on those sites, which we know can be successful, and partner on some of the ones that can do better with partners.”

The specifics of the partnerships are unclear, but it’s a strategy which Armstrong has touched on more and more in the past year. The concept is to partner with the legacy local media companies, which have either pulled out of, or have poor digital presence in, the suburban markets that the company has targeted — bundling Patch’s content into their existing sales infrastructure.

From a cost perspective, the company has been slashing since the end of last year. Recent reports suggest that Patch has substantially reduced its editorial staff, pushing the remaining local editors to fill in the gap. Some have criticized the company’s recent redesign, which emphasizes smaller posts and user-generated content, as problematic.

The company says it has “significantly reduced” its costs from the $150,000 which Patch was spending on each site in 2011. And Armstrong believes that number is set to come down even further as the company finishes rolling out its new redesign.

Steven Jacobs is Street Fight’s deputy editor.