How Patch’s New Owners Can Reverse Its Fortunes

Patch1Patch doesn’t have to wind up in the “bone yard.” I believe the hyperlocal network recently unloaded by Aol can, within five years, be a seriously profitable venture.

It won’t happen through corporate legerdemain or gimmickry propped up with a slick PowerPoint. It will happen if the company’s new owners, Hale Global, go all out for engagement-worthy community journalism that’s responsibly budgeted. And it will happen if they adopt a revenue strategy that’s responsive to fast-evolving trends in ad spending — especially in how programmatic is embracing the scaled audience targeting that’s so suited to a big community-based network like Patch.

I don’t know if Hale Global will do what needs to be done. The company has no experience owning other media companies, although its new managing director, Bobby Figueroa, was a top ad executive at Yahoo! But I can’t imagine Hale buying into new versions of the gimmickry that was responsible for most of the $200 million to $300 million in losses likely borne by Aol in Patch’s nearly five years of existence.

Meanwhile, the mostly young men and women who are Patch’s biggest asset — its smart, committed and passionate journalists — not only have survived rounds of deep cost cutting but kept their wits in the face of continual manic decision-making about the right mix of content for a hyperlocal site. Forced to perform as editorial contortionists much of the time, they proved what they could do in emergencies like Hurricane Sandy. Now they can be the torch bearers of the reinvention of community journalism that must be Patch’s foundation for achieving business success. That reinvention will integrate journalists more completely into the community they’re supposed to serve. Conversely, it will give citizens a more direct role in producing editorial content and amplify their civic voice in our digital democratic age.

But this double victory can only happen if Patch’s new owners unleash its journalists. Freed from carrying out increasingly desperate edicts by the old ownership, the network’s journalists can do what all the madcap experimentation failed to do: Build an audience that may not be monster-sized, but is engaged, that keeps coming back to Patch sites with a sense of expectancy and spends more time on each visit. With this kind of audience, Patch would be positioned to take advantage of the benefits of programmatic advertising’s newly perfected scaled targeting and, finally, be able to put big, bold dollar signs in the community news space. It’s shocking that after years of hyperlocal, those dollar signs are still missing or too faint and small in the top 100 metro markets.

The turnaround should begin with content oriented to issues or themes that strike an immediate, responsive chord with most residents. (e.g., transportation, K-12 academic performance, jobs and economy, health and wellness, the effects of income inequality). Thorough police and fire reports are a must. There should be articles about important, controversial and just plain endearing local people, especially community champions. The challenges and achievements of growing minority populations will draw readers of all backgrounds.

Data visualizations can bring compelling meaning to spreadsheets of numbers. But the product has to be a big improvement overt the clunky, hard-to-read visuals Patch currently delivers with its “Newscruncher” feature. Patch should introduce school sports coverage, preferably live and sponsored.

Some current Patches get some things right some of the time, but this spottiness has been the biggest drag on the network’s ability to engage its audience.

Other key editorial decisions Hale Global could make to promote engagement:

•  Reconfigure the network by adding city sites to metro clusters and — to hold costs down — cut back on marginal suburban sites that don’t produce much news or revenue. Patch has 51 sites in metro Washington, but only one of those is in the newly vibrant District of Columbia — in Georgetown, which is not, any longer, the No. 1 place to go in the city.
•  Bring Patch’s blogs under control. The Reston (Northern Virginia) Patch site alone has 227 blogs, many of which are inactive or outright marketing pitches. Recruit civic and public officials to address high-profile, controversial issues.
•  Don’t let journalists spend four or five hours at public hearings scribbling away in their notebooks in a futile effort to make useful stories out of hot-air testimony. Instead, encourage them to use those hours to find data on important issues like school performance – and not just student test results – and transform the numbers into meaningful charts and tables that are likely to elicit community feedback that’s not just hot air.
•  Curate social media for comments that can be re-purposed into stories, but beware of mindless linking to hot topics on Twitter — you can wind up informing your audience that snow has started falling (“There it is!”) after they have already started shoveling out their driveway
•  Where many sites are clustered in one metro area – like the 51 in metro Washington, D.C. – create regional stories from news that’s interesting or significant enough to run in all the sites.
•  Completely overhaul calendar listings so they’re not limited to what’s happening in the site’s community but have a regional scope.

If Hart Global reverses Aol’s recent shrinking of the Patch footprint and restores the complete 900-site network, it will have to impose tough budgeting, but without hurting reinvention of the editorial product. The floor for editorial expenses would have to be at least $48 million — $38 million for editors (who would also function as reporters) and $10 million for freelancers. There would be 750 editors for the 900 sites, which means 150 smaller sites would have to share editors.

Programmatic ad selling would bring efficiencies to Patch’s sales staff, with costs there amounting to about $8 million. Corporate, technology and office space would bring total expenses up to at least $60 million.

Patch was generating between $11.7 million and $16.4 million in ad revenue as of August 2013 — when most of the network was still intact — according to TechCrunch. With a fully restored, 900-site network, Hart Global could face losses in its first full year of ownership of up to $48 million, or quadruple the lower-end revenue. That’s a worst-case scenario. If Hart builds up audience engagement over year one and goes full steam into programmatic advertising, especially with “point-of-sale” messages on Patch’s mobile platforms, first-year losses could be lower, perhaps in the $40 million range.  (Greg Harmon, Borrell’s senior research analyst, told me that between rapidly increasing ad spending on mobile and video in the local space, “the money will be there. The only question is whether Patch can be in the right line to get the checks.”)

But how does Patch go from losing $40 million-$48 million in year one to the threshold of profitability within five years — the time that a complete turnaround is likely to take? The answer is by making its 12 million unique visitors far more engaged, so they’re worth the higher CPMs that programmatic’s scaled targeting would bring. To achieve break-even with a $60 million expense budget, the new Patch would have to generate a billion impressions per month at $5 CPM.  The billion impressions assumes the 12 million unique visitors would visit the site 10 times a month and view three pages per visit — reasonable numbers for a highly engaged audience.

What about the $5 CPM, which is about five times what the current, not-very-engaged Patch can command — can a transformed Patch achieve that?  I put the question to someone who is close to programmatic and its trend toward scaled targeting: Jonathon Shaevitz, CEO of Upfront Media Buyer, which works with marketers, publishers and ad networks on programmatic strategies that can scale nationally with targeted demographics and consumer behavior but also zoom in for market segments down to the  census-tract level. His answer: “Patch would need to have a highly engaged user, their own data about that user that they can monetize (data often sells for $1-$1.50 CPM by itself) and be viewed as a high-quality publisher.  With theses caveats, yes, they can achieve a $5 CPM.”

So programmatic — locally, regionally and nationally — can be the centerpiece of Patch’s revenue model? I asked Shaevitz. “My answer is a resounding yes,” he said. “The premise behind audience targeting is getting the best ad to the ‘right’ person in a moment in time. Simultaneously, a huge portion of a purchase decision is made at or close to the point of sale. By definition, Patch’s [community-based] model can capture people close to the point of sale and programmatic layers on top other information about behavior combined with incredible efficiency. This is getting particularly interesting in the mobile space where you are often literally ‘at the register’ when advertising.”

To be sure, Shaevitz, who doesn’t talk in PowerPoints, has caveats. He stresses that Hale Global’s Patch must build, user by user, an engaged audience that will stick around on the site for more than a New York minute. One way to build engagement, he says, could be introducing Little League and other youth sports coverage, which would bring many enthusiastic parents to Patch sites. “To a large degree, this is and must be about journalism,” says marketer Shaevitz.

I asked Hale Global ECO Charles Hale if he would take some questions about what he wants the new Patch to be. “When we have more specific news to share about our plans for Patch, we’ll be sure to reach out to you then,” he said.

Fair enough. In the meantime, maybe Hale and Shaevitz can have a mutually beneficial conversation.

Tom GrubisichTom Grubisich (@TomGrubisich) writes “The New News” column for Street Fight. He is editorial director of the in-development hyperlocal news network Local America that will rate communities on their performance across a broad spectrum of livability. He will present the site’s new demo on Charleston, S.C., at the DIG SOUTH 2014 interactive festival in Charleston on April 9-13, 2014.

  1. kcsnow
    January 24, 2014

    Interesting analysis, but I don’t buy the part about Programmic Advertising riding the rescue.

    The more publishers who buy into PA, the more ad inventory that will be dumped into the marketplace, and the lower the ad rates will drop. This might work for sites that aim at larger audiences, where the economies of scale allow them to make money at $2 CPM.

    Local news websites, by definition, have limited audiences confined by geography. These sites can’t compete for the same pool of national ad dollars as HuffPo, etc.

    Patch’s problem is, and always has been, the lack of local advertising. The key to making Patch or any other local news website successful is finding the key to unlock local ad dollars. They need a more efficient way to sell, create, manage and display ads from the multitude of small businesses who aren’t going to be flocking to PA anytime soon, if ever.

    Sorry, but I expect that Hale Global will lay off all the journalists and replace them with content-scraping bots. I hope I’m wrong.

    1. GoBirdGo
      January 25, 2014

      Agreed. If you are going to invest in hyperlocal and develop that audience, you can get $5cpm’s and more.

  2. SPY
    January 27, 2014

    The numbers simply don’t add up. 12 million users across 900 sites? That’s just a bunch of >10,000-person markets. And Little League coverage? That should be good for engaging 20 parents at a time. I wish Patch luck but…nah, I really don’t. What the Patch experiment lays bare is that authentic journalism at a scale that can be monetized is hard, expensive work.

  3. sunnyday72
    January 27, 2014

    As a former Patch local editor, I can tell you that almost none of the existing staff run one site. Most run two, some three, and some of them have sites that are miles apart. Also, they took away our freelancer budget over a year and a half ago. A large part of the corporate content like “Newscruncher” articles are supposed to save the local editors time, but the readers hate them.

    Your suggestions in the first paragraph under “Engagement” – beginning with “”The turnaround should begin with content oriented to issues or themes that strike an immediate, responsive chord with most residents.” – that is exactly what we local editors WERE doing before they started cutting our budgets and forcing corporate cookie-cutter content on us. Most of us live in the communities we covered and knew what did and didn’t work.

    1. TomGrubisich
      January 27, 2014

      The turnaround will require investment. But the money should go for the journalism and the local editors who can produce it, not layers of managers who keep coming up with new, hare-brained content schemes that DIS-engage the audience. To win, Hale Global should put its faith in Patch’s local editors, and make sure there are enough of them — 750 for 900 sites in my estimate of the minimum number needed — to produce the journalism that will generate $5 CPMs from programmatic advertising.

  4. markisenberg
    January 27, 2014

    Patch failed. If you do not have a better concept to win readers and advertisers,there is no sense tinkering with a failed formula. I saw my three local Patch sites do bad work in Southwest Florida and got little feedback from readers till they announced the closings. Local newspaper websites are trying to do better and only if they fail will we need a new Patch. Mr.Armstrong is almost an idiot at AOL.

  5. GrantEnglish
    January 27, 2014

    I don’t see how they could do any worse than AOL. AOL has terrible management. Patch is better off this way. – Grant English – AOL VP of Technology

  6. sunnyday72
    January 29, 2014

    As of today, all my former colleagues were laid off – terminated with two months’ severance via conference call and locked out of their sites before the call was over. They laid off all but 40 HQ-level people, as I understand it.

    So, I guess we’ll see what Hale’s plans actually are; they clearly don’t intend for the sites to have any actual journalism going on.

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