We’ve posted several positive items about the local Patch operation in our community, a one-person news bureau that has become our favorite – and most timely – source of information about local events. So we feel it’s also important to share the news that AOL’s Patch operation, a constellation of more than 800 hyperlocal news sites, looks like a train wreck.
Business Inside says Patch has generated only about $8 million in revenue in 2011 on an investment of more than $160 million. InvestorPlace says revenues were closer to $20 million, but that Patch still lost $150 million on the year. Some investors are calling for the head of Tim Armstrong (right) the former Google executive who took the helm at AOL nearly three years ago. Armstrong conceived of Patch in 2007 and funded the first two years of its operations before assuming the top job at AOL in 2009 and buying Patch outright. Since then he’s embarked upon an aggressive expansion program to place hyperlocal news bureaus in as many US locations as possible. He’s also spent lavishly on the acquisitions of Huffington Post and TechCrunch. At this point, critics are calling the strategy a bust.
The problem with Patch is that the hyperlocal revenue model doesn’t work nearly as well as the hyperlocal news model. According to Business Inside, Patch sells advertising through a network of mostly outsourced telesales representatives. It’s clear that these sales people don’t have their tentacles into the local communities that are the core of Patch’s model. The advertising on our own local outlet is mostly a mix of display ads from big national brands (presumably sold at remainder prices), Google AdSense and a smattering of classifieds. With that kind of revenue base, it’s not surprising Patch is losing a fortune.
As we’ve argued before, the hyperlocal model needs to work from both the content and revenue perspectives. Patch has clearly succeeded in hiring editors who are closely tied in to their communities, but it isn’t doing that on the sales side. This is a tough problem to solve. Small businesses aren’t big advertisers to begin with, and the cost of deploying dedicated sales reps to 800 local communities would be far higher than the centralized telesales model. On the other hand, the centralized model isn’t exactly killing it.
We hope Patch figures it out, because it’s inventing some creative new ways to report the news. We continue to like the business model of Sacramento Press, which positions itself as an integrated marketing partner rather than an advertising outlet. Addiction to advertising revenue is one of the reasons newspapers are in so much trouble in the first place. In its current iteration, Patch appears to be making the same mistakes.
Miscellany
As if reporters don’t like to gripe enough, there’s a new website where they can do it anonymously in public. It’s called Dash30Dash.org, and it was started by a former newspaper reporter who wants “to give reporters, editors and others a chance to post comments about their jobs and their ever-changing profession.” So far, it looks like the commentaries are mostly limited to contributions from the site’s creator, but it’s still early. The writing is lively and pointed, so check it out.
An Australian philanthropist and Internet entrepreneur has pledged more than $15 million to fund a new, nonprofit media venture called The Global Mail. Graeme Wood says he has only one goal in mind: “produce public-interest journalism.”
Wood, whose personal fortune is estimated at $337 million, was apparently taken with the example of ProPublica in the U.S. That nonprofit investigative venture was also started with a large grant from a single donor but has been successfully diversifying its support base and now employs 34 editorial staff members. Wood’s commitment to support The Global Mail for at least five years resulted from a dinner party conversation with former Australian Broadcast Corp. journalist Monica Attard, who is now the site’s editor-in-chief. That’s pretty good sales efficiency in our book.
Comments
This entry was posted on Thursday, January 5th, 2012 at 12:25 pm and is filed under Fake News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
In a very short time, I have come to rely on my local Patch for excellent local news coverage. My neighbors love it, too. I sure hope they can figure out how to continue this amazing service.
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The internet has lowered the cost of data formerly print, audio and video content as revealed by web applications, down to virtually $0.00. (That is not to say that there was not considerable expense in development of the techniques, technology and infrastructure, [but that was done on a normal equipment depreciation amortization schedule {while we were paying surcharges on our telecom bills for something we did not get.}])
That train has already left the station. (As William Gibson famously wrote: “The future is already here — it’s just not very evenly distributed.“.)
The currency of our future is the ultimate perishable, its innovation.
From innovation, from the churn of ideas, from the near Brownian motion of going from today to tomorrow, you have to pick a direction and try to extract some benefit from getting pulled along that direction. (Quoting Gibson again: “The future is not google-able“. [Let that sink in a bit.*])
We are rapidly evolving into a post-industrial, post-production, post-consumption society.
Our economy no longer needs us to survive. Its out-sourced and off-shored.
Wealth is derived from exploiting scarcities and disparities.
These no longer truly exist in the western hemisphere or in Europe in ways that lead to great generalized wealth such we had in the post-WWII era, (lasting until 1970 when the United States simultaneously started wasting away from a disease called greed and becoming morbidly obese from a diet composed of corn, [previously known as pig slop**.])
I’m afraid that we threw all that away fighting wars that didn’t need to be fought and let ourselves get distracted from wondering what was to happen and if we would be better served by taking a more deliberate pace. (I am not quite advocating the tack taken by Zhou Enlai who famously said in the 1950s, when asked about the significance of the French Revolution of 1789: “Its too soon to tell.”)
It may perhaps return to these shores, long after I’m dead and gone, but we are currently spiraling down the drain of history, as all past civilizations have done. ***
*) The phrase implies that while everything that is known can almost instantly be found and can be rapidly be disseminated for damn near nothing, the unknown is persistently out of Google’s ken.
**) The reason for the epidemic of obesity starting in the 1970 is the creation of a subsidy system by secretary of agriculture Earl Butz which changed agribusiness policy from what it was into a corn based local economy which, incidentally, allowed Richard M. Nixon to ship almost the totality of US wheat production to the Soviet Union to make up for the failure of the Ukrainian wheat crop, itself due to the failure of Joseph Stalin‘s farm collectivization, in an effort to stop the next world war being fought over food.
Earl Butz also ended the perennial cycle of boom and bust in the agriculture market and led to the creation of agribusiness as it now exists, (unfortunately that includes Monsanto. [Personally I find it hilarious that the reason we are able to feed ourselves at all is because we have broken the hold of the free-market system over the production of crops. If we were such cheap bastards at the grocery store check-out our farmers could afford to make a living at it and we might not be stuck with only 7 staples processed into near infinite variety of the same old crap, {The United States is almost in the same position that Ireland was prior to the potato blight.}])
***) The Collapse of Complex Societies Joseph A. Tainter ISBN: 978-0-521-38673-9
What a shame indeed. Unlike some people, I feel that Patch.com generally employes dedicated, if young, journalists. By and large, they put out excellent journalism and beat the traditional news outlets to the punch more often than not. They have also been a great feeder for young journalists trying to break into the field. It would be a great loss to see them go.
On the other hand, I am less than enamored by ProPublica. I feel ProPublica demonstrates the need for self-funding journalism, NEVER donor-funded journalism. Case in point- The big feather in ProPublica’s cap is the story of Magnetar, a hedge fund that made money by selling CDOs on sub-prime mortgages and then bought Credit Default Swaps on these products, essentially betting against their own product. ProPublica claimed that this helped cause our economic crisis. This is economically ignorant, and factually off-base since Magnetar only bet against a small minority of their own CDOs, and only a small portion of their CDS portfolio included Magnetar securities. By and large, Magnetar just made wise decisions.
But the REAL effect of the story was to distract readers from the real cause of the depression- the collapse of a 9trillion dollar housing bubble. There would have been no sub-prime market were it not for the invention of adjusted rate mortgages by Golden West Financial. ARMs allowed bankers to sell overpriced houses to poor people. These ARMs formed the backbone of the CDOs that Magnetar wisely bet against. And remember, the large majority of the CDOs that Magnetar bet against were not Magnetar CDOs. Well who was the president of Golden West Financial, and who personally (not his minions) invented the ARMs that made much of our housing bubble possible? Herb Sandler. Who founded ProPublica? Herb Sandler. ProPublica can go to hell. (cue outraged responses…)
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