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June 15, 2009, 7 a.m.

Time Warner makes a small bet on hyperlocal news sites in Patch

We’re starting to see some dollars flowing into online-only news startups.

Patch, operator of six local sites in New Jersey, was purchased last week by Time Warner. Forbes reported the purchase price to be about $10 million.

patchPatch has announced plans for three more sites, in Connecticut, and clearly it has its sights set on many more. In an unrelated transaction, Time Warner is also buying a Boston-based events-based site called Going.

Earlier this year, Dallas-Fort Worth local site Pegasus News sold to Gap Communications, reputedly for $1.5 million. (The seller was Fisher Communications, which had bought Pegasus in 2007.)

Just as we’re seeing signs here and there that the financial logjam that created this recession is beginning to loosen up, perhaps transactions of this kind are signs that smart money (or at least money that thinks it’s smart) is putting some value on local news and information.

In the scheme of things, $10 million is not a big valuation, even in this post-recessionary epoch we’re embarking upon. And, with its limited geographic footprint, Pegasus is a long way from proving the fabled “scalability” so desirable in world of Web startups.

To begin with, Patch will have to start generating some revenue from advertising, which is not visible on its sites at this point. In fact, the “advertise” link on Patch goes to a pretty rudimentary information page suggesting a choice between banner ads and “self-service” ads.

Potentially, there are synergies between Time Warner, which operates cable systems and sells local advertising on them in many communities that might be Patch targets. From its local cable experience, Time Warner knows that local ads, whether online or on cable, garner CPMs much higher than national network ads. Although Patch’s self-service ads don’t appear to be selling like hotcakes, they’re priced at $15 per 1,000 impressions. Banner ads at Patch are sold on a weekly basis in rotating slots for $40 to $80 a week. This probably translates into a CPM in the $10 ballpark. Either way, I think those are sustainable local rates, and they’re well above the sub-$1 rates prevalent for online network ads.

As well, Time Warner knows that these simple offerings are just scratching the surface of what’s out there. Combination packages with the local cable system and video ads can’t be far off.

Interestingly, one-half of Patch’s advisory board is journoblogger, professor and author Jeff Jarvis, who is also behind The Local, a New York Times hyperlocal experiment. The Local and Patch operate in several of the same markets, and nearby is hyperlocal pioneer Baristanet. Jarvis wrote in February that he was advising all of them to collaborate rather than compete, but you have to wonder whether collaboration is in the genes at Time Warner.

POSTED     June 15, 2009, 7 a.m.
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