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Aug. 19, 2013, 7:58 a.m.

The newsonomics of Patch’s unquilting

The lesson now dawning on publishers worldwide is that their reliance on advertising as the major support of their news businesses is all but over.

Too much of last week’s Patch news focused on CEO Tim Armstrong.

Sure, it was a memorably punk moment, one of those historic instants (recall that other AOL-related one when then-Time Warner CEO Jerry Levin awkwardly embraced AOL founder Steve Case? oh so 1999) when things just seem to change. As Patch itself was about to be cut in half — the news of that dribbling out over a week, filling the post-Bezos news-about-news cycle — Armstrong began to unravel, much like the Patch he has enthusiastically worked to build. He rambled, blaming Patch’s woes on “leadership,” a train of people he of course had appointed.

You can listen to Armstrong’s public, on-the-spot firing of Patch’s creative director. On Larry Mantle’s KPCC show last week on the topic of Patch and hyperlocal, a caller said she wasn’t surprised by Armstrong’s outburst. Her experience, and that of many of us, was that many digital media workplaces are volcanos of emotion. Armstrong’s humbling may give us a picture into tech-led media change itself at the moment, but our immediate question is: What does Patch tell us about the future of local news, about continued reliance on advertising, and about the value of technology?

Let’s see what sense we can make out of the move to close about 150-200 sites and pursue “partnerships” for about 150-200 others. AOL says it plans to keep open 400-500 sites, or about half of those around today. None of the surviving or suspended sites have yet been publicly named.

For starters, let’s acknowledge what’s clear here: Patch, as conceived, is in part a failure. Its army of national hyperlocal, arrayed across 20 states, is in retreat. It may be a strategic retreat. Just as likely, it’s the beginning of the end. Figure its life support now runs another 12-18 months.

If it is a failure, let’s also note it’s a partly noble one. AOL probably hired more journalists than any other American news organization in the 2011-2012 period. Hiring more than 900 journalists, to much bloggy uproar and sometimes misplaced rage, it defied the trend of local journalists being laid off by the thousands. Despite its sometimes unclear purpose, Patch’s role in paying journalists to do journalism has usually been undervalued. Now half of those Patch jobs appear gone or going, adding to the toll of 17,000 newsroom jobs lost in dailies in a decade. Any journalist’s joy at its half-demise is misplaced.

Patch’s journalism has always been, well, patchy. Early on, it sometimes seemed like more of a search engine optimization play than anything, learning how to outrank local newspaper stories in Google, even those that offered more depth. The sites are still spotty today, further hampered by the cutback of stringer budgets, which has winnowed the amount of reporting on the sites.

Still, Patches have been a net plus. A plus clearly for the journalists, but more importantly for the readers. Those lone editors, shorn of their early freelance/stringer budgets as times got tighter, have produced an astounding amount of news. Often working 50 to 80 hours a week, they’ve managed to find stories uncovered or undercovered by the dailies. Their readership seems to have peaked at 11 million monthly unique visitors. Part of that traffic stall can be blamed on technology execution. All the Patch sites are now on its 2.0 platform, which emphasizes community (free) contributions. It’s got its plusses and minuses, but in its painful rollout, content’s been lost and some contribution processes were made tougher. One major question Armstrong hasn’t quite answered: Will the surviving sites get more resources to add content to the site? Though criticized by Wall Street for spending too much (more than $125 million) on Patch, its inability to succeed is partly based on the fact that it didn’t invest enough to keep the readers it attracts.

Overall, Patches have proven out a truism: More news coverage is better than less news coverage. Patch has added content to the mix that its competitive dailies missed. Now many of those will be gone, along with all the uncountable coverage losses driven by the loss of those 17,000 largely local journalists. Let’s look at a few lesson from Patch.

Ad revenue isn’t enough.

The lesson now dawning on publishers worldwide is that their reliance on advertising as the major support of their news businesses is all but over. As print revenue’s decline has accelerated, growing digital ad revenue is increasingly tough as well. Programmatic buying combined with downward pricing pressure is turning digital advertising into a cutthroat, scale business. Even Patch parent AOL, the fifth-largest company in U.S. digital ad revenue, is struggling to keep up with Google’s and Facebook’s outsized growth, and Twitter may pass it next year.

With those 11 million unique visitors, it has insufficient scale to pay for the high human costs of newsgathering. Most Patch sites aren’t filled with local advertising, but rather pitches from Kayak and Reebok; those are national buys that probably fetch less-than-premium rates. There are exceptions (like the Wilton, Connecticut site, with more than a half dozen locals), and those may be the models that Tim Armstrong is trying to build on. Those local ads aren’t the super-targeted, hit-my-cellphone mass customization we’ve long anticipated. It’s coming — but it’s not here. Patch got too far ahead of that business and has paid the price.

On the business side, Patch has been CEO Tim Armstrong’s millstone. Without it, its media division, including AOL-branded properties, HuffPost, and TechCrunch, would have turned a decent profit for the first half of the year. Media revenue is up 10 percent, but the division as a whole is still in the red. The Patch cuts will push it into the black. Armstrong is halving his strategy, at least, giving in to investors.

Reader revenue may be an answer.

It didn’t make sense for Patch to charge readers. Too few of them would have paid and the sites would have gotten no traction. As newspapers are proving out the value of All-Access and digital subscriptions, to much financial success overall of circulation revenue growth of 5 percent annually, it is worth someone testing paid hyperlocal.

How might it work? Let’s take Chicago. Two big dailies, the Tribune and Sun-Times, each with paywalls. Could one of them try out an add-on local product, presumably digital-only but maybe not, that charges readers for access? Could the Tribune — now charging $150 a year for a Sunday print-plus-digital subscription — charge another $49 a year for deep news about my neighborhood? If it got 3,000 customers in an area of 25,000 households, it would have $150,000 to fund two reporters. Ad revenues would be a supplement.

The Tribune owns a precedent. Remember the old daily newspaper book section? It disappeared early on in the great newspaper cutbacks, across the country. The Chicago Tribune, though, now publishes Printers Row, complete with digital and events companions, and has gotten enough readers to pay it as much as $99 a year for it.

If a book supplement can work, why can’t a local supplement? It’s a test any newspaper with a paywall can try with minimal investment. For instance, there’s the ever-ambitious Orange County Register (“Nine Questions: Savior Bezos, a Long Beach Lunge, Chronicle Debacle, Patch Undone & More”). Larger than hyperlocal, but still local, the Register launches the Long Beach Register today, invading a neighboring area and taking square aim at MediaNews’ Long Beach Press-Telegram, a once-deeply-staffed daily that has had a wrecking ball taken to its newsroom. The Register’s push here is both print and digital, and it’s one to watch.

The alchemy of news and technology is an uncertain brew, whose recipe is still being tested.

Patch promised scale, and yet it has proven the limits of technology to create that scale. Certainly, its centralized content management system and templatized sites showed one way to reduce costs. Patch told me early on it could produce a local site at four percent of the cost of the local paper. The real cost in building the business that way has been largely human; meaningful local depth of sufficient takes humans, and those have proven too costly for about half the sites.

But this human/technology mix is being newly tested in a number of labs. Chicago, here, too promises the most interesting laboratory today. The Tribune is working with Journatic to help build out its local sites, a year after the faked byline brouhaha. Further, the Sun-Times, borrowing from the same playbook, just announced its own tech-plus-human hyperlocal push, Aggrego. The idea is the same: Use technology for 70-90 percent of the work of collecting and processing all the basic info (schools, churches, civic groups × 100) swirling in print and digital form in any community, and then put editors on top of it to manage and make sense and order of it for readers.

Don’t bet against noise.

No matter how good a news product you create, it’s brutally tough to change reader habits and get them to adopt new regular reading. A handful of top national brands — HuffPost, Slate, and The Atlantic, among them — have done that. Patch has stumbled, and, in truth, probably couldn’t do much about that.

Digital pioneer Mark Potts told me awhile back how hard it was to break through the noise of everyday habit when he started his hyperlocal Backfence: 16-hour days of meeting and greeting and reporting blurred together, just to get the word out. (Six-year-old lessons from Backfence at PBS MediaShift still resonate in today’s Patch news.) It’s retail marketing, much like local elections, and it can take years. That’s the advantage newspaper brands have here: They’re known quantities. Of course, the old newspaper package — combining local, regional, national, and global news — figured out a winning formula a long time ago. Disconnected, standalone hyperlocal can be tough going.

Whither Patch partnerships?

Tim Armstrong says AOL is trying to find partnerships to keep 150 or more of the to-be-cut sites alive. It’s tough to see what such a partnership would offer — and to whom. Patch has proven out a model of the mobile journalist, but other companies, like Digital First Media and now Advance, are doing likewise. Its platform is useful, but any chain could build something similar. Its mobile app, though late to market, offer a good experience and model, but again can be duplicated. Plainly, its ad efforts haven’t built a foundation worth buying into. Perhaps a news/tech company could be interested in essentially buying the traffic, reducing staff costs, and using aggregation to provide content.

Hyperlocal lives.

We shouldn’t lose sight that hyperlocal works. It’s how it works that needs more exploration. Seattle has been a more successful poster child, and we’ve seen that through the lens of the Seattle Times’ local blog network. LION, the newly formed local independent online news publishers, site has now passed 100 in its membership. LION now sports a “Getting Patched? Start your own news site” post, aimed at encouraging the hundreds laid off by Patch to start their own local businesses.

Michele McLellan’s Block by Block has provided good support and idea-sharing among the independents; Michele’s List is a good database. Many of these below-the-national radars produce a fair amount of useful local news. For most, it seems it’s as much a calling as a job, with some able to eke out livings.

Today, this local truth remains: Only a small percentage of the country is lucky enough to have a local reporter focusing on their own community. That was true in 1990 and it is still true today, through all the efforts, print and online. Maybe someone will get it right, sooner than later.

POSTED     Aug. 19, 2013, 7:58 a.m.
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