AOL CEO Tim Armstrong has a simple but brutal choice to make about Patch, a source close to the ad sales side of the local news business told us over lunch recently: Ditch it or double down and take the thing national, opening a Patch in every significant market in the country.This source said that the problem at Patch is obvious: It generates maybe $50 million in ad sales revenue after spending $160 million in costs, he says. But Armstrong defended Patch to angry investors in a recent slideshow; and the small-town news network has been given until 2013 to become profitable.
In fact, this source says, some of the older, more established titles are profitable. There are maybe “tens of profitable Patches.” They’ve got loyal readership and merchants in those neighborhoods are happily advertising there.
The problem is the massive expansion, to 850 titles, in new Patch towns: Those guys have tiny amounts of traffic and few advertisers.
Those towns could become profitable, but that’s unlikely to happen fast enough unless Patch can start attracting more national brand advertising dollars, from movie studios and such. Studios like to do “roadblocks” across every title in a given national medium when they’re launching big new movies. They’re not interested in a medium that only has 850 towns—they’d rather buy all the towns, across the country, all at once. Patch currently covers about 10 per cent of the country in markets that attract maybe 25 per cent of ad dollar spending, BI has been told.
To make that happen, Armstrong would have to double-down on Patch and expand his loss-making local news empire, this source said.
Alternatively, he could cut Patch back to just the profitable ones. That would leave the network too small for a large company like AOL to be bothered with, so the logic there would be to either pull the plug completely or dress up the brand for a sale.
“The external pressure is incredibly high to pull the plug,” this source says.
A spokesperson for Patch disagrees:
It’s a flawed premise …
The spokesperson said Patch just had the biggest revenue month in its history. There are some national advertisers on Patch already.
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