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AOL's Patch Is Purging Staff, But Here's How 'Hyperlocal' Can Work

Small Sites Making SIx Figures In Revenue Won't Support Corporate Structures

By Published on . 15

AOL's long struggle with Patch is in a decisive phase. Hundreds of layoffs are expected by the weekend as AOL looks to pare 400 local Patch sites from its current roster of 900 in a bid to reach profitability by the end of the year.

As AOL CEO Tim Armstrong delivered the news to staff earlier this week, he paused to fire Patch creative director Abel Lenz for recording the proceedings with a camera phone. He later apologized, calling it an "emotional response," but clearly the stress of making Patch work is getting to Mr. Armstrong.

AOL CEO Tim Armstrong
AOL CEO Tim Armstrong Credit: Davod Paul Morris/Bloomberg

AOL has invested hundreds of millions in Patch since it was acquired in 2009, making the nationwide network of community sites the biggest-budget bet on the notion of "hyperlocal" by any media company. Given its very public struggles, you'd be forgiven for wondering if the idea of "hyperlocal" as a media business works anywhere. Well, it does and hyperlocal is far from dead. It's just a lot smaller, perhaps, than AOL would like it to be.

Top-down hyperlocal news efforts such as Patch and The New York Times' "Local" blogs have yet to prove successful, but many smaller, locally owned, community news sites are doing quite well. Operating at a smaller scale and with less funding, these smaller sites are finding profits where the biggest players are not.

"This business is certainly not for the faint of heart," said Denise Civiletti, editor and publisher of RiverheadLOCAL.com, a small online news site in Long Island, NY. But, she added, "it can be a profitable and sustainable as a small business enterprise."

RiverheadLOCAL is now in its fourth year and not hurting for revenue. In 2012, according to Ms. Civiletti, its sales numbers were in the "solid six figures" and enough to support her and the site's only salesperson, her husband.

"Local doesn't scale" she said, arguing that her kinship with the community she covers -- she lives in Riverhead and worked in local news for years before launching RiverheadLOCAL -- puts her at an advantage over the two Patch sites in her coverage area. "I don't think either has gotten any sort of traction," she said.

To be profitable, Ms. Civiletti argued, a local news site needs to produce a quality editorial product and keep overhead down, something large scale efforts like Patch have inherent trouble with. "I don't see a network of hyperlocal sites supporting a corporate structure that has a lot of middle management," she explained.

Liena Zagare of Brooklyn knows this well. Zagare sold her profitable network of five local news sites to Patch in March 2011 and then left AOL after working there for nine months. Convinced she could do better on her own, Ms. Zagare launched another four sites in some of the same neighborhoods. All her old advertisers are back, she told Ad Age. "I don't think any of them advertise on Patch right now," she added.

As a local owner, Zagare explained, she has the flexibility to give advertisers the experiences they want. "If an advertiser wants to use their Instagram feed as an ad, I can do that," she said, "It's a lot harder to do that when you're in a big corporation because you've got to get approvals from somebody somewhere to do something."

Zagare's sites offer not only display ads, but sponsored content, and she doesn't serve any network ads either, describing national ads on local sites as creepy. "With a lot of local advertisers, you only have one chance to prove your value and you have to over deliver on your promises," she said. "I do think it's easier to do that on a smaller network than on a grand scale."

Howard Owens, publisher of The Batavian, which covers Batavia, NY, said small businesses are naturally suspicious of big corporations like AOL and their ad reps, a dynamic which gives locally-owned news sites a large advantage. "When you're a local owner, and say 'I share your struggles and I'm here to help your business do better,' they're welcome allies."

It's not only the relationships, Owens said, but the type of sale. While selling banners ads to small businesses has typically been described as folly, Owens called that notion "Utter nonsense." Local advertisers do trust banners, he said, but not banner rotations or CPM. "If they don't see their ad on the site," Owens explained, "They don't believe it's running." The Batavian instead sells primarily fixed position banners and charges flat fees.

While not making Owens rich, The Batavian's 110,000 monthly visitors net the site nearly $200,000 dollars in annual revenue. The site is profitable, he said, because he has no other option.

Analyst Peter Krasilovsky of BIA/Kelsey said the original dream of hyperlocal was to build a network of local sites that could attract both national advertisers across the network and local advertisers on each specific site. It's disappointing that the model hasn't quite worked out, he said, but added that there are still plenty of ad dollars ready to be spent in the space.

With newspapers and local Yellow Pages in decay, much of the $132 billion local U.S. ad market is in play. Capturing it, however, has been difficult for anyone to do at scale.

"I don't know that we're going to see a destination site that really dominates the market," Mr. Krasilovsky said. "What we're going to see is a highly fragmented market with tremendous opportunity and sales being covered in a number of different ways."

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