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AOL's Patch: A Problem Of Scale

Tim Armstrong, AOL's CEO, may have been right with his initial vision for Patch, local news sites that eliminated that high costs of print newspapers, but his big mistake was thinking he could do it at scale in the first year. The Batavian's Howard Owens: "The reason our great newspaper chains of the 20th Century are named after individuals — Pulitzer, Hearst, Scripps, Knight-Ridder, Gannett, McClatchy — is that each of the men behind these legendary corporate names started with single newspapers and grew empires based on their initial success."
By
NetNewsCheck,

The one thing I've always believed AOL CEO Tim Armstrong got right with his initial conception of Patch was that legacy media spends too much money on producing printed products.

In the online news world, not only do you eliminate the costs of composition, paper, ink, trucks and paperboys, it is simply more efficient to gather and produce news in the digital age for digital delivery.

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There are still a lot of people in the newspaper company world trying to figure out how to preserve big newsroom staffs, rather than noodling through realistic revenue projections for local community coverage and calculating how many editors, reporters and photographers that revenue will cover.

The emerging news publisher must begin with revenue and work backwards from there.

Up to a point, Armstrong got that part of his enterprise right.

His big mistake was thinking he could do it at scale in the first year.

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The reason our great newspaper chains of the 20th Century are named after individuals — Pulitzer, Hearst, Scripps, Knight-Ridder, Gannett, McClatchy — is that each of the men behind these legendary corporate names started with single newspapers and grew empires based on their initial success.

William Randolph Hearst didn't become Citizen Kane overnight.

Pulitzer, Hearst, Scripps, Knight, Ridder, Gannett and McClatchy each got their business process right in one community and learned how to apply it, factory-like, in other cities.

The ugliest word in the modern media world is "scale."

Armstrong chased scale: IT infrastructure scales, server farms scale, message systems scale, cloud computing scales. But local news does not scale.

Widget makers understand scale. The most expensive widget is the first one. Each new widget is comparatively pennies on the dollar.

In the news business, the first story costs just as much as the third or the 30th or the last. Online, it's possible to get more production out of a single reporter, but time is not elastic. At the end of the day comes the end of the day.

So, that's the first fallacy of scale. The second is that cost savings can be achieved by putting 1,000 publications on a common platform.

The reverse is actually true.

It would be cheaper to let 1,000 different editors choose their own installations of WordPress or Drupal than trying to build a CMS to scale. The headaches of a large scale CMS are enormous and the IT overhead is no trivial matter compared to multiple independent WordPress installations. WordPress — more so than Drupal — is a platform that needs practically no IT support if you have smart and savvy editors.

The third issue with trying to scale local — more of a flaw than a myth — is the often overlooked cost of corporate overhead.

The more employees you have, the more supervisors you need. The more supervisors, the more managers, and then the more executives and with that all of the support that goes with it — HR, corporate attorneys, accounting, payroll and so on.

In trying to achieve scale for local news, you actually do the opposite of what scale is all about. You lose all the advantages of efficiency and cost reduction. You burden your individual news sites with unmanageable overhead costs, costs that diminish your news gathering capability, thereby hurting the very product designed to make money: local news.

One can argue — and I do — that most of the adversity today's newspaper chains face isn't online disruption, but crushing corporate overhead.

So if Armstrong was right in one regard and wrong in another, what could he have done differently?

The answer should be obvious: Plant the seeds of independent local news startups.

Imagine what a difference it would make to the local news landscape if a company with AOL's resources dedicated just a couple of million dollars in seed capital for existing or aspiring local news publishers. In comparison to what AOL has spent already, it wouldn't take much money at all to help a few hundred local news publications either get up and running or move up the revenue ladder. A series of small bets often pays off better than one big bet.

Several local independent news publishers — all of us, members of LION Publishers — have already proven there is money to be made in local online news. It's not a lot and we work damn hard for it, but it can be done.

Our advantage is that our costs are low — our only overhead to start with is keeping a roof over our heads — and we're embedded in our community.

It's very hard to sell local online advertising, but it's harder still when your sales reps are just employees and are not truly part of the community. It's hugely advantageous for a local news site owner to walk into a local pizza shop or furniture store and say, "just like you, I'm working hard to build a business that will serve the community." That bond can't be faked.

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Comments (9) -

Denise Civiletti posted over 3 years ago
Spot on, Howard, as usual.
BruceTheBlog Nickname posted over 3 years ago
Excellent piece. I've long posited same contentions about Patch (dubious scalability) and daily newspapers (obsolete, unsustainable scale) as Mr. Owens. "Scaling hyperlocal news" is an oxymoron. One other chink in Mr. Armstrong's business plan: the hiring model for each site's chief editor seems wildly inconsistent. Some sites have seasoned journalists at the helm, while others hired tyros straight out of J-school with no street smarts or journalistic chops of note. Hence, Patch coverage varies widely site to site. At the shallow end -- as regards compelling, well-crafted content -- there's no there there. Without consciously deciding to do so, I've found myself not bothering to go to Patch regularly anymore, let alone blogging on it, as I used to. Its value to my daily doings is negligible to nil.
Peter Weinberger posted over 3 years ago
This was a good piece and gives us something to think about. Another issue is content quality. If you are not producing a quality product, readers won't return. This is even more vital to any new product. Patch was inconsistent and never really delivered the goods. Perhaps if they were smaller at the beginning, more quality issues could have been worked out. As a community newspaper and website owner, it takes many years to gain credibility with the community. Only then can you make the business side work.
Dylan Smith posted over 3 years ago
Those Patch editors who are about to be laid off should take the weekend to enjoy some much-deserved time with their families, and then get in touch with one of the hundred-plus members of Local Independent Online News Publishers (http://www.lionpublishers.com) on Monday morning. If you’ve got the drive to be an entrepreneur, we’ve got a network of independent publishers who are ready and willing to help you establish a news outlet that is focused on your community. AOL’s Patch is failing not because local news isn’t a solid business, but because they’re not local. The local news industry is strong, healthy and growing — the real *local* segment of the industry. LION members - Howard Owens is one of our founding members - and our many colleagues running local news websites are demonstrating that every day. Local doesn’t scale. We’ve seen it again and again; giant chains trying to templatize the production of news. That’s not a tactic that worked in print for Gannett and others, and it certainly won’t work online. The troubles of large-scale attempts at covering local news are only relevant to LION Publishers in that they show the contrast between the operations of local businesses and chains. Networked plays such as Patch fail precisely because they are *not* local. They seek to profit from communities, rather than being invested in them. Centralized planning leads to success in journalism just as effectively as it worked for Soviet agriculture. The national networked plays haven’t, but many locally run news outlets are finding success – because their readers and sponsors value their community connections. Local news sites can connect local small business owners with the engaged local readers who are their customer base — and do so effectively and affordably. We regularly see LION members announcing that their readership and revenues are reaching new heights, that they’re hiring new staffers and deepening their coverage. Local news is successful when it truly *is* local — historically, when newspapers and radio stations were owned by families or local partnerships, they served their communities more effectively. Chains broke that model, focusing more on quarterly reports, stock prices and executive salaries than long-term investments. Local news organizations must be *of* their communities, not just *in* them to ship profits out of town. Local news must respect readers: know what they want to know, know what they need to know, and provide it quickly, accurately and comprehensively. Cookie-cutter editorial priorities mandated on a national level are the complete opposite of that. The withering of Patch isn't the end of local news online. Rather, it's a chance for talented, motivated enterpreneurs to tend their own gardens.
Barry Parr posted over 3 years ago
Howard, this is really useful. The concept of scale doesn't apply well when your personnel costs (mostly local reporting and sales) generally increase at the same rate as your size, and your few fixed costs (systems, management) increase exponentially as your size goes up. At scale you have to build a CMS and operate hosting to support hundreds of editors and thousands of contributors. Independent operators can choose among among best-in-class CMS's and hosts and pay very little for what they get. The barriers to entry are human, rather than technical and economic.
Mike Fourcher posted over 3 years ago
So, franchising with loose guidelines? Is that what you're suggesting?
James Long posted a year ago
good quality article thank you for sharing it with us. .
James Long posted a year ago

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