In 2011, according to Starboard’s estimates, Patch lost $147 million while generating a mere $13 million in ad revenue—roughly $15,000 per site. “We do not believe Patch is a viable business,” the Starboard report said.
The skepticism goes beyond AOL. In 2011, Allbritton Communications (the owners of Politico) scaled back its investment in TBD.com, an ambitious hyperlocal news site for the D.C. area. Likewise, Washington Post Co. and New York Times Co. have pulled back from their investments in online local newsgathering. Across the Atlantic, Guardian Media Group shuttered its hyperlocal experiment last year, noting that the project had proven unsustainable.
Starboard argues that cost-conscious local advertisers prefer online ads with an immediate payoff, such as Google (GOOG) search ads, where an advertiser pays only when someone clicks on an ad and can tell whether a click leads to a sale.
From a content perspective, hyperlocal sites simply aren’t essential reading. Matt Booth, head of interactive local media at researcher BIA/Kelsey, says that people tend to use a search engine 109 times a month. They visit local websites one to two times a month. And the advertising dollars follow the traffic.
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