AOL is rolling out its Patch.com “hyperlocal” network around the country. Having watched similar efforts since Microsoft launched Sidewalk in the 1990s, I remain skeptical.
Look, we all agree by now that the Internet’s changed the economics of the publishing business. One of the ways that’s happened, however, makes it much more difficult to create a workable business model for a national network of local websites.
Why? Let’s try this question for an example: How much money does Howard Owens at TheBatavian.com have to ship out at the end of the month to his national corporate bosses?
Of course, owner-operated sites like Howard’s don’t have to share any of their earnings with a national corporation. Nor do they have to pay for national and regional bureaucracies that oversee the network of local sites. Everything a local news website publisher earns goes right into that local news website.
That gives independent publishers a huge cost advantage over their corporate competition. So why did the newspaper industry evolve toward national corporate ownership?
Because of the economies of scale that used to exist in the newspaper business. A larger chain could get a better deal on syndication contracts. It could centralize design and IT work and share national bureaus, reducing duplication of effort. It could employ a national sales team, earning more income than individual, local papers could get on their own.
But the Internet’s changed those opportunities. Syndications and bureaus don’t matter anymore: Hyperlocal websites are all about original local content. Readers can go elsewhere on the Web for national content. Open-source publishing tools have eliminated the need for extensive in-house IT and design departments. And no one realizes better economies of scale in advertising sales than Google, with which even the smallest hyperlocal publisher can work and earn significant revenue.
What’s left? Essentially, the stereotypical “Walmart” strategy: An attempt by a large national interest, with significant investment capital, to price out the competition by subsidizing the operation of a local news sites until its local competition drops away. But this only works if the business can undercut local advertising rates during its start-up period, then have the market power to raise them once the competition goes away.
I’ve not heard anything to suggest that is Patch’s strategy, but with barriers to entry remaining so low online, there will always be another generation of start-ups to challenge a business’s market power. To survive long-term online, you have to keep your operating costs low.
That provides a huge advantage in the local space to locally-owned and operated websites, which don’t have to support a national or corporate management structure.
Maybe Patch will succeed where other “national local” plays have failed. I’ve not said anything about the quality of Patch’s journalism, or of its competitors. Perhaps Patch might find an advantage there. But my reading of the economics of the local publishing business online leaves me skeptical about Patch’s long-term prospects.
