Patch, the AOL (AOL)-owned network of 900 local news sites, isn’t AOL CEO Tim Armstrong’s problem anymore.
In the deal, AOL will contribute Patch into a new limited liability company, which will be operated and majority owned by Hale Global.
The financial terms of the deal were not disclosed. That probably means AOL got little or zero money from Hale Global for Patch. It’s possible that AOL has even committed to investing cash into the joint venture. An AOL spokesman wouldn’t say either way.
Here are canned quotes from Armstrong and Charles Hale, who runs Hale Global:
“We are committed to bringing users, local businesses, writers and advertisers together into a Patch experience full of innovation and growth,” said Charles Hale, CEO of Hale Global. “Along with AOL, we are committed to taking the necessary steps to ensure Patch remains a vibrant part of the community.”
“We are impressed by the commitments from Patch and AOL to serve communities and advertisers and look forward to working together to achieve our shared long-term vision.”
“Patch is an important source of information for communities, and the joint venture we created has a unified mission to provide local platforms and hyper-local content,” said Tim Armstrong, Chairman and CEO of AOL. “AOL has established leading positions in attractive scaled opportunities including video, brands, advertising and subscriptions by making bold bets and strategically investing in these high-growth opportunities — and local will be a growth space during the next decade of the Internet.”
When he became AOL CEO in 2009, he thought that Patch could become a business that sparked the AOL turnaround. So he invested hundreds of millions of dollars into hiring hundreds of local journalists and ad sales people around the country.
But Patch never really took off. It eventually gained millions of readers, but ad sales never caught up with the costs of such a huge workforce.
Eventually, AOL shareholders got annoyed. One of them, Jeff Smith of activist investor firm Starboard, launched a proxy campaign hoping to pressure AOL into ceasing its Patch investments. If Starboard had won its proxy campaign, Armstrong probably would have resigned from the top of AOL.
Before that could happen, however, Armstrong won over shareholders by promising to make Patch profitable by the end of 2013.
By the middle of last year, it became obvious that wasn’t going to be possible. Armstrong began to look for “partners” that would invest in Patch. He found Hale Global.
Patch was always a mistake. But today, Armstrong deserves tons of credit for honoring a promise he made to shareholders – especially since he has always had a deep emotional connection to the Patch project. We’re pretty sure that if he had his way, AOL would still be investing in Patch. But he made a promise, and he stuck to it.
Here’s Tim Armstrong’s memo:
From: <Armstrong>, Tim Armstrong <redacted>
Date: Wednesday, January 15, 2014 3:59 PM
Subject: Patch’s Partnership Pivot
AOL has a strong track record of improving, pivoting, and partnering – that’s what successful companies and start-ups do. AOL’s return to growth has been built by making smart investments and by calibrating our investments while moving through opportunities.
We pivoted our ads business to programmatic, we pivoted our content business to powerful brands, and we pivoted our video production to becoming a video platform.
Today we are pivoting another area of our business: local. The local digital space will reach $152B by 2017, driven by a $21B growth in local digital revenue over the next three years and we have invested in local with Patch. The goal for Patch has always been simple – to be a local platform for information and commerce in towns and to serve communities in a meaningful and human way.
After extensive discussions over the last several months with many companies interested in the local media business and local platform business, today we are announcing a joint venture partnership with Hale Global. Hale Global is a private company that has a successful track record of investing and growing technology assets, and we believe they are very well positioned to nurture and grow Patch. Hale has made investments in local commerce and platforms, and they have a strong team of leaders and technical expertise. Hale’s CEO, Charlie Hale, is a strong believer in the power of local, local platforms, and local storytelling. Bud Rosenthal and Charlie Hale will be detailing Patch’s go-forward plan and next steps with the Patch team today.
AOL has delivered on our commitment to our investors and put Patch in a position to be successful. We are retaining a meaningful minority interest in the joint venture, and we stand to benefit from Patch’s pivot to platform excellence.
While Patch pivots, it is important to remember that it serves millions of consumers throughout hundreds of towns in America and partners with some of the largest and smallest businesses that serve those communities. Hale will help Patch improve, and we will be partners with Hale in the next phase of the journey – TA