AOL Selling Off Most Of Hyperlocal Site Patch To Hale Global

on January 15 2014 7:45 PM

(Reuters) -- AOL Inc. is handing majority ownership of Patch, a money-losing network of local news websites, to New York investment firm and turnaround specialist Hale Global in a joint venture announced by the companies on Wednesday.

The deal is touted as a joint venture between AOL and Hale Global. But the control of the Patch network – which currently consists of 900 websites that run local news – will be handed over by AOL to Hale Global in a newly formed company. Hale Global will own an unspecified but majority stake in the new company, while AOL will be a passive minority investor.

Terms of the deal were not disclosed, but AOL said it was not financially material.

Hale Global is a 13-year-old firm that specializes in turning around online media, mobile and advertising companies.

The partnership is the latest chapter in the history of Patch, a network of more than 900 websites covering events and news in communities from Montclair, N.J., to Malibu, Calif., that AOL Chief Executive Tim Armstrong helped start before he joined AOL.

Investors and analysts have long urged AOL to stop pouring funds - so far totaling hundreds of millions of dollars - into Patch with little return.

The costly project was one reason activist hedge fund Starboard Value took a position in AOL and tried to win seats on the board in an ultimately unsuccessful proxy battle.

"AOL has delivered on our commitment to our investors and put Patch in a position to be successful," Armstrong wrote in a memo to employees obtained by Reuters.

Armstrong had promised that it would become profitable in 2013. To reach that goal Patch closed down 300 of its sites, slashed the staff of 1,000 by half late last summer and launched a search for either a partner or a buyer.

Patch was founded in 2007 and Armstrong was an early investor. Two years later, AOL bought the group of community websites for about $10 million, according to reports at the time. Armstrong recused himself from the Patch purchase and took AOL stock in return for the seed money.

Armstrong hoped that Patch would be one of the cornerstones in AOL's transformation into a media and entertainment destination, capitalizing on the woes of a retrenching daily newspaper industry that has been cutting back on local coverage. The idea was also to grab some of the billions of dollars that go toward local advertising.

Local advertising spending in the Unites States is expected to reach $107 billion, according to research firm Borrell Associates, while online local ad spend is forecast to hit $34 billion.

Still, those dollars are elusive because getting local businesses to advertise requires a large sales force with community knowledge, often an expensive proposition.

Patch has been struggling for years as many of the sites failed to live up to internal expectations for web traffic and ad sales. The sites, staffed with local writers and salespeople, are designed to capture readers and advertisers by including neighborhood news and developments that may be ignored by local newspapers.

Hale Global and AOL say Patch will be relaunched as a place for contributors and businesses to create "locally-themed news and content." Patch sites also will be redesigned for mobile and social media users, and advertisers will have "self-service" tools for creating their ads.

"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.

Shares of AOL closed down 1.2 percent at $47.25 on Wednesday, after hitting an all-time high on Tuesday.