Hyper local media websites are a tough nut. It has not been easy to make a go of them. Its quite possible that the sterling examples of success started tiny with no overhead, for various reasons gained excellent followings, and advertising revenues and slowly but surely built up.
One of them is in my region: arlnow.com There is a part of it that is a bit transparent. You can scan stories off its front page and soon you'll hit stories with 1,000, 2,000 and several thousand views. Each more or less representative of a day's traffic...maybe two or 3. Its news. It doesn't last long in the public eye. Arlnow is one of those hyperlocal sites that has national acclaim. It gets sufficient advertising and is making it work.
Arlnow expanded into a similar suburban region of DC with a second very similar looking hyper local media effort: bethesdanow.com Compare the views between the two sites and its remarkably different. Arlnow; established and known has 3,4, 5, 6-10 times the viewership per story. Bethesdanow has been running for several months at least...maybe a lot more. It comes with a reputation from arlnow, a methodology that has worked....and in many ways has a similar demographic makeup. But it is tiny by comparison.
Some others that have found success similarly started small with minimal/ barely minimal overhead.
OTOH: Patch started with a lot of overhead and a lot of hires, and AOL's big name. Lots of overhead. Lots of overhead. Its been running for several years. In Arlington VA where it competes head on with Arlnow it gets smoked. In so many cases it carries the same stories. But it gets smoked.
It sounds like Armstrong is being a sh!thead to the employees ...but on the other side of the coin Patch has been losing a lot of money and carrying a lot of people for a couple of years.
Its not a great situation anyway you want to look at it.
I'm grateful I'm not working at Patch!!!!!