Revenue numbers were leaked at some point: http://techcrunch.com/2013/08/18/inside-patchs-leaked-revenu...
The core problem is this. If 1 reporter writes "Top 6 reasons why kittens are cute - number 5 will SHOCK YOU", the potential audience is millions. You can scale your content as needed, and readers / writer is potentially unlimited.
If 1 reporter writes "Bishop School closed due to heavy rains", the potential audience is merely the students and parents of Bishop School. Your potential audience is thousands - you simply can't scale past this except in special cases (e.g., Boston bombings, school shootings, hurricanes).
tl;dr; For local news, readers / writer is simply too low and your margins suck.
(Disclaimer: I worked for Patch. However, this post is based on no inside knowledge - I know little more than what techcrunch leaked.)