AOL will replace the head of its struggling Patch local-news operation and plans to close or find partners for 400 of the business's 900 community websites, two people familiar with the matter said.
AOL Chief Executive Officer Tim Armstrong announced the changes at a meeting with Patch editors this morning, according to the people, who asked not to be named because the information isn't public. On an interim basis, AOL executive Bud Rosenthal will replace Patch chief Steven Kalin, who is leaving the company, the person said.
Mr. Armstrong, who has pledged to make Patch profitable by the end of the year, had said on Aug. 7 that AOL may have to eliminate some of the division's poorer-performing sites or put them together with outside partners.
Mr. Kalin, who only joined Patch last December, didn't immediately respond to a request for comment. TechCrunch previously reported on the changes.
Patch, which covers school-board meetings, local businesses and other neighborhood stories, has been a costly part of AOL's strategy to transform the dial-up provider into an advertising- driven content publisher. The company has spent more than $300 million developing the sites. While the division more than doubled its sales last year to just under $35 million, Patch's annual costs range between $126 million to $162 million.
Mr. Armstrong had already eliminated 40 staff positions earlier this year and collapsed the editorial structure, reducing the count of 20 regional editors down to nine, a person familiar with the move said in May.
After recently evaluating the Patch division, Mr. Armstrong found a third of the 900 sites to be successful, he told analysts on a conference call this week following their recent quarterly earnings announcement. Another third will likely start turning a profit, while AOL will "potentially exit" the remainder.
"We have decreased the cost structure of Patch roughly 25 percent already this year, and we would expect to remove more cost out of Patch going forward," Mr. Armstrong said at the time.
Earlier this week, the company agreed to buy the video- advertising startup Adap.tv for $405 million, marking Mr. Armstrong's biggest acquisition since he led the spinoff of the company from Time Warner Inc. in 2009.
That acquisition reflects a different strategy than AOL's investment in Patch or its $315 million purchase in 2011 of the Huffington Post. Adap.tv will help AOL grab the ad dollars spent on television as Internet video draws more viewers, he said.
AOL's profit rose 6.9 percent to $361.2 million in the most recent quarter, driven by stronger ad revenue. Total sales advanced 1.9 percent to $541.3 million.
Patch was founded in 2007 as a personal venture by Mr. Armstrong, who put up $4.5 million to start the business. He eventually sold the unit for $7 million to AOL, which was then still part of Time Warner. As AOL's CEO, Mr. Armstrong recused himself from the deal and forfeited the $750,000 he made in profit. He also returned the $4.5 million he recouped from the sale in exchange for AOL shares after it split from Time Warner.
"Patch is always something I've believed in," he said earlier this year. "And I knew it could grow within AOL."
-- Bloomberg News
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