AOL To ‘Impact’ Hundreds Of Patch Employees Friday In A Bid For Hyper Local Profits

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Patch, AOL’s hyper-local news effort, will lose up to 550 employees this Friday, according to a local editor at the group. Hundreds of sites in the network are expected to close in the process.

In recent calls with Patch employees, AOL CEO Tim Armstrong avoided the word “layoffs,” and instead stated that hundreds of Patch employees would become what he called “impacts.” (AOL owns TechCrunch.)

There will be between 200 and 550 “impacts,” according to sources at AOL, a surprisingly broad range of potential layoffs. It isn’t clear how the company can be so unsure of its plans, but I would interpret the range as indicative of AOL’s hope that it can salvage some of its Patch sites that currently lose money. In its most recent public earnings call, Armstrong noted that certain Patch sites may be able to find local partners. Perhaps if some do, layoffs will be toward the lower end of the stated range.

According to TechCrunch’s source, and separate sources that spoke to Jim Romenesko, up to 300 individual Patch sites will be axed in the process. The local editor that spoke to TechCrunch indicated that the layoffs will impact the editorial, sales and management of Patch. In short, Patch is about to get quite smaller.

The news is set to drop on a call scheduled for Friday at 9 a.m.

The local editor at Patch was blunt about the situation: “If people at Patch didn’t see this coming for years, they are total idiots.” In the editor’s view, Patch has gone from being free-wheeling to overly controlling with its local editors and then back and forth between the two.

Patch’s history can be described in two parts: over-expansion, and a long painful decline.

Why the layoffs now? AOL has made a promise: Patch will make money by the end of the year. Revenue isn’t likely to ramp quickly enough to meet that goal. So cuts are needed. Also, a separate source informed TechCrunch earlier that job offers are being yanked, indicating that hiring at Patch is slowing, if not halting, altogether.

Patch must hit the black by the end of the year. This is more than a promise to investors that a long-term bet will stop financially harming AOL; instead, Patch is making the rest of AOL’s media properties look bad. The company’s first-quarter earnings makes this point explicitly: “While significantly improved, Brand Group Adjusted OIBDA remains negative reflecting our investment in Patch.” The company lists other costs as adding drag to the adjusted operating income of the Brand Group — of which TechCrunch is a part — but Patch is the first listed, and I think for a reason.

Only one segment of AOL’s larger business has positive adjusted operating income, the Membership Group, which is a brilliant holdover from the days of dial-up. That’s the entire profit source for AOL. The company’s other segments, the Brand Group and AOL Networks, both lost money in the most recent quarter.

However, the Brand Group saw its adjusted second quarter operating loss fall from $15.2 million, to $1.4 million over the past year. If Patch were to fire up to 500 people, it’s hard to see how the Brand segment could not find aggregate profitability.

I’ll simply say that the slashing of Patch budgets in an attempt to find short-term profits appears to have led to a hollowed out, understaffed and unimpressive product. Ask yourself: When was the last time that Patch was relevant to your local life? Exactly.

More in the morning.

Top Image Credit: IvyMike