AOL's Patch To Ax 20

AOL's Patch.com, the online local-news network whose high costs have made it a lightning rod for criticism of AOL's strategy, is laying off about 20 people as part of a broader restructuring.

Patch will consolidate its four geographic zones into three by integrating the South and East zones, allowing it cut some managers. No sites will be closed or merged and no local editors or ad managers will be affected. Patch, which has nearly 1,000 full-time journalists, announced the restructuring in a note to staff Tuesday morning.

"After implementing a more efficient field structure earlier this year, we have seen an impressive boost in both traffic and revenue," said Jon Brod, chief executive of Patch. "With an eye on our overarching business goals, streamlining our field management structure not only gives us additional operating leverage, but also allows us to better serve our users and out communities. This is the next step in Patch's strategy to win."

The high costs of keeping Patch running has become the centerpiece of dissident investor Starboard Value LP's campaign against AOL Chief Executive Tim Armstrong's strategy for the Internet company. Armstrong has promised to cut costs at Patch this year and get it to profitability by next year.

After expanding its presence from 30 towns to more than 850 towns in the past two years, Patch's annual loss has soared to more than $100 million--more than twice AOL's operating profit in 2011.

Starboard, which is running a proxy contest to win several seats on AOL's board at next month's annual meeting, argues Patch should be closed, sold or put into a joint venture where someone else covers some of the costs. Armstrong isn't backing off.

"Patch continues to deliver on its original mission and is on the right path for success in 2012 and beyond," he said in a statement. "AOL is executing a bold turnaround and Patch addresses a large and exciting market for our shareholders."

The cuts are the latest move made by Armstrong pre-empting Starboard's criticisms. In April AOL struck a deal to sell a portfolio of patents to Microsoft Corp. for $1.1 billion, shortly after Starboard had highlighted the patents as an underutilized asset. AOL also decided to return to shareholders all the cash raised from the sale, as Starboard demanded, after initially saying it would only return part of the money.

This story first appeared on WSJ.com