AOL Chief Sours On Patch, Fires CEO Kalin

tim armstrongSince Tim Armstrong took the wheel at AOL in 2009, he has been an outspoken believer in Patch, and its ability to transform the news business. Now, however, Armstrong appears to be losing patience with the hyperlocal news network.

On Friday, Armstrong internally announced the dismissal of Patch CEO Steven Kalin, and his replacement, AOL executive Bud Rosenthal, a source close to the situation tells Online Media Daily.  

Armstrong did so during a meeting (and conference call) with Patch editors, at which he reportedly fired one editor on the spot for taking a picture of the proceedings. “Put that camera down … You’re fired,” Armstrong told the staffer, the Columbia Journalism Review reports. (Online Media Daily’s source said they had no knowledge of this exchange.)

As of Friday afternoon, AOL declined to comment on the executive changes at Patch.

On its quarterly earnings call earlier this week, AOL announced plans to significantly cut Patch’s national network. Among roughly 900 Patch sites, 400 are expected to shutter or merge with more successful sites before the end of the month.

Determined to bring Patch to profitability by the end of the year, Armstrong said on the earnings call that the unit was being segmenting into three buckets: sites that are successes in terms of traffic and revenue generation; those shown to have the potential to be successful; and those that clearly lack either traffic or revenue traction.

Regarding the latter two buckets, Armstrong said: “We have operations there that need improvement.”

So far, Armstrong said AOL had already decreased the cost structure of Patch by roughly 25%, this year and confirmed plans to reduce it even further.

The cost reductions are likely to take three forms, according to Armstrong. “First is a reduction in non-town expenses found in the Patch corporate area,” he said. “Second is a reduction in field management and overlay areas … And third, our reductions realized by the optimization of the town structures and the segmentation I just discussed around the Patches.”

Added Armstrong: “As an investor, you should recognize that the changes we are making to Patch will negatively impact traffic and revenue, but they will meaningfully improve profitability and AOL's profitability.”

At the beginning of 2012, AOL was spending about $160 million a year on Patch, which equated to about $150,000 to run each individual Patch site annually, according to analysts.
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