Up to 500 of Patch's 1,000 employees will go in the layoffs, which started on Friday with 350 people getting pink slips. In all, the layoffs amount to about 9 percent of AOL's total workforce of 5,500.
AOL Inc. CEO Tim Armstrong co-founded Patch, an ambitious experiment in local news meant to compete with newspapers, in 2007. AOL bought it in 2009 after Armstrong had taken over the helm of the New York-based Internet company.
Patch ran into the same problems that newspapers had already discovered - that it's expensive to cover local news. For about an 18-month period in 2010 and 2011, Patch was the biggest hirer of journalists, just as they were being laid off from struggling U.S. newspapers, said media analyst Ken Doctor of Outsell Inc.
AOL does not break out Patch's finances in its earnings reports, but Doctor said it was obviously "a financial drag on earnings." He estimates that AOL has invested more than $100 million into Patch over time.
In a statement, AOL said that "Patch's strategy will be to focus resources against core sites and partner in sites that need additional resources."
Shares of AOL, which also owns the Huffington Post and TechCrunch, fell 31 cents to $35.14 in midday trading.