AOL, Inc. (NYSE:AOL) is planning to cut 500 jobs at its struggling local news service, people familiar with the matter told Edmund Lee of Bloomberg. That’s about 50% of Patch unit’s total current workforce. Sources said that 350 employees will be laid off today, and the other 150 will be given a breathing space of 60 days. Patch manages about 900 websites.

AOL, Inc.

AOL, Inc.’s revival plan for Patch

Patch division has been a big drag on AOL, Inc. (NYSE:AOL)’s earnings as the unit has failed miserably to gain traction. AOL, Inc. (NYSE:AOL) CEO Tim Armstrong officially announced the job cuts today. Armstrong played a key role in founding Patch in 2007. When he joined AOL Inc. (NYSE:AOL) in 2009, Tim Armstrong immediately acquired Patch. AOL Inc. (NYSE:AOL) chief has promised investors to make Patch profitable by the end of this year.

AOL, Inc. (NYSE:AOL) said in a statement that it has analyzed about 900 sites managed by Patch. About 60% of them are in a solid position, so the company will continue to operate them as they are. The company plans to shut down 20% of sites that are a losing proposition. And the other 20% will either be consolidated or operated through a partnership.

Patch covers local news stories that are usually not covered by newspapers. AOL, Inc. (NYSE:AOL) had planned to transform itself into an advertising-driven content publisher. Tim Armstrong has spent over $300 million on developing local news sites through Patch. However, the unit continues to report a decline in advertising revenues.

Investors who have lost confidence in Patch have asked the company to exit the service altogether. But Tim Armstrong is optimistic about Patch’s future. He said the number of registered users has grown 181% YoY to 4.7 million, and the number of newsletter subscribers is up 138% to 3.5 million.

AOL, Inc. CEO’s shameful act

Last week, Armstrong fired a Patch executive in front of colleagues. Creative director Abel Lenz was videotaping the proceedings of a conference call, when Armstrong got angry with Lenz and fired him on the spot. The room was full of Lenz’s colleagues, and there were thousands listening in on the conference call. It became a major public issue after a clip of the meeting leaked out. Tim Armstrong apologized for the way he fired Abel Lenz.

AOL, Inc. (NYSE:AOL) shares were down 1.55% to $34.90 at 2:20 PM EDT.