New York Times | Bloomberg.com | DigiDay Daily
AOL's Internet access business, in particular, would be good to unload, say analysts. They also point out that closing Patch, which has reporters in 850 towns, would free $160 million and lift AOL into profitability. (AOL lost $11.8 million in the second quarter.) AOL chief executive Tim Armstrong argues that the kind of content that Patch sites post is the Internet’s future growth engine. Analyst Sameet Sinha tells Verne Kopytoff: “Frankly, AOL hasn’t delivered on its [turnaround] promise yet. It’s just been a series of stumbles.” || DigiDay: AOL's chief ad man talks tough, and says Patch "is another example of AOL leading in the marketplace." || Bloomberg.com: For a private equity firm that’s looking for the cheapest way to get online, AOL is trading for 57 cents on the dollar.

The Wall Street Journal
AOL is spending heavily on content, the Journal reports, with its second-quarter results showing that its "cost of revenue increased 20% from a year earlier to $403.4 million." Included in that cost is hiring for the network of Patch sites:

AOL is spending about $160 million a year on Patch, which equates to about $150,000 to run each individual Patch site annually, according to an analyst's estimate. AOL first focused on building traffic to Patch sites, and just recently started ramping up ad sales. ... Boosting traffic is crucial to capturing ad spending.Traffic to AOL sites rose just 3% in June, according to comScore Inc., with increases to its newer properties, such as the Huffington Post and local Patch websites, barely making up for steep declines at its legacy sites, such as the AOL.com home page and mapping site MapQuest.

One analyst questions the business model: "If you sell lemonade for $1 and it costs $800 to make it, that's not a great business."

All Things D | Reuters | AOL press release AOL said Tuesday that its second-quarter loss narrowed to $11.8 million, or 11 cents a share, compared to a loss of $1.06 billion, or $10.02 a share a year ago. Revenue fell 8 percent to $542.2 million from $592.2 million. Analysts had expected revenue of $535.1 million. Ad sales increased for the first time since former Google salesman Tim Armstrong took over the company. Patch, AOL's network of hyperlocal sites, was in 846 towns by the end of the quarter and is on track to hit 1,000 by year's end, reports paidContent.

AOL’s subscription revenue continues to dwindle away (though more than 3 million people are still paying it connect to the Internet) and the company is continuing to plow money into initiatives like its Patch local play. So AOL posted a net loss of $11.8 million, and an operating loss of $5.8 million, on revenues of $542 million.

> Read AOL's press release on its second quarter results

Slate | SimsBlog
Reports that AOL will spend $120 million on Patch this year have started a fresh wave of skepticism about the financial viability of Patch, and hyperlocal journalism as a whole.

Earlier this week, Judy Sims noted problems, including that "most local advertisers are high-maintenance clients that are time consuming and expensive to acquire and difficult to retain." She suggests AOL should focus on building its national sites in specific verticals (which it has been consolidating into 20 "power brands," with many merging into The Huffington Post). The vertical sites could then include local content on those topics, Sims wrote. "What if you could go on ParentDish, Aol Autos, KitchenDaily or Engaget and drill down from the national level to also see local content, listings and ads?"

Then Jack Shafer wrote for Slate that Patch's problems may show hyperlocal efforts are a "complete waste of time and resources." He argues:

"I'm convinced that Web users are more interested in hypercoverage of their interests — sports teams, hobbies, food, vacations, family, games, et al. — than they are of the starving-artists exhibition at the farmer's market, increasing parking-meter rates, the city budget, local real estate prices, or many of the other topics covered in Patch. Besides being wildly expensive to create, hyperlocal news doesn't seem to appeal to a broad audience."

In the comments on his piece, several people defended non-Patch hyperlocal efforts. Batavian publisher Howard Owens said local news is only expensive to publish "if you have a big corporate structure to support and shareholder demands to meet. There are a handful of successful local online ventures that produce a ton of highly engaging, sought after, popular, memorable local news that do it at a fraction of the cost of the corporate entities."

West Seattle Blog's Tracy Record said, "For those of us operating independent community news sites, it is a business that is NOT 'wildly expensive' to run -- Patch makes the classic error of adding the middle-management layer, among other expenses -- and it is of great interest."

Dan Kennedy, a Northeastern University journalism professor, said the problem was not lack of interest in local news, but that you can't "impose a corporate, cookie-cutter approach in covering local communities."

EARLIER: Knight News Challenge learns hyperlocal efforts are best when homegrown

USA Today | Washington Post | Slate | paidContent.org
The mood at AOL's 225,000-square-foot, three-story building in the heart of Silicon Valley is more like that of a technology start-up, reports Jefferson Graham. "Employees are encouraged to draw on the walls, play pool and ping-pong, and come to work whenever they like. All they have to do in return is produce hot websites and mobile apps." Brad Garlinghouse, president of AOL's Applications and Commerce Group, tells Graham:

The space you work in is a reflection of the kind of company you are. You get innovation from working in a space that's very open and doesn't have offices … where people can work together and play together.

Meanwhile, AOL's Patch continues to get scrutinized by media writers. Jack Shafer says "the Patch presentation succeeds in being advertorialish and amateurish at the same time, which I find off-putting." AOL president Tim Armstrong acknowledges that "Patch is not popular with the media"; Erik Wemple says he's right:

The negative stories have often been a bit gleeful in tone, almost celebrating this enormous venture’s stumbles in gaining its sea legs. I myself am guilty here (and I got hammered on Twitter).

> HuffPo COO's responsibilities narrowed to focus on running Patch
> Prediction: Patch will create a spike in j-education among the masses

SF Weekly
The lawyer representing the 50 or so former and current FindLaw writers says the employees were encouraged to skip lunch breaks and keep churning out copy. Most writers worked on average 60 hours a week, he says, but weren't paid for the overtime. || Over at AOL... Patricia Chui, the Moviefone editor-in-chief who offered fired freelancers the chance to work for free, has been fired. || Earlier: "I wanted to clarify a couple of things about the email I sent earlier today," writes Chui.

Forbes.com
Two employment law specialists tell Jeff Bercovici that the act --it says companies that lay off either 33 percent of their workers or 250 workers must give them 90 days of notice -- can indeed apply to contract employees, even those who work remotely, as most of AOL’s freelancers do.

Adweek.com
Tim Armstrong said Thursday at the Bloomberg 2011 Media Summit that "today is a very difficult day at the company," with hundreds being laid off. "Armstrong mostly struck an optimistic, almost defiant tone during the sit-down," writes Mike Shields, "predicting that AOL would start to exhibit the same double-digit ad revenue increases the rest of the online industry has been enjoying." || Kara Swisher: Those being laid off will get four weeks of severance plus one week for each year of service.
> "The changes for me today are very personal," says Armstrong
> Daily Finance, Politics Daily, other sites have been decimated
> Business Insider to AOL layoff victims: Come work for us!

AllThingsD.com
The entire content side of AOL is taking the brunt of the layoffs, due to overlap with the Huffington Post, reports Kara Swisher. She's told that AOL senior vice president of news Jonathan Dube will be leaving. He joined AOL in November from ABCNews.com. || Read AOL CEO Tim Armstrong's memo to staff. || Staci Kramer: The total number of jobs cut will be close to 900. || AOL's India unit cuts 400 positions.