AOL CEO says Patch is not being shut down

SAN FRANCISCO -- AOL CEO Tim Armstrong said Monday that the Internet company's troubled local media business Patch is not being shut down.

The New York Times reported Sunday that the executive was "finally winding down" Patch, a network of local news websites that he helped start and that AOL acquired after he joined the company from Google.

"We are talking to partners and it is not being shut," Armstrong wrote in an email to USA TODAY.

Patch has struggled because the cost of creating local news in small communities across the U.S. has been difficult to cover with revenue from local advertising online, according to Rocky Agrawal, principal analyst at reDesign Mobile, who used to work on local projects at AOL and Microsoft.

"There's no amount of patching that can save Patch," Agrawal said. "It only continues to exist because of stubbornness and hubris on Armstrong's part."

Armstrong was asked about the future of the business during a conference last week. The CEO said Patch had re-organized to focus on fewer towns and AOL should have a plan in place to make the business profitable by the end of 2013.

Patch expanded aggressively to about 900 communities, but AOL reduced that to about 500 this year - a move that came with hundreds of job cuts.

"Think about Patch 2014 and beyond as an asset with optionality for AOL but most likely in a partnership scenario," Armstrong told investors at the conference last week.

Agrawal said a better approach to local news comes from start-up Nextdoor, which is building tools that neighbors can use to communicate with each other and be their own news sources.

"They haven't started monetizing yet, so it's hard to predict how successful they will be," Agrawal added. "But they have the cost part of the equation right, which was the big problem with Patch."

Nextdoor raised $60 million in a new venture capital funding round in October.