For AOL, a Costly Gamble On Local News Draws Trouble

Patch, a network of small-town news sites owned by AOL, has emerged at the center of a tug of war over the Internet company's future. The high cost of running the local-news sites has fueled a campaign by dissident investor Starboard Value LP against AOL Chief Executive Tim Armstrong's strategy of investing heavily in online content.

Starboard, which is waging a proxy battle to win several seats on AOL's board at next month's annual meeting, says that Patch should be closed, sold or put into a joint venture, with a partner sharing the cost. Inside AOL, Patch is also a flash point. Arianna Huffington, who took charge of Patch and AOL's other news and entertainment sites after AOL acquired her Huffington Post last year, distanced herself from the business after disagreements over how it should be run. "They wouldn't let Arianna fix it, so she walked away from it," said one media executive familiar with the matter.