The dream of a business model that supports quality local news died a little more today when AOL’s CEO, Tim Armstrong, said on an earnings call that the company intends to amputate about a third of its 900 “Patch” sites while also trimming costs at the remaining ones.

This means Patch will finally turn a profit by the end of the year, according to Armstrong, while the budget to run each Patch site will continue to be”much, much lower” than the $150,000 figure cited a year ago. As for the 300 or so underperforming Patches, AOL will look to pair them with “partners” (perhaps struggling local newspapers) in regional markets.

All of this is good news for AOL’s investors, most of whom have long panned the local-news network as a money-losing dud and Armstrong’s personal folly.

Patch’s turn to profit, however, will not cheer advocates of a local news model in which community reporters cover serious stories with the support of local advertisers. That model has failed again and again, and now the shrunken, sawed-off Patch network is just one more sign that it may never work.

The reasons for this are primarily economic. Most mom-and-pop shops don’t have the money or inclination to throw advertising dollars online while, at the same time, changes in the publishing business make a local news site even less viable than before.

Armstrong told me at a recent dinner in New York that he sees the online publishing business shaking out into two models: one involving niche high-value audiences that advertisers will pay to reach with custom ads and events; the other involving publications with huge audiences that can ingest mass amounts of automated, targeted advertisements.

“Those in the middle will be wiped out,” he said.

That’s why, under Armstrong’s binary view of publishing, Patch couldn’t make it as a community news site, but has instead become what Pando Daily describes as a “community message board network.” Under the new math, Patch can’t earn its keep selling ads to local merchants—but it can serve as funnel to show larges volumes of automated ads (conveniently sold through AOL’s ever-improving ad technology). This math makes even more sense if Patch holds onto the sites catering to the higher income demographics that advertisers crave.

All of this makes perfect sense from a business standpoint, but less so from a civic one. The fate of Patch is an admission that there is no business incentive provide news to poor or rural communities. Indeed, a look at the existing Patches shows that to be the case: there is “hyper-local” Patch news for the affluent citizens of La Jolla, West Hollywood and Westchester county—but not for the struggling places of America.

This situation isn’t the fault of Tim Armstrong, who loves news and community and whose devotion to Patch nearly cost him his job. Instead, it’s a policy problem tied to the collapse of newspapers and the market for local news. Alas, the solution, despite recent local news initiatives by Google, seems even more remote than it did 10 years ago.