We’re hearing reports that Propeller, the Digg-like news site that was once Netscape.com, has been holding a severe round of layoffs that is reducing its workforce to only a fraction of its former size only two weeks after relaunching the site. It seems that most of the cuts consist of Propeller’s Scouts and Anchors - paid employees who actively monitor the site to pick out the best stories and ensure quality control of user submitted content.

According to our tipster these layoffs have been long expected - it was simply a matter of when. AOL’s budget cuts have extended to Propeller, and rather than reduce the pay rate of management, Propeller has simply downsized its more expendable content control team.

Propeller uses this team to differentiate itself from Digg, which doesn’t advertise an active role in the editorial process and tends to sometimes display stories of lackluster quality. The budget cuts may save money in the short term, but in downsizing its editorial team, Propeller is making itself into even more of a Digg clone.

Propeller has had a tumultuous history. AOL initially launched the site as a “Digg killer” at Netscape.com in June 2006. A little over a year later, there were rumors that the site was being shut down in part because of domain disputes. The site was finally moved to Propeller.com in September 2007.

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