Scotland's digital web service, Scran, which delivers educational resources on culture and heritage to schools, colleges and universities, is slashing 10 out of 20 staff as part of a cost-saving exercise.
Staff being made redundant by Scran were told: "As you are aware, this and other redundancies at Scran are a direct consequence of a significant reduction in funding provided by the Scottish Executive Education Department, which has compelled Scran's board to change the shape and scale of the organisation while continuing to meet its contractual obligations to subscribers and other users."
The announcement of a staff restructuring was described by Scran in an official statement this week as "a first step to align it with the future of online electronic media in Scottish education and lifelong learning".
It comes only a week before the Scottish Executive is due to reach a decision on which body will build the infrastructure for the Scottish Schools Digital Network.
The review by Scran of its future service also follows the publication of the Cultural Commission's report last week which described Scotland as "world-leading" in the field of digital culture through projects such as Scran, Am Baile and the National Archive. The report called for a national strategy for digital culture to "build on this Scottish leadership and establish a unified approach".
Sources suggest that Scran's efforts to expand into England at a cost of Pounds 300,000 over the past two years have created an unsustainable financial loss. It is understood that the expansion process has not taken place as quickly as originally anticipated and that this has exacerbated Scran's financial position.
One source commented: "No organisation can continue at that level of loss.
This was not seen as a loss at the time of expansion - it was seen as something worth pursuing. But what we have to do now is pull in our horns and provide our core services to paying customers."
A spokeswoman for the Executive said: "There has been significant public investment in Scran over the last few years and this must be preserved. We will provide immediate short-term financial assistance and support to the board of Scran, but it is for the board to consider how best to preserve and develop the content and educational mission of Scran in a way that delivers best value and integrates it or its successor as closely as possible with Scottish Executive policy."
The Executive acknowledged the work Scran had done, but was not responsible for its core funding. Its contribution included putting up pound;250,000 to fund a licence for all schools to access the service and pound;123,900 for a national libraries licence and training. Last year, it gave pound;91,900 for development projects and a further pound;100,000 for projects up to March this year.
The spokeswoman said: "We are trying to protect that but there are wider issues they need to address."
One of the casualties of the jobs cull is Alan Blunt, Scran's chief executive. Mr Blunt is currently abroad and was not available for comment.
The bulk of the other job losses are among staff involved in processing and inputting the assets, materials and archives from institutions such as museums which contribute to Scran's web-based resources.
Mark Jones, chairman of the Scran Trust, said: "While this is regrettable, we are confident that the restructuring, combined with continued Scottish Executive financial support, will secure the organisation's future. It is important to tie Scran in with national strategies in both education and culture."
Graham Turnbull, head of education and editorial services at Scran, said:
"We will be continuing with the services that schools have come to expect and hope to continue with all the developments we have planned, and have put in place staff to ensure that will happen."