Can Hyperlocal News Make Money?

He has a point. After almost a decade of fits and starts, during which big players and small have dipped toes and then feet and, once or twice, even a leg into the hyperlocal waters, there is definite enthusiasm for the latest wave of players looking to crack the code. What there doesn’t seem to be is a blueprint for a sustainable business model that enables news organizations to report and publish Internet-based, community-level news and make enough money to support the operation.

It’s not for lack of trying. AOL-owned Patch, the 800-pound gorilla of hyperlocal journalism, has as its very lofty goal, to “improve communities and the lives of residents through information,” according to Warren Webster, president of the hyperlocal syndicate. Patch is taking a page out of  another recent AOL acquisition, The Huffington Post, in relying on computer models to steer it. When it was time to identify new towns that would be receptive to a hyperlocal website, the company developed an algorithm using census data that would assess communities by voter turnout, average household income, ranking of the local high school and 45 other factors, all of which were designed to identify micro markets in which residents have a keen interest in their communities and, by extension, a willingness to support the advertisers that support local news.

In contrast to AOL’s fealty to the almighty algorithm, The New York Times is taking a much more brass-tacks approach with The Local, its year-old hyperlocal experiment. The Times only criteria for location was the fact that a metro desk reporter who lived in the town was willing to cover the beat in Maplewood, NJ. Their ambitions are clearly different. According to Webster, AOL has big plans for Patch and wants to own the category. Webster says that the organization ended 2009 with 30 websites and is now closing in on 800 websites in 18 states. AOL CEO TIm Armstrong was a founder of Patch and clearly has a personal stake in its success. On the other hand, Schachter says the Times’ foray into hyperlocal reporting remains experimental and, in its current incarnation, unsustainable. “The insight that we have developed is that there is a shortage of reporting about what’s going on your block, in your neighborhood, in your community,” he says. “But the cost of acquiring ads at this level stymies the Times.”

Of the three news gathering organizations and one news aggregator represented on the hypernews panel late last week, only one, the Alternative Press, actually claims to be profitable. And it accomplishes that feat by, among other things, paying its freelance journalists between $25 and $50 per story and using commission-only advertising sales representatives to sell advertising to local merchants. And even with that Demand Media-style low-cost business model, the battle for a piece of a very limited pool of ad dollars is intense.

It’s clear that, despite all the hoopla, hyperlocal news is hardly the goldmine that Groupon stumbled on with its online daily deals business juggernaut. The specter of Groupon hung menacingly over the panel discussion. Schachter, Shapiro, Webster, and Camilla Cho, vp of business development at Outside.in, all agree that trying to convince the local florist to advertise on a hyperlocal news site, no matter how compelling the content, is tough. And if it turns out that consumers prefer a coupon for half off a mani-pedi at a local nail salon to seeing an ad for that same salon next to a story about a local school board meeting, then hyperlocal news organizations might as well back up their pencils and reporters notebooks and go home.

Even as the Times and AOL are trying to figure out how to turn neighborhood level reporting into a business, one of the flashiest hyperlocal launches of the past couple of years has bitten the dust. Parent company Allbritton has pulled the plug on the heavily bankrolled, heftily staffed TBD, the mission of which was to cover the neighborhoods of Washington D.C. The site lasted barely six months and will now become the arts and entertainment niche on WJLA.com. Almost the entire staff has been laid off.

In the face of that high profile failure and the looming threat of Groupon, there’s still reason for optimism that this time, finally, local news will pay off. Webster says that Patch websites are now receiving more than 4 million unique monthly visitors and Patch journalists are creating a piece of content every 15 seconds. For his part, Shapiro believes that the formula is simple: Create compelling content, get people to engage with it, sell advertising against it. Repeat.