Rolling the Dice

Media companies have high hopes that hyperlocal news online will bolster their newspapers’ futures. But early returns suggest the financial outlook for such ventures is not bright.

It seemed like a good idea at the time. With blogging flourishing and citizen journalism just budding, Mark Potts and Susan DeFife thought they had a winning formula for a new kind of journalistic enterprise. One evening in the summer of 2004, they sketched out their common vision: A series of hyperlocal, news-oriented Web sites whose tone and content--news, commentary, blogs, photos, calendar listings--would be supplied primarily by the people who knew each community best, its residents. By May of 2005, the venture, dubbed Backfence.com, was up and running, with sites serving two affluent Virginia towns in Washington D.C.'s suburbs.

The idea of virtual town squares seemed so promising that within months Potts (a veteran reporter and editor at the Washington Post and cofounder of its digital division) and DeFife (founder and chief executive of Womenconnect.com for women in business) had attracted $3 million from two venture capital firms, including one headed by eBay founder Pierre Omidyar. The money funded an expansion program that would have made Starbucks proud. The partners began talking about creating as many as 160 sites in 16 markets.

And then? And then the bottom dropped out. Backfence's rapid expansion burned up its $3 million war chest. The partners have split. The company's online communities are largely ghost towns now.

New ventures fail all the time. As big-media companies and entrepreneurs alike rush into the hyperlocal arena, it's worth pausing and asking: Is there a real business in this kind of business? - the answer is no. A few of the estimated 500 or so "local-local" news sites claim to show a profit, but the overwhelming majority lose money, according to the first comprehensive survey of the field. The survey, conducted by J-Lab: The Institute for Interactive Journalism (affiliated with the University of Maryland's Philip Merrill College of Journalism, as is AJR), documents a journalism movement that is simultaneously thriving and highly tenuous. While independent sites such as WestportNow.com (Connecticut), iBrattleboro.com (Vermont) and VillageSoup.com (Maine) have sparked useful civic debates and prodded established media outlets to compete more vigorously, the field as a whole is so far financially marginal. As the report puts it, "their business models remain deeply uncertain."

In fact, many operators don't really have a business model. The first wave of hyperlocal sites has featured seat-of-the-pants operations, staffed part-time by dedicated volunteers, community activists and impassioned gadflies. About half of the 141 respondents to the J-Lab survey said they didn't need to earn revenue to stay afloat, thanks to self-funding and volunteer labour. A full 80 percent said their sites either weren't covering their operating costs--or that they just weren't sure. Only 10 of the 141 said they were breaking even or earning a profit. This is why industry observers remain skeptical.

These days, the category's shining star--the anti-Backfence--is Baristanet.com, a scrappy, snarky local-news-and-commentary site that covers the New York City suburbs of Montclair and Bloomfield in New Jersey. Co-owned by a novelist (Debbie Galant) and a journalist (Liz George), Baristanet is by all appearances thriving just three years after its founding. Its mix of news stories big (the arrest of a local murder suspect) and small (a debate over artificial turf at a local playing field) as well as reader-supplied commentary and photos attracts about 80,000 unique visitors a month, according to co-owner George. It's also selling ads--to local supermarkets, real-estate agents and restaurants. Baristanet has got so much buzz that Galant and George have recently branched out as consultants to other hyperlocal entrepreneurs.

But Baristanet (the name was picked to conjure news "baristas" serving up daily scoops) isn't exactly a big business. In fact, it's just barely a small one. The site generated about $60,000 in revenue last year. That's enough for Galant and George to hire a full-time freelance editor and a few part-time employees. Although George projects revenue of $100,000 this year, Baristanet isn't close to generating enough profit to support its owners, who aren't quitting their regular jobs.

Despite such modest returns, mainstream news organizations seem determined to enter the field. Sparked by such early hyperlocal innovators as the Journal-World in Lawrence, Kansas, and the Rocky Mountain News in Denver, established media companies see hyperlocalism as a way to win back lost readers and to target mom-and-pop advertisers who can't afford to, or simply don't want to, reach every household in a region. New entrants include Gannett, the nation's largest newspaper chain, and the Chicago Tribune, which in April launched Triblocal.com, aimed at nine towns in the southern and western suburbs.

The Tribune's foray into the suburbs is “a way to make the [paper] more relevant to people who are farther and farther away from the central city”. The project may prove more successful as an offline venture than an online one. This summer, the company will "reverse publish" its hyperlocal content, creating tabloid papers that will be inserted into copies of the Tribune bound for the distant towns.

Source: Paul Farhi, AJR (http://www.ajr.org)

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