The Neighborhood Watch

Why do community news sites, once hailed as the future of journalism, so often flop?

Spelunking equipment, climbing gear and snowshoes are Steve Sutorius’ life. That’s clear watching him as he peddles outdoor-sports merchandise in his shop, Wildernest, on this 10-mile-long jewel in Puget Sound just off the coast from Seattle.

Somewhat further down his list of priorities is his marketing strategy, which, for Wildernest, includes ads on the hyperlocal news site Inside Bainbridge, whose content includes such stories as the one about a woman who nearly rammed her car into a store on Winslow Way called Danger. (Gotta love small-town news.)

While such coverage might not win journalism prizes or bring the government to its knees, Inside Bainbridge “does a really good job of putting out local content, and I wanted to support another small business,” explains Sutorius. More to the point, the payoff for his business was considerable—and quick. Sales grew 15 percent in just the first month his ads ran, while clickthroughs on his store’s website spiked 60 percent. “This,” he says, “has been a cool partnership.”

Five miles away, Inside Bainbridge’s co-publisher Julie Hall considers the experience of operating the website over the last year and a half. In her home office, she pedals her stationary bike as she bangs out another local news item—at the same time she pedals hard to make a go of her site. “It’s personal for me,” she says. “When we started out, we didn’t know how quickly it would grow and how well it would be received.” The Chicago Tribune and Reuters have since republished some of her stories. And yet, the site’s long-term prospects remain anyone’s guess. Shrugs Hall, “We’re still figuring out the money end of it.”

The same goes for many of those who have thrown their hats into the hyperlocal movement. Far bigger news operations that got in this game with so much fanfare now find themselves reassessing their approaches to community news, among them Seattle-based Fisher Communications. Fisher’s string of radio and TV stations in the Pacific Northwest has been hyped up about hyperlocal going back to 2010, though the company is revamping the business in the wake of a slide in corporate revenue last fall. More famously, AOL’s ambitious but money-draining Patch, made up of more than 900 community portals coast to coast, has significantly scaled back.

“What I see happening is a rationalization of [the hyperlocal] market,” says Dave Michela, vp of business development at Internet Broadcasting, which provides online content management for local media companies. Most players are still in the process of figuring out just how micro to go with news content and how many employees they can afford on the news and ad sales sides—and how to make these businesses viable.

This period of adjustment has seen some outright surrender. Among the more high-profile cases is The New York Times, which handed over operations of its New York-based community site to City University of New York faculty and shut down another hyperlocal enterprise in New Jersey. Meanwhile, Allbritton Communications folded its Washington, D.C.-focused TBD.com into the site of its D.C. ABC affiliate WJLA.

Yet despite the high-profile failures, others continue take the plunge, notes Gary Cowan, svp of product and marketing at Datasphere, which provides media companies with the technology to maintain hyperlocal sites as well as telesales services from its hub in Seattle, offering super low ad rates to small and medium-sized businesses (SMBs) around the country. Owned in part by Fisher, Datasphere’s roster of media-company clients has grown from 90 to 136 in just the last year.

Like Wildernest, many local businesses put great value on advertising via these sites. Among them is Steve Gechlik, who advertises his Sunshine Carpet Cleaning in Tucson, Ariz., on site Downtown Tucson. After Datasphere helped Gechlik create how-to videos for the site, “I got 20 more calls a week,” he says. “You can imagine how my business grew after that,” adding, “I’ve actually lost time playing golf because I’ve had to work.”

Then there’s Bistro Ten 18 in New York’s Morningside Heights neighborhood. One of its owners, Craig Skiptunis, relates that when the restaurant advertised an all-the-mussels-you-can-eat special on neighborhood sections of the site DNAinfo.com New York, sales grew ninefold. While the clickthrough rate was less than what the business gets via Yahoo or Google, says Skiptunis, “I believe [DNAinfo.com’s] are high-quality users. If they click, they’re more likely to come.”

Local businesses spend anywhere from $100 to $1,200 per month advertising on community news sites, according to sources, but most often lay out around $200. That’s not enough revenue to make them viable. Gordon Borrell, CEO of the research firm Borrell Associates, gives companies like Fisher props for experimenting in the space but points to the fact that hyperlocal revenue remains tiny. “I sit on top of a lot of information, from about 5,900 media companies, and it’s very clear that these hyperlocal news sites don’t generate that much money,” he says.

Some say the concept simply needs more time. “Companies like Datasphere have proven that getting the money and connecting with small business advertisers in local markets is not the problem,” says Adam Symson, chief digital officer at E.W. Scripps Co., which has dipped a toe in hyperlocal in markets like Phoenix. “The problem is making sure you’re providing an audience for those advertisers. You have to have content worth spending time with. We’re still looking for the right way to tackle it.”

Indeed, hyperlocal is not a monolith. The space is actually home to a variety of business models. Among the lower-cost operations is Phoenix’s AZCentral.com, launched by The Arizona Republic last May and encompassing 17 neighborhood sites. AZCentral has tapped around 650 citizen journalists and employs a so-called news curator to manage contributions, says Republic content partnership editor John Triplett. With that model, Triplett adds, AZCentral was profitable almost from the get-go.

Also operating on a shoestring is the hyperlocal experiment of The Seattle Times, which has partnered with some 50 local news sites, among them Julie Hall’s Inside Bainbridge. Those alliances were formed after the Times gave up on the idea of having its own journalists cover Seattle on a granular level.

“Without a dedicated editor who lived in those communities, it just didn’t work for us,” says Bob Payne, editor, partnerships and audience engagement at SeattleTimes.com. “So we killed those pages.”

The Times shares no ad revenue with its community-based partners, who instead benefit from traffic generated by the alliance.

More deep-pocketed operations include DNAinfo.com, whose New York operation and recently launched Chicago site each employ professional reporters (40 in New York, 20 in Chicago) and a dedicated sales team. “Our sales people know the neighborhoods as well as the reporters do, and that’s really the key to our success,” says Leela de Kretser, publisher and editorial director of DNAinfo.com, the brainchild of TD Ameritrade founder Joe Ricketts.

Then, there’s Patch. The overhaul of AOL’s much-vaunted community news venture was announced after it emerged that the operation lost a breathtaking $147 million in 2011 while generating just $13 million in ad revenue. As a result, expenses were slashed 30 percent, mostly through the elimination of “middle management” editors, according to Jon Brod, president of AOL Ventures and co-founder and CEO of Patch. Patch still largely follows a one-journalist-per-community-site formula, though about 18 months ago it started introducing content from an assortment of local bloggers, who now number some 30,000.

Things are looking up for Patch. In 2012, unique visitors jumped 47 percent to 14 million YOY. Brod adds that Patch has more than doubled its annual revenue, and while it hasn’t publicized the fact, it now boasts more than 100 profitable markets. Brod projects run-rate profitability for Patch as a whole late this year. Meanwhile, its technology and newsgathering strategy continue to be tweaked, with user interface changes and new processes for divvying up content duties now happening in five Long Island towns.

Likewise, Fisher Communications is redesigning the look and feel of its local sites so they are more integrated with the online destinations of its stations. The company is also switching to a so-called “social local” approach, emphasizing social networking elements. While the hyperlocal operation’s head count of seven employees has not changed since launch, the content they cover has. “Some people still write geography-based stories, but we’re much more focused on social local,” explains Jenny Kuglin, general manager of Fisher Interactive Network. Topics now range from arts and entertainment to crime.

The company continues to rely on Datasphere for sales to small and medium-sized businesses, but its own, larger sales force also goes after new accounts, says Randa Minkarah, Fisher’s svp, revenue and business development, who has beefed up her sales team and created more advertorial content for clients.

The changes at Datasphere coincide with those of Fisher and seem influenced by its corporate cousin’s revenue declines as well as challenges in other clients’ hyperlocal ventures. “The cost of content is expensive, so to the extent that you can reduce that component and still achieve a similar kind of revenue base, it’s a benefit,” Datasphere’s Cowan says. Among Datasphere’s latest tactics: selling promotional tie-ins with local events and investing heavily in local coupons.

Belo is in the process of rolling out Datasphere’s hyperlocal Web services to all markets where it owns TV stations, according to Cowan. Joe Weir, Belo’s vp of digital, stresses that his company will not employ an intensive hyperlocal approach but, rather, tailor each local news site around its DMA.

A natural environment for hyperlocal may be Seattle, made up of highly distinctive neighborhoods populated with bloggers hungry for alliances—and sites such as Inside Bainbridge. For other cities, hyperlocal doesn’t make much sense. Nexstar Communications, for example, operates nearly 40 TV stations in midsized markets where it has determined that sites focused not on community news but, rather, passions like local college teams are more viable, according to Marc Montoya, svp of e-media sales and operations.

Others are waiting to see whether hyperlocal will, in fact, prove to be the future—or a noble but ultimately unsustainable experiment.

Catherine Badalamente, vp of digital media at Post-Newsweek Stations, remains hopeful. “If we’re going to have any long-term future in the news business, it has to be part of what we’re looking for,” she says of community news sites. “It’s going to be what differentiates us in the long run.”