AJR  Features
From AJR,   June/July 2007

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.

By Paul Farhi
Senior contributing writer Paul Farhi (farhip@washpost.com) is a reporter for the Washington Post.     

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, McLean and Reston.

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 (see "Dotcom Bloom," June/July 2005). By early 2007, Backfence had grown to 13 sites serving towns around Washington, Chicago and the San Francisco Bay area. 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; Backfence's staff, which once numbered as many as 25, was laid off. The company's online communities are largely ghost towns now. "We ran out of money," says a somewhat chastened Potts today. "And we ran out of runway."

The failure of Backfence may offer no greater lesson than the old one about pioneers being the ones with arrows in their backs. New ventures fail all the time. But it could also sound a cautionary note about the present--and immediate future--of hyperlocal news sites. As big-media companies and entrepreneurs alike rush into the hyperlocal arena (see "Really Local," April/May), it's worth pausing and asking: Is there a real business in this kind of business?

So far--and admittedly it's still very early --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 labor. 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 such as Peter Krasilovsky remain skeptical: "I don't really see a model right now that allows [hyperlocal sites] to build up a sales staff and an editor beyond a very limited point," says Krasilovsky, a consultant and blogger (Localonliner.com).

Then again, money isn't necessarily the issue, says Jan Schaffer, J-Lab's executive director and the author of a report accompanying the survey. "When they talk about success, they're not talking about revenue," she says. "They're talking about the impact they've had on their communities." She adds, "I'm not sure in this iteration, these [operators] see themselves as making big salaries and having big offices. I'm not saying it won't happen somewhere down the road, but in this iteration it isn't there yet."

These days, the category's shining star--the anti-Backfence--is Baristanet.com, a scrappy, snarky local-news-and-commentary site that covers the tony 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 gotten 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. "As soon as the money's there, I'll commit to it" full-time, says George, a special sections editor at New York's Daily News. "We're growing, but we're not there yet."

Despite such modest returns, mainstream news organizations seem determined to enter the field. Sparked by such early hyperlocal innovators as the Journal-World (www2.ljworld.com) in Lawrence, Kansas, and the Rocky Mountain News in Denver (YourHub.com), 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 burbs is "a way to make the [paper] more relevant to people who are farther and farther away from the central city," says Ted Biedron, who heads Chicagoland Publishing Co., the Tribune subsidiary overseeing the project. "Every major metro paper," he adds, "has this issue." True, but the Tribune isn't making any bold pronouncements about Triblocal, including revenue projections. The project seems modest so far: Triblocal has hired only four journalists to collect and organize material for the eight towns it is initially targeting online.

But Biedron notes that 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.

A more ambitious hyperlocal effort is unfolding in my backyard, via my employer, the Washington Post. A 10-member team at Washingtonpost.Newsweek Interactive, the company's online division, has been working since October on the first of what it hopes will be a series of "microsites" covering the Post's home circulation area. The first such site, scheduled to go up in June, will target Loudoun County, Virginia (population: 255,518), a sprawling, exurban locale about 40 miles from downtown Washington. This is, in many ways, uncharted territory for the Post, which has tended to train its journalistic resources on Washington's government institutions, war zones and exotic foreign capitals.

WPNI picked Loudoun for its first hyperlocal effort because of the county's growth rate and affluence--its median household income of $98,483 is among the highest in the nation--and because Loudoun has just one moderately large municipality, Leesburg. This means that Loudoun's many subdivisions receive services from the county government, giving an otherwise disconnected place a common identity. Or so the folks at WPNI hope.

"What we're struggling with, and every major paper is struggling with, is how to reach our audience on a granular level, in a way we've never reached them before," says Jonathan Krim, WPNI's assistant managing editor for local and a co-leader on the Loudoun project. "People in the community want to know when that danged Dunkin' Donuts is finally going to move in. Or why there isn't a stoplight at the intersection where there have been a lot of accidents. There's a whole range of stories that, let's face it, a lot of newspapers and Web sites aren't engaged in, but that we know are really important to readers."

The Post already prints two Loudoun Extra sections a week with a staff of four reporters. But LoudounExtra.com, as the new microsite will be called, will also rely on its own "citizen army," as Krim puts it--a network of bloggers and amateur contributors who live in the county.

The site will also have several new features that the printed paper can't match. Rob Curley, WPNI's vice president of product development, takes on a nearly evangelical fervor as he talks up what he's got in store. Whipping out his ever-present Apple laptop and clicking frantically, he shows off a database that includes panoramic photos of every high school football field in the county; click on sections of the grandstands and you can see the sight lines to the field. There will be podcasts of some local church sermons, real-time accounts of high-school games and highly detailed restaurant guides, too. "You want to know which [county] restaurants are open after 11 p.m. on a Thursday? Boom! There you go!" he says, triumphantly displaying such a list.

Curley, a much-heralded veteran of similar projects at the Journal-World and at Florida's Naples Daily News, says newspapers can't afford not to add such bells and whistles.

"As my publisher in Lawrence used to say, 'Newspapers have to start driving with their brights on,'" he says. "My gut feeling is that a lot of newspapers aren't doing that right now.

I don't know what it is about the newspaper industry, but it has a way of taking great ideas and making them into OK ideas."

But let's get back to the bottom line again and ask a simple question: Will initiatives like LoudounExtra.com have much of an impact on a newspaper that generated about

$675 million last year from print and online ads? Will such efforts add up to much for an industry that seems to be grasping daily for the lifeboats?

Krim is hesitant. "We don't really know yet," he answers.

Still, he adds, "It's important to do this, even if it isn't a panacea. No one thing is going to change [the newspaper industry's] future. But a lot of things might. That's why we have to do this, even if we can't say for certain what kind of business success we might have. It's part of our mission. It has to be part of our mission in serving our readers and our communities. Do we hope, at the very least, that people looking at LoudounExtra.com will give the Washington Post a second look? Sure we do."

There are, of course, some good reasons for modesty. The Post, after all, isn't the first media company to discover Loudoun County. In addition to a local radio station, Yellow Pages publishers and coupon mailers, LoudounExtra.com will have to compete for local advertising with no fewer than 11 weekly newspapers, says Paul Smith, the executive editor of the county's biggest weekly, the Loudoun Times-Mirror.

Smith points out that most of the weeklies have larger editorial and sales staffs than the Post in Loudoun (the Times-Mirror has 15 full- and part-time newsroom employees). What's more, the weeklies have an unquantifiable advantage over the big-city paper: local brand names and strong ties to the community. The Times-Mirror, for one, can trace its founding to 1798.

"The Washington Post is a great paper," says Smith. "I love to read it every morning. But sometimes when you're a little bigger, you think bigger is better. It's not necessarily so." Online restaurant guides are nice, but Smith says bread-and-butter news still sells: "Can they cover the school board meetings?" he asks. "Can they go to local sporting events? Because people still want to read about those things."

Mark Potts, late of Backfence.com, can tell you all about the pitfalls of hyperlocal journalism. Although Backfence had its internal stresses, with the partners clashing over strategy (DeFife eventually resigned because of them), the company had two basic structural problems: getting the word out and getting the money in.

Raising awareness among residents of a community was a constant challenge, he says, particularly since Backfence's competitors were reluctant to sell advertising to a would-be rival. So, Potts and DeFife tried grassroots promotion, such as handing out flyers at civic events and speaking to community groups. But such efforts are difficult to sustain. "Where we fell down was getting the initial traffic in," he says. "When it works, it's mind-blowing. But it takes time to build, and it's difficult if you don't have a big media organization behind you."

Attracting local advertisers wasn't really an issue; Backfence had more than 400 of them on its many sites. "We were happy with the advertising we got, but it didn't grow as quickly as we thought it would," Potts says. Some ads sold for as little as $50. Laments Potts, "Small businesspeople just don't have a lot of money to spend" on advertising. (Indeed, Krasilovsky, the industry consultant, estimates that two-thirds of small businesses don't even advertise in traditional Yellow Pages books, let alone online.)

But Potts remains optimistic. "I believe there's huge pent-up demand for this," he says. "It's still a good idea. And it's going to happen. It's just a question of where and who and how all the pieces come together."

He thinks hyperlocal news sites will succeed if they can keep operating costs to a rock-bottom minimum, and if the sites are clustered--that is, strung together over a wide territory. That way, he says, a publisher won't be dependent on ads from just the local pizza parlor or the neighborhood dry cleaner. With enough "mass," a hyperlocal publisher might even attract regional and national advertisers, too.

It's a paradoxical notion, one that seems to strike at the whole notion of "hyperlocal" journalism: To stay very small, you may have to get very big.

Farhi examined Condé Nast's Portfolio magazine in AJR's April/May issue.