Solving the Hyperlocal Puzzle   

DNAinfo.com’s Web sites cover neighborhood news in New York and Chicago. Can billionaire Joe Ricketts’ venture achieve the financial success that has been elusive for similar startups? Fri., March 29, 2013.

Joe Ricketts doesn't think small.

Ricketts helped revolutionize online stock market trading by creating TD Ameritrade. More recently, he has been using his money to torment President Barack Obama and – with family members – buy the Chicago Cubs. But trying to lead the Cubs out of a 104-year championship drought may prove to be a simple task compared with Ricketts' latest venture: He's hoping to unlock the journalistic mystery of how to make money with a large hyperlocal news Web site.

Through his New Media News LLC, the 71-year-old Ricketts launched DNAinfo.com, two hyperlocal sites staffed with dozens of reporters who cover every nook and many of the crannies in the neighborhoods of New York and Chicago. If DNAinfo.com can make it there, Ricketts & Co. believe, it can make it anywhere.

"This model could be successful all over the world," exclaims Leela de Kretser, the 34-year-old Australian-born publisher and editorial director of the sites. "Mr. Ricketts wants this to be a model that could work in any other city."

Ricketts expressed his optimism for growth in a DNAinfo.com video posted on YouTube last year. "We've already had enough success in Manhattan to know we want to carry this to other cities," Ricketts says. "That's what the dream is."

The sites are exhibiting impressive growth. DNAinfo.com New York was launched in Manhattan in November 2009 and expanded to cover neighborhoods in all five New York boroughs in the spring of 2012. DNAinfo.com Chicago debuted last November. The New York site had 1.44 million unique visitors in November 2012, nearly twice the number it attracted two years earlier, according to figures provided by a DNAinfo.com spokesman. In Chicago, the site attracted 613,171 in the 30 days prior to March 1, compared with 243,672 in December, its first full month of operation.

"The numbers are significant but not world-beating," media analyst Ken Doctor said in an e-mail interview. "They've built an audience, and now must become a must-use for a large enough group to build a business."

The sites' reporters in both cities are earning respect from journalists from the large traditional media, who sometimes find themselves following stories broken by DNAinfo.com. Jere Hester, a former reporter and city editor at New York's Daily News who now runs the NYCity News Service at the City University of New York Graduate School of Journalism, says DNAinfo.com reporters are joining the New York media social scene and stepping up to drink at the same bars as reporters from the established media. "At the end of the day or the end of the night, they're being more accepted," Hester says. "They're becoming a welcomed part of that dubious fraternity."

Though the startup has yet to make a nickel in profit, de Kretser boldly predicts it's only a matter of time until cash begins falling to the bottom line. "If we continue the way we have been, we are going to be nicely profitable," says de Kretser, whose father, sister and husband are journalists. Pointing out that Ricketts came up with the neighborhood news sites at a time when "everybody was freaking about the death of journalism," de Kretser says she hopes DNAinfo.com will be one of the keys to the industry's survival. "I have a lot personally riding on this," she says.

But sustainability has been a challenge for hyperlocal initiatives. In February, NBC News shut down EveryBlock, a much-praised, data-driven hyperlocal site. Allbritton Communications, which owns Politico, shuttered its much-hyped Washington, D.C.-based hyperlocal, TBD.com, after just two years. And AOL has found profitability elusive at its network of Patch.com local sites.

"A lot of people have been trying [the hyperlocal approach] without much success or financial stability," says Rick Edmonds, media business analyst for the Poynter Institute, adding, "I'm not going to say nobody is going to do it."

The hyperlocal sites that do well "tend to have strong involvement of a couple people dedicated to making this happen," Edmonds says. "They have a community service element that comes out pretty strongly."

De Kretser says the DNAinfo.com sites have a number of advantages over traditional news outlets such as newspapers. For one, she says, it's a lot cheaper to run DNAinfo.com sites than it is to print and distribute a daily newspaper. The online sites do not "have the legacy costs of the print business." Thom Clark, president of the Community Media Workshop at Columbia College Chicago, says Ricketts' timing is good, as many papers are finding it hard to tap into the digital market. "Legacy papers are still having trouble emerging from their legacy product into the digital world," he says.

DNAinfo.com has plenty of other costs. It's not cheap to pay competitive salaries, including insurance and other benefits, to a team of reporters and editors needed to staff the sites. (As of mid-March, about 45 staffers were listed on the New York site and about 30 in Chicago.) In addition, there are costs associated with ad salespeople and other staff needed to run a large entrepreneurial venture in two of the country's biggest cities. That's where DNAinfo.com's other major asset comes into play in the form of Ricketts, whose wealth was estimated at a little more than $1 billion in 2009, when he made an appearance on the Forbes Magazine list of America's 400 richest people.

"We could not make this model work without a patient investor," de Kretser says.

The patience and wealth of Ricketts are vital to the project, says David Hirschman, cofounder and chief operating officer of Street Fight, a media, events and research company focused on the hyperlocal industry. "It's very helpful that they have a patient investor who believes in local news..hard news," Hirschman says. "The world of [online] hyperlocal news is littered with projects that seem really, really good but fail."

Patience or no patience, DNAinfo.com faces an uphill battle. Doctor, a media analyst at the global research and advisory firm Outsell, says that despite the 10 million monthly pageviews that DNAinfo.com New York says it's getting, the site has a ways to go before it could turn a profit. The reason: Revenue is hard to come by because of the incredibly low price of online advertising, a commodity that will likely get even cheaper, says Doctor, the author of "Newsonomics: Twelve New Trends That Will Shape the News You Get." "You could triple the number of pageviews and then you might come close to break even," says Doctor, speculating it would take DNAinfo.com New York about five years to turn a profit. "This is not going to be a slam dunk."

Ricketts doesn't seem like a wannabe media baron. Unlike Warren Buffett – that other Omaha billionaire buying into the news business – Ricketts does not have a history of professing his love of newspapers. In addition to financing the purchase of the Cubs – his children run the team's front office – and launching TD Ameritrade, Ricketts is known for his conservative political views. He contributed more than $11 million to his super PAC, which sought to block Obama's reelection, and got into a public spat with Chicago Mayor Rahm Emanuel, the president's former chief of staff. Emanuel erupted when it was reported that Ricketts was behind a proposal to run a multimillion-dollar ad campaign highlighting Obama's ties to his former pastor, the controversial Jeremiah Wright. Ricketts quickly distanced himself from the Wright plan.

Ricketts' political profile may make some reporters and observers nervous, but de Kretser and DNAinfo.com editors say he has taken a hands-off approach to news coverage, including anything that may involve him or his political beliefs. "The only time it comes up is when media reporters ask us about it," de Kretser says. "He's been incredibly clear about objectivity in journalism."

Although Ricketts is picking up the tab to dispatch teams of reporters to pry into the business of the communities they cover, he plays his own cards close to his vest, and DNAinfo.com is very selective on what information it will release. Less than two hours after I began making inquiries to DNAinfo.com editors and reporters, I was contacted by two public relations officials – one in New York and the other in Chicago – who insisted I work through them to set up interviews. Eric Herman, managing director of Chicago-based ASGK Public Strategies, declined to answer many of the questions about DNAinfo.com's business strategy or how it intended to raise revenue. "I think we've been about as open as a privately held company can be," Herman said in an e-mail.

While he isn't involved in day-to-day coverage, there is no doubt that Ricketts, who declined to be interviewed for this story, is the driving force as well as the financial muscle behind the venture. It was Ricketts who coined the name – short for Digital News and Information – and put together a team of advisers including de Kretser and Sree Sreenivasan, Columbia University's chief digital officer, to help turn his concept into reality.

Ricketts appears to be employing a strategy similar to the one he used with Ameritrade: Take a stodgy old business and revamp the delivery system without messing with the basic product. "He has shown he could take an entrenched industry and shake it up," says Sreenivasan, who is also a member of Columbia's journalism faculty. Sreenivasan is no longer a part of the DNAinfo.com team, though he remains a cheerleader for the hyperlocal initiative.

In Ameritrade's case, customers still buy and sell stocks, just as they did for generations, though the online delivery system makes the process more efficient and cheaper. The same may be true for DNAinfo.com. Its readers are consumers of news and advertising – Ricketts just hopes to provide them more efficiently on any number of devices that do not require publishers to underwrite the cost of paper or news-paper trucks.

"I like to picture everyone on the El getting their e-mail and clicking on to our stories," says Shamus Toomey, managing editor of DNAinfo.com Chicago.

To staff his sites, Ricketts has tapped the overflowing marketplace of available journalists, hiring people with varying levels of experience and digital knowledge. "DNAinfo.com has been smart about cobbling together a staff in New York," says CUNY's Hester. "They have some folks with experience, and they plucked some of the good young reporters from some of the stronger community papers."

The staffs appear to skew young, and the work is demanding. Reporters are equipped with a company-supplied laptop, smartphone and camera, and they are expected to post pictures or video with their stories. Each site posts at least 20 stories a day, with the New York site posting as many as 70 a day, Herman says. The Chicago site posts up to 50.

"We've got reporters that file five or six stories a day," Toomey says. "The vast majority are doing at least a couple of stories a day." The neighborhood reporters seldom visit their newsrooms; editors prefer to have them prowling the turf they cover. "I don't want them sitting around the newsroom looking at us," says Michael P. Ventura, DNAinfo.com New York managing editor.

The reporters are expected to promote their work in the neighborhoods and their individual stories via social media. "You are responsible for your own audience," Sreenivasan says. "It used to be that when you wrote your story and turned it in, that was the end. Now I tell people, 'Your work is just beginning.' You have to get it in the hands of people." It's a change in attitude for some reporters, who began their careers in an industry in which journalists were intentionally oblivious to the business end of the profession. The emergence of the Web, dwindling circulation and thousands of layoffs put an end to that luxury, Sreenivasan says, noting that while many reporters have paid the price for the newspaper crisis, they are not the ones to blame. "It was the fault of the industry, it was the fault of bad managers, it was the fault of complacency," Sreenivasan says. "Almost none of this was the fault of journalists."

The story mix on the DNAinfo.com sites runs the gamut. It includes bulletin board-type stories, soft features and aggressive in-depth reporting sure to get under the skin of authorities. Sometimes it looks as if reporters are thinking, "If it moves, it's news," and write up the smallest of events, such as who will appear at a neighborhood festival or a new restaurant opening. "The information that brings it down to your street, down to your pothole, to let you know what's happening in your neighborhood," is how Ricketts explains the DNAinfo.com approach in his YouTube video.

What you won't see, however, are many major enterprise stories that take a team of reporters several months to investigate. (The Chicago site did, however, prepare a 2012 murder map showing all the killings in the city with stories about many of the victims.) Also largely absent are stories about the inner workings of major corporations, even though New York and Chicago are home to scores of boardrooms. Stories about small business, including mom and pop shops, make frequent appearances on the DNAinfo.com sites.

Big business has "never really been our thing," Ventura says. Manhattan may be the nation's financial center, but "the horse race of whose stock is up or down on Wall Street is not really a neighborhood story." But if one of those major corporations were to close a plant in the South Bronx, DNAinfo.com New York will be all over it.

Foreign, national and even suburban affairs also are not part of the DNAinfo.com formula, unless there is a city – or preferably a neighborhood – news peg.

In between covering potholes and street closings, DNAinfo.com reporters have produced numerous high-impact stories that are also covered – and sometimes chased – by the established media in both cities. It is not unusual for reporters from the dailies or TV stations to follow a DNAinfo.com story or to be spotted bringing printouts of DNAinfo.com pieces to press conferences. "That's always very cool," says Toomey, who quit the Chicago Sun-Times, where he was assistant managing editor/metro, to join DNAinfo.com Chicago just after its November launch.

In Chicago, DNAinfo.com broke a story in January about a pharmacy manager choking a homeless shoplifter to death. DNAinfo.com Chicago paid ample attention to Hadiya Pendleton, the high school sophomore who was slain near Obama's Chicago home, and the recent federal indictment of former U.S. Rep. Jesse Jackson Jr.

In New York, the Web site aggressively reported on the controversial New York Police Department practice of stopping and frisking citizens, including posting a DNAinfo.com New York computer study showing where people were most likely to be patted down by the cops. In January DNAinfo.com reported that in Brooklyn "most Orthodox Jewish schools offer limited instruction in English, math and science, and some don't teach them at all despite being legally required to do so."

The biggest – and undoubtedly the sexiest – story broken by DNAinfo.com came in March 2012, when Anna Gristina, a mother of four, was charged with running an Upper East Side brothel catering to millionaires. Two weeks later, DNAinfo.com New York reported that former U.S. Sen. John Edwards had been a client while on the presidential campaign trail in 2007. DNAinfo.com posted the story despite denials by Edwards' camp and a demand by his attorney that it be retracted. "The tabloids were, at least for a little bit, eating their dust on that one," Hester says. "By virtue of them doing neighborhoods as beats, [DNAinfo.com reporters] are going to get more of those stories first, because they've got their ear to the ground."

The "Millionaire Madam" stories put DNAinfo.com New York on the Big Apple's media map. "That was the one that everybody noticed," Ventura says. He adds that the Millionaire Madam stories sent a clear message to the public and competing media: "This is DNAinfo. This is not just some blog."

One of the bylines on the first Millionaire Madam story and the sole byline on the second belonged to Murray Weiss, a well-known veteran of the New York Post and the Daily News. Weiss, who is credited on his DNAinfo.com New York bio for coining the phrase "rough sex," is also the author of "The Man Who Warned America," a look at John O'Neill, an FBI terrorism expert who died in the 9/11 attacks.

In Chicago, the big-name reporter tapped by DNAinfo.com is Mark Konkol, a Pulitzer Prize winner at the Chicago Sun-Times who is now a writer at large for the site. "He's a larger than life, gregarious guy who everybody knows," says Sarah Hamilton, Mayor Emanuel's director of communications. In a follow-up e-mail, Hamilton said DNAinfo.com was making its mark in the Second City. "Their reporters have been received as diligent and professional, and the fact that they are physically in the neighborhoods has made a strong impact on the way news is covered in Chicago," she wrote.

Konkol says he jumped to the upstart DNAinfo.com Chicago prior to its November launch because he was attracted to its style of journalism. "My big thing was writing about Chicago neighborhoods. That's been my passion," Konkol says. The transition wasn't difficult, he adds. "It's just like a news-paper – except you don't get ink on your hands."

Being "just like a newspaper" sounds like the kind of journalism that Ricketts hopes his people produce. "I'm not trying to change journalism. What I'm trying to change is the delivery of what we bring to the public," Ricketts says in the YouTube video. "Everybody is trying to figure out how to make money with information on the Web. And local news, community news, neighborhood news is the perfect place for the neighborhood business to advertise."

So can Ricketts do it? Will DNAinfo.com revolutionize the hyperlocal news business in the same way DNA revolutionized and unlocked the secrets of genetic science?

"We really believe in the promise of hyperlocal," says Hirschman of Street Fight. "Companies are getting closer and closer to figuring out what the formula is that's going to work for them... Someone is going to figure it out." Making money with hyperlocal news isn't impossible, he adds. "There are a lot of small hyperlocal sites that are profitable, not wildly profitable, but profitable."

Steve Buttry, who was director of community engagement for the now-defunct TBD and is now digital transformation editor for Digital First Media, also sees the prospects for hyperlocal as far from hopeless. "I don't think it's any harder to make money in hyperlocal than it is any other digital startup," he says. "Some small operations are doing well, well being a relative term. They're surviving and making money."

But, he adds, it will take time for a large organization to make its way into the black. "When you scale it up to a large scale... you're going to have to have the patience to let it work out."

Though DNAinfo.com seeks national advertising – de Kretser repeatedly pointed out that Amtrak is an advertiser – it appears that neighborhood businesses are the core market, just as neighborhood residents are the core audience. Those advertisers, however, are not an easy bunch to deal with, Hirschman says. "There's not that much money and there is a lot of hand holding," he says. "A large number of small business owners don't advertise at all and don't understand the importance of [digital] advertising."

The DNAinfo.com ad pitch on the Web site sounds like its salespeople will lend a hand to even the smallest of advertisers. The company says that its "marketing programs are designed to drive customers through your doors using a combination of web advertising, targeted emails, offline magazines, contests, events and content integration. Our customizable packages designed for any budget allow you to mix and match based on your business needs." Advertisers can buy ads that appear on the site citywide or, to save money, they can purchase space on a specific neighborhood or subject page.

DNAinfo.com has sponsored several events, Herman, the public relations executive, said in an e-mail interview. Among them were an online marketing conference, Brooklyn bar nights and summer film festivals. He declined to say what type of revenue was generated. "We don't talk about our revenue numbers because we are a private company," he wrote.

Sreenivasan is hopeful that Ricketts has found the answer to creating a sustainable, flourishing hyperlocal site, though he admits he doesn't know whether the DNAinfo.com approach will work. Still, he says, he's glad to see Ricketts is trying to help an industry that desperately needs a reason for optimism. "The game isn't over – it's not the bottom of the ninth," Sreenivasan says. "It's the bottom of the sixth. You gotta be taking a swing."