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The Story So Far – Local and Niche Sites: The Advantages of Being Small

January 7, 2011

The concept is simple – In a world where much of the daily news has become commodified, only news that people can’t find elsewhere will command a loyal audience but is hyperlocal journalism is more hype than hope?

A 2006 report on “value creation” in journalism, from Harvard’s Kennedy School of Government, put the lesson bluntly: “specialise or localise.” As the report explained, “Because of the increasing range of information sources, greater abilities to access material from anyplace at anytime, and requirements to create tight bonds that lead to loyal consumers, news organisations will have to move away from the unfocused, something-for-everyone, one-size-fits-no-one news products characteristic of the second half of the twentieth century.”

That’s the theory but there are many example of organisations attempting to capitalise on it that have yet to produce a commercially viable proof-of-concept.

By far the biggest of the new hyperlocal journalism ventures is the Patch network, which was bought by AOL in 2009. The Patch network has sites in 700 communities and counting as of March 2011. Patch has turned AOL into one of the biggest sources of new journalism jobs in the country, a far cry from AOL’s original business model of providing dial-up access to the Internet.

Like McDonald’s, AOL uses sophisticated market research to assess the commercial potential of the communities where it is considering planting the Patch flag.

There is a distinct difference between those hyperlocals that are affiliated with traditional media outlets, those that are part of a larger network of hyperlocal sites and those that are independent of both.

On the surface it would appear that those affiliated with traditional media outlets have the upper hand as they have access to the editorial resources of established professional newsrooms. However, health of these sites is effectively wedded to the health of their traditional parents and since they generate only a fraction of the revenue, they are at greater risk of being closed down.

The hyperlocal networks don’t have legacy newsrooms to draw on but their key asset lies, potentially, in uniting hundreds or thousands of hyperlocal channels with back-end infrastructure for selling and serving advertising. These networks should be the sweet spot for hyperlocal news. Like a stable of trade publications or a chain of small newspapers, they can pull together a large audience out of many small ones. Its size should confer advantages unavailable to local competitors in the individual markets where it operates: lower costs, better technology, access to bigger advertisers and so on.

The independent, locally grown news sites would seem to be at a clear disadvantage. They lack the editorial backing from established newsrooms that many competitors enjoy. Their infrastructure costs—bandwidth, content management, ad serving and so on—are fixed and cannot be shared across a network. They lack what has been considered a crucial element of success in the media business: scale. Curiously several of these grass-roots sites have nevertheless built viable businesses where their better resourced competitors have failed.

How they have managed to make ad revenue align with expenses and can their model can support serious accountability journalism?

Two independent news sites, The Bavatian and Baristanet, are examined in detail with a couple of commonalities emerging, despite the fact they are from vastly different demographics — Baristanet caters to prosperous suburban New Jersey and The Batavian to Rust Belt upstate New York. In both cases advertisers are less interested in clicks-per-thousand (CPM) than they are in reaching an engaged local audience. A useful metric for evaluating this approach is not CPM, but RPM—revenue per 1,000 impressions.

These publications also treat advertisements differently than larger networks and they both claim that advertisers are lining up to partner with them.

In the case of The Batavian, all of the current content and the advertisements are listed on the front page. Users are forced to scroll rather than click-through to see articles. Ads bought on a calendar model and are rotated ensuring each advertiser gets their time at the top of the list. The site’s owner, Howard Owens, designed this approach based on his experience at three newspaper companies, with access to online data for more than 100 local papers.

“I saw that it’s very hard to get people to move past the home page,” he explains. “So I decided to base my business on that.” The RPM of The Batavian is approximately $17.

Baristanet also uses a calendar model for advertising rates. Merchants pay from $150 to $1,600 per month (weekly rates are also available) depending on their ad’s size, placement and frequency of rotation. As a result, Baristanet achieves an enviable ratio of revenue to traffic. With an average monthly volume of about 475,000 page views, the site enjoys an RPM
in the neighborhood of $42 — many times the revenue it would get if it used a standard CPM model.

To put those figures in perspective, in 2010 comScore found that average newspaper CPMs were $7 nationwide, though its analysis included the largest newspapers and newspaper chains in the country; small local outlets tend to have lower rates.

It would be a mistake to see in these examples a formula that any local venture could replicate just by asking merchants for a few hundred dollars each month. Each of these sites filled a vacuum when it launched and has remained popular even as new competitors have appeared. Their real feat is having built sizable audiences on the cheap. Defining and attracting a desirable audience is necessary, of course, but not by itself sufficient; acquiring that audience on a tight budget is what sets successful grass-roots ventures apart from the also-rans.

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