Billions in Local Ad Dollars Surge to Online — But Just a Trickle to News

We hear a lot about the surging growth of local online ad revenue, and, to be sure, the numbers are growing fast — to $16.4 billion in 2011 (up 18% annually) and $19.90 billion projected for 2012 (up 22.2%), according to Borrell Associates. But very little of that revenue is flowing to “pure-play” news hyperlocals.

The news crumbs are even sparser when you look at pure-plays alone — non-news as well as news ones. According to Borrell, non-news pure-plays corner more than 98% of ad revenue measured by average market, led by heavyweights like Groupon and Craigslist. Independent pure-plays beat out one non-news pure-play — weddings.com — $265,000 vs. $251,000 per market (see Borrell chart).

This is one reason why Patch (which Borrell classifies as an “independent” pure-play even though it is a network owned by AOL), despite its progress in ad sales, still has so far to go even to break even.

Newspapers, because they still get most of their ad revenue from their legacy print products, are able to weather the competition for local digital ad dollars better. But as their print safety net gets progressively smaller, they have had to economize — especially as they drill down to hyperlocal. It’s the major reason some of them turned to the low-cost, data-driven community news service Journatic. The Chicago Tribune invested in Journatic and hired it to operate the paper’s TribLocal suburban network of 90 site. Last week the Tribune suspended its relationship with Journatic in the wake of the service’s news-gathering scandal and resignation of its recently named editorial production manager. The scandal may force Journatic to invest more in higher-quality reporting and editing.

The issue that no one seems know the answer to is how to channel even a small fraction of the billions of dollars that flow to local non-news digital into news.

One answer that’s offered is for news sites, especially at the community level, to engage their audiences more effectively. But it’s not clear that engagement, however successful it is in creating deeper connections with audiences, consistently leads to more ad dollars. Certainly it has for some highly successful independent hyperlocals, like West Seattle Blog, Baristanet in suburban New Jersey and WestportNow in suburban Connecticut. But the jury is still out on one big engagement success — WellCommons, the health and wellness site published by the Lawrence (Kans.) Journal World. Perhaps it takes time; WellCommons is less than two years old.

Another answer is that local sites should offer “utility” services to businesses, helping them to make sense of the jumble of challenges they face when deciding how they market themselves in the wide-open, constantly expanding digital space. Says the Borrell Report: “Business owners told us that they felt overwhelmed, that they did not understand all of today’s local media choices — the confusion of online, social, mobile app, deals, keywords, blogs, SEO, tweets and so on. They did not have the training to deal with it, they did not have the time to deal with it, they did not have the staff to deal with it.”

Seeing a new revenue market, some local news sites — like the Sacramento Press — are helping businesses to navigate the digital space so they can reach the many old and new customers they know have migrated there.

Still another revenue possibility is a pay wall, though few community sites have erected one. The obvious reason is that in most markets there’s a surfeit of competition at the level of community news. In Westport, for example, WestportNow competes with four other sites, including Patch, Main Street Connect and Hearst.

One answer, which I haven’t seen yet, may be for hyperlocal news sites to add more wedding news, and maybe they can at least slow down weddings.com, which, with its “virtual hair makeover tool” and other features, is nipping at their heels.

Tom Grubisich authors The New News column for Street Fight. He is editorial director of LocalAmerica, which is developing a Web site to rank communities on their livability across 20-plus categories. The rankings will be dynamic, going up and down daily as they are updated through a combination of open data, journalism and feedback from local experts and users of the site.