After AOL’s Hyperlocal Fail, Media Watchers Pin Hopes on Smaller Operations

“Hi, I’m Larry Kramer, and I like to make money,” said the president and publisher of Gannett-owned USA Today (and an early investor in Street Fight), during introductions at a conference on the future of local media held at Montclair State University Friday.

Kramer’s intro drew a chuckle, but the sentiment behind it was telling. With a number of once-promising large-scale hyperlocal media projects laying in ruin, local media’s star has faded a bit over the past year, causing many industry watchers to frame local journalism as a pursuit defined by a social need, and burdened by an unfriendly market reality.

“We’ve entered a post Patch-era, in which we have some very good and some very bad ideas executed poorly,” said Ken Doctor, the author of Nieman Lab‘s Newsonomics column, during a panel with Kramer Friday. (Patch, in fact, still exists, albeit in reduced form, having been sold to Hale Global in January.)  “When I look at the landscape, there’s a tremendous investment in national, but at the same there [has been] a disinvestment by the old newspaper companies in local, and by others like private equity investment. They’re tired of local. If you’re in [local media] for the money, get out,”

One of the starkest examples of investor fatigue in local media comes from Alden Capital, the secretive hedge fund which financed the quasi-merger between The Journal Register Company and Media News Group that led to the creation of Digital First Media three years ago. Last week, the company announced that it was reversing course, scrapping its vaunted future-of-news project Thunderdome and beginning a major “$100 million dollar cost-cutting initiative,” according to Doctor’s reporting.

Aside from its name, the Thunderdome project made sense. Instead of having hundreds of journalists from each of its local papers report the same national news, the company would centralize national reporting into a single newsroom (e.g. a “Thunderdome.)” The newsroom also produced other technical content like video and data visualizations, which the company could syndicate out to local outlets that did not have access to expertise.

But the vision did not pan out, at least in the eyes of Alden Capital. Jim Brady, the now-former-editor-and-chief at Digital First Media, and the lead on the initiative, told Street Fight’s Tom Grubisich last week, that the project spawned some excellent journalism, but the “glue at the core of Thunderdome was never able to dry.” The long-time local news veteran reiterated the point during a panel with Kramer, questioning the ability of larger media organizations to adapt as print revenues — which many thought would finance these new projects — have crumbled more quickly than expected.

“Being in that room for the last three years, you see the complexity of trying to have innovation within a company that’s sucking wind from a financial perspective; that’s constantly awaiting the next flash report to see if the business is going to hold,” said Brady. “So it seems more obvious than ever before that a lot of the innovation in local is going to have to come from the grassroots level.”

Brady’s comments touch on a counter-narrative which has emerged within the local media industry in the wake of the collapse of Patch. The growth rationale (the vision of the $150 billion market opportunity left as legacy media companies scaled down their local coverage, which Tim Armstrong and others pitched to investors) has been replaced with a civic ethic — the need for small, independent operations to create self-sufficient clusters capable of filling the needed role of an active press in their communities.

At the center of this push is Debbie Galant, the founder of Baristanet, a network of New Jersey hyperlocal sites, and one of the organizers of the conference. Galant left the project to head up the New Jersey News Commons, a project built in conjunction with media pundit Jeff Jarvis that works to create efficiencies between the state’s local media properties.

While Galant and others offer anecdotal examples of success, local media increasingly does not appear to be the growth market that many thought it was. What fed the ambition of Armstrong and others was the assumption that the basic business model, and implicitly the size of the market, remained constant. However, data continues to show that local marketers — the true customers of local media — now spend the majority of their revenue on tools and services which do not involve traditional forms of content-related audience buying.

In a study of thousands of small businesses conducted by Borrell Associates in October of last year, business owners said they planned to spend only 12% of their 2013 digital advertising budgets on banner advertising, sponsorships, and classifieds — the products most commonly used to monetize a media company’s audience. The study also found that small businesses expected to spend more than half of their marketing budgets on owned channels, investing heavily in managing their website (35%), running email marketing campaigns (13%), and social media (14)%.

The pie is simply smaller for locally focused content businesses than it was a decade ago. Today, local media companies compete with a host of other marketing tools, many of which provide a more effective way to reach a valuable local audience at a fraction of the price.

But local media is facing an even larger problem. The effectiveness of awareness advertising, which drove media sales for decades, should arguably be in decline as local data becomes ubiquitous.

In a world in which information is finite and often inaccessible, the ability for a business to be top-of-mind — to carve out a little spot in a consumer’s memory — was a powerful competitive advantage for newspapers, and one that drove the way businesses sold goods and services to local consumers. But when consumers know what the hardware store has in stock or whether the small restaurant next door serves good food, the market enters what’s called a “state of perfect information.” When that happens, the rules of the game — both for consumers and the businesses trying to sell to them, change as well.

That’s not to say that local media is doomed. According to Kramer, Gannet has seen a lot of success blending its national and local initiatives. For instance, USA Today has begun including localized sections produced by Gannett’s local newsrooms, an initiative which he says would not have passed a decade ago when local newsrooms often saw national divisions as a threat.

What’s at stake, believes Kramer, is a rethinking of the media’s relationships with both the marketer and the reader. In addition to emphasizing the importance of expanding the relationships between marketer and media company, Kramer said media companies need to begin to rethink a separation between national and local, which came about as much as a result of the logistical issues of print, than a truth of media.

“Consumers and advertisers don’t spend their days thinking about national or lcoal news: they say give me something interesting to read,” said Kramer. “The redefinition of local is at the heart of this. It’s all different to us: what defines my local is different from the guy who lives next to me.”

But Kramer seems to be more the exception than the rule. Talk about big returns has been replaced with strategies for just getting by. What’s left is an industry in which the returns are certainly moral, but not necessarily financial.

Steven Jacobs is Street Fight’s deputy editor.