How to Run Hyperlocals that Make Money — An Email Mini-Debate

As part of writing for Street Fight I give the impression of being an expert in hyperlocal, and following that sometimes come requests to talk about the category and give my impressions of where things are headed. (If only I knew.) But not being an impolite journaler I usually accept happily in hopes I’ll, too, learn something.

Recently the good folks at the American Press Institute (yes, there is one still) asked if I’d help lead a discussion of a cross-section of people from newspapers around the country. The topic? “Strategies for Sustainable Hyperlocal Business Models.”

Oh, is that all? It’s an obvious challenge we’ve reported on quite a bit at Street Fight. And I can tell you that there are as many workable strategies out there as there are failures. That is to say, nobody has it truly figured it out. I see that as a great thing — it spells opportunity. Maybe I’m among the few, but I surely don’t believe this is evidence of inevitable failure for hyperlocal. There are finer points to this discussion, of course. And subtleties matter. So I did what I do best: ask someone else.

Who better than Laura Rich, Street Fight CEO, and Tom Grubisich, columnist and longtime chronicler of hyperlocal as well as champion of Localamerica.com (a startup aiming to use data to reveal yet unknown facts about localities). I asked these two about it in email and I liked the feisty authenticity of the private exchange so much that I’m just going to lift and republish for your benefit (shh, don’t tell them). I also queried Rick Blair, lately of Examiner.com, GoLocal24 co-founder Josh Fenton, and Scott Brodbeck of ARLnow.com.  I asked: “How do you get to sustainable business models in hyperlocal?” Here’s what came back at me:

Tom Grubisich: A continuing challenge in the hyperlocal industry is establishing — with hard data — a correlation between editorial quality and engagement (as a key component of product development) and financial success. We can pretty well pinpoint which sites have the most quality, and make a stab at the level of user engagement that quality generates (by checking the number of user comments on articles and “likes this” and “talking about” on Facebook and tweets, “following” and “followers” on Twitter), but we don’t have access to ad revenues [per site].

To get specific, we can reliably state that West Seattle Blog or Westport Now or Sacramento Press is high in editorial quality/engagement, but we don’t have any P & Ls from those sites, or others — even major-media ones like AOL’s Patch — that would help us establish a connection between quality/engagement and profitability. We also don’t have access to detailed engagement metrics, which would show us which articles generate the most activity, a starting point in establishing the elusive correlation. So, I think whatever you say will have to be qualified with caveats that the hyperlocal industry is very un-transparent and loves to talk about success in generalities. You’ll note that Patch’s SVP/revenue answered all your questions without using a single number. And that’s not an exception — it’s the rule.

Laura Rich: I think we have to be careful on the editorial quality point to assume it leads to profitability. In general, in many areas across the commercial landscape, this is not often true. Think of “quality” TV shows that get kicked off the air because they don’t pander to the lower-standards broader audience. Or how about the work of a painter? Perhaps higher quality than a comic book, but the comic book is reproducible and leads to more sales. And the very existence of factories points to the fact that lower-cost (lower-quality) products can lead to greater margins and more profits.

Not that quality can’t lead to profits and audiences. I’m just saying it’s dangerous to assume so.

Tom Grubisich: The debate about whether quality content — whether in print, broadcast or digital — leads to profitability is eternal. But I think you can say that quality takes on real meaning in markets that are less mass and more local. You can’t start a standalone site in, say, Peoria, and pack it with aggregation and ranting forums, and expect it to be profitable, as Topix apparently is with its network built on millions upon millions of PVs that yield 10 cents per thousand (though I haven’t seen its P&L).

A site that tries to cover Peoria with better editorial may fail too, but its chances are a lot better because it doesn’t have to live or die by PVs but can maybe eke out a living with a small but engaged usership. Can I prove that beyond doubt? No, not unless I get my hands on a lot of financial information that is notoriously unavailable in the hyperlocal industry.

I think Rick should be candid with his API audience about the quality question, which can’t be sufficiently analyzed, much less answered, without that missing data. But if I were Rick, I’d assemble about five successful hyperlocal case histories — maybe West Seattle Blog, Baristanet, Westport Now, Sacramento Press and Charlottesville Tomorrow — and ask his API audience what they think the case histories have in common. I’m sure that after all the debate dust settled, there’d be consensus that all five, each in its own way, made a grand attempt to connect with its community by reaching up rather than down. Beyond that lesson, there are no certainties about building a sustainable media business. But maybe that’s enough.

Laura Rich: So, this is a good argument but I guess I still think it’s more valuable to look at the revenue side — you can have all the users in the world and be a nice brand and advocate for your community but if you can’t develop the advertiser relationships or find another way to monetize, you’re not building a sustainable business, which is our goal for hyperlocals here at Street Fight (and the focus of Rick’s question).

I also decided to bring in a couple outside voices, one well-weathered in the hyperlocal and local media spaces; the other a noob meeting with great success by killing it in Arlington, Va.

Scott Brodbeck, the relative newcomer who is editor and publisher of semi-famously profitable hyperlocal ARLnow.com offered this thoughts focusing on product and service:

To reach sustainability, a hyperlocal news web site must first attract a large local audience. It can do so by producing consistent and engaging content that matches the mood and interests of the community the site serves. The site then must serve business clients, by providing superior, cost-effective advertising options and other useful services that benefit local businesses. Anything on top of that is just icing on the cake.

Content is still king says Josh Fenton of GoLocal24:

It is all about content.  To be successful in local media you need to produce content that is relevant to how people live their lives.

You simply can’t fake it – you need to break stories, you need to be trusted, you need to treat your audience with respect. GoLocal24 is driven to create high value content that enhances people’s lives. Investigative journalism, coupled with insights into the local economy – no three-day-old wire stories that I heard on CNN days earlier.

There are too many gimmicks trying to claim they are producing local digital content cobbling together user content, canned media and part-time writers. The reality is if you create high value content – readers will come and advertisers will follow.

Rick Blair, former CEO of Examiner.com, said he believe the tenets of a sustainable hyperlocal revenue model would include all of  the following:

• A network of local/hyperlocal sites (whether regional or national)
• Content and ad revenue strategies that are both vertical and local, allowing for local, national and regional buys
• A mix of CPM, CPC, CPA and flat monthly fee programs priced allowing the advertiser to select the risk he/she would take on relative to the cost
• The right mix of sales feet on the street, telesales and  self service. The success of the latter two will be the determining factors in the rate of return, allowing the publisher to keep the prices affordable.
• Availability of inexpensive creative (copy, web sites, landing pages, etc.)
• Non advertising related products and services including copy, creative services, and products from local merchants.
• The resources to continue to invest and refine the process

… and finally, time.

Then again time is the one thing the API and its newspapers might not have…

Think we’re all full of it and you’ve got a better answer? Please let us know in the comments below. It’s free!

Rick Robinson’s Turf Talk column appears every Wednesday on Street Fight. Follow him @Loclly