VIDEO: Making the Economics of Hyperlocal Publishing Work

The prospects for hyperlocal publishing at scale have had a tough few months, leaving some of the most promising ventures shuttered, bankrupt, or scrambling to save face. During a conversation on stage at Street Fight Summit West in San Francisco earlier this month, Chris Tolles, chief executive of hyperlocal news aggregator Topix, and AdGlue CEO Ben Ilfeld discussed the future of Patch and the long-term sustainability of hyperlocal media at scale.

“It’s horrifying,” said Tolles about the monetization opportunities. “Patch spent $160 million [to scale the business], and unlike most large media efforts run by companies not in that business, they’ve got 21 million uniques to show for it. It isn’t profitable but we know what it takes to scale it — which is a lot of money,” he added.

For the most part, the handful of hyperlocal sites that have found profitability still sit on the edges of the market. On one end, a concerted group of small, boutique sites have built out a modest businesses selling to local businesses in individual communities, and on the other, open aggregators and forum sites like Topix have found success aggregating reach and selling to national brands and agencies.

The problem has been finding a middle ground. While Tolles believes that Patch has made critical strides in demonstrating the viability of a big content play to gain consumer traction, Ilfeld sees the massive cost of the effort, and the still-small returns, as proof that the model simply does not scale.

“The team at Patch is extremely talented, but they have lost hundreds million plus dollars, and they still are losing money,” said Ilfeld. “So until they figure it out, I still consider [hyperlocal media] something that’s impossible, or extremely difficult, to scale.”

According to Tolles, part of the reason that the economics of producing nationally-scaled hyperlocal content hasn’t played out is that the buy-side has not bought into the value of contextual targeting pitched by companies like Patch. Instead, small businesses and agencies have relied on other metrics to determine value.

“The local business guys still want to feel the paper in their hand,” said Tolles. “Meanwhile, the agencies don’t want context because they’re buying audience. They want to buy someone who went to Walmart before your site. So in that sense, context is completely irrelevant.”

Local and hyperlocal media already face an uphill battle. As small businesses increase spend on search, social, and owned-media like promotions, the slice of the pie going to advertising continues to shrink. Legacy media companies have buoyed declining advertising income by reselling these marketing products through their existing sales forces — a strategy that’s out of reach for a new entrant, regardless of its war chest.

Street Fight Summit 2013 is coming soon to NYC. Find out what’s happening and how you can get a seat at Street Fight’s flagship event here.

Steven Jacobs is Street Fight’s deputy editor.