Are Community News Sites and Investors Ready for Each Other?

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money-tunnel“Why can’t local news attract investment?” journalism watcher Nikki Usher asks in a recent opinion piece for the Reynolds Journalism Institute, where she is a resident fellow. “If funders don’t pump money into local news, all of the innovation that’s happening in news will simply bypass the local level.”

Usher, who is an assistant professor in the George Washington University School of Media and Public Affairs in Washington, D.C., is right that venture-capital and angel investors have been avoiding digital community news. But there’s no mystery about why. There are some profitable one-offs, but most investors aren’t interested in one-offs. They want to put their money in the possibility of a good-sized payoff. That will only come with community news that is part of a network. Up to recently, the most visible such network was Aol’s Patch, but its horrible decline (which burned hundreds of millions in the process) convinced many investors that community news — which had been repeatedly proffered as the next best thing in the “2.0” revolution on the Web — was fool’s gold.

But community news is changing. Its publishers are passionate about their communities, but they’re listening to their head as well as their heart. Their operations are looking more and more like businesses.

A handful of entrepreneurial community publishers have formed small to medium-size networks that have achieved or are at the threshold of profitability. Here are four independent networks of community news that appear to be on an arc toward that elusive sustainability:

  • Scott Brodbeck, founder of ARLnow, which serves Arlington in Northern Virginia of metro Washington, D.C., and has added BethesdaNow in a major community in suburban Maryland and RestonNow in a key community in metro D.C.’s Fairfax County.
  • Liena Zagare, founder of Corner Media, which has grown from one site to seven sites in Brooklyn.
  • Mike Shapiro, founder of (formerly The Alternative Press), which has grown from one site in suburban New Jersey to a network of 35 franchisees, including several sites in suburban Philadelphia.
  • Kelly Gilfillan, founder of HomePageMedia, which has grown from one site in suburban Nashville — in the back yard of Gannett’s Nashville Tennessean — to four sites.

(In the corporate area of community news, there’s Carll Tucker, founder of the Daily Voice network, which, after a near-death experience from rapid expansion in the spring of 2013 that forced it to retrench, is growing again — this time with with more cost-effective news production. That network now has 43 community sites in suburban Connecticut and Westchester and Putnam Counties in New York. Tucker said earlier this year that Daily Voice is profitable “operationally” — not counting corporate costs. The Daily Voice is not looking for investors — it has those on its board. It’s looking for an acquirer whose big check will reward long-patient board members.)

I asked “indie” Scott Brodbeck about community news and Usher’s concerns about the resistance of investors to community news:

“This lack of interest isn’t exactly surprising,” said Brodbeck. “The BuzzFeeds of the world didn’t become hot investments until there were some legit, profitable success stories in the space. Before that, VCs steered far away from content-based startups. The combination of scalable growth, a profitable new business model (national brand-driven sponsored content) and promising content platforms made the difference.

“Hyperlocal news has yet to find that turning point. But I’m hearing of more and more sites in Local Independent Online News (LION) who are launching a second, third or fourth site. I think we’re getting closer to that first significant success story. Sure, we’d probably get there more quickly if there was more investment in the space, but there are always loans and friends-and-family investment, and that could help get someone over the hump to scalability. There’s also good ol’ fashioned bootstrapping.

“Once we get one or two LIONs making $1 million or more in revenue per year, I think the investment spigot will turn on. Maybe we’ll even have to rethink the slogan ‘local doesn’t scale.’”

Mike Shapiro, who initially sought major investment for broad expansion of his franchise network but settled for more modest funding that went for improvements to the site and technology and to increase support staff for franchisees, said:

“I think that a typical independent community news site that is run as a business, rather than as a hobby, should be able to sustain itself on revenue it generates, and over time, should be able to continue to innovate on revenue alone,” said Shapiro. “In fact, sites like ours that do not have significant outside funding are more likely to be innovative because we need to be to stay competitive, and are likely to do so much more efficiently because we do not have the luxury of such funding.”

I find it very interesting that Brodbeck says that independent community publishers might be willing to “rethink” their up-to-now opposition to scale. He is on the board of LION, whose chairman, Dylan Smith, said in a Q&A with me a year and a half ago, “Local doesn’t scale.”

Smith doesn’t buy into Usher’s conclusions that community sites are in that much need of investment — at least the VC kind:

“In looking at for-profit community sites, Usher seems to focus on venture capital, with the assumption that the only form of useful investment comes from VC funding,” said Smith. “Lesson learned: Don’t take venture capital. Don’t be beholden to those expecting immediate returns.

“Building a local news outlet is a long-term proposition. The members of LION publishers who are seeing success realize that — there isn’t a get-rich scheme in local news. But with hundreds of thriving news sites across the country, there’s obviously a business there.”

Most LION members are one-offs, so it’s not surprising that Smith doesn’t see much of a match between his members and and VCs. But… LION’s board includes at least three indie publishers who have started to scale. In addition to Brodbeck, there are HomePageMedia’s Kelly Gilfillan and Ned Berke, who is associate publisher of Liena Zagare’s Corner Media.

It remains to be seen if these nascent hyperlocal news networks will attract the kind of bigger investment that Usher is talking about in her piece — but if local news is going to be interesting for funders, companies like these will likely have to get beyond “local doesn’t scale” to talk about how local scales best.

Tom GrubisichTom Grubisich (@TomGrubisich) writes “The New News” column for Street Fight. He is editorial director of the in-development hyperlocal news network Local America that rates communities on their performance across a broad spectrum of livability — Local America Charleston launched earlier this year.