Reports about the death of hyperlocal have been greatly exaggerated.

That was the takeaway from a panel of entrepreneurs and observers of hyperlocal and local news sites at a South by Southwest Interactive panel Monday.

Local news sites continue to pop up across the country, despite a high churn rate among small local sites. In 2007, one in eight Americans lived in a city or town with a local blog, panelist and Placeblogger Founder Lisa Williams said. Now, closer to half of Americans live in a city with a local blog. Data from Placeblogger, an index of local blogs, show that between 50 and 60 percent of the local blogs indexed by the site don’t make it, Williams said.

Jan Schaffer, executive director of J-Lab, wrote last month that of the 1,200 sites in J-Lab’s database of community news sites, about half are now inactive.

That doesn’t mean hyperlocal is doomed, panelists said. It does, however, mean that the conversations about hyperlocal need to be reframed.

Williams said the 4,100 independent hyperlocal sites indexed by Placeblogger -- which greatly outnumber the nation’s 1,400 local dailies and the 800 venture- and foundation-funded local sites -- are essentially small businesses, often with one or two employees bootstrapping to produce a local news product.

“The shape of capital really shapes our media,” Williams said. Few of the independent local sites have the capital that their larger counterparts have, so it makes sense that some would fail.

Good stats about the success rate of small businesses are hard to find, but the U.S. Small Business Administration does report closure rates of businesses that are also employers. (Mom-and-pop operations with an owner/editor/publisher model aren't included.) According to the administration's statistics, 30 percent of small business fail within two years, half within five years and 70 percent in 10 years.

The failure rate shouldn’t come as a surprise, panelists said, because many small news operations lack a revenue model. Williams said Placeblogger data show that only 4 percent of local and community sites have an advertising rate card.

Cory Bergman, co-founder of Next Door Media and a member of Poynter's National Advisory Board, said there’s a direct relationship between the amount of money spent gathering news and the size of the audience a site can draw.

If sites with lower cost of production, such as Outside.in or EveryBlock, can figure out how to draw larger audiences without putting employees on the street to write stories, they’ll have a promising model. The same would be true, he said, if sites that put reporters on the street could trim costs by leveraging community content or technology.

Mark Briggs, director of digital media at KING-5 TV in Seattle and the Ford Fellow in Entrepreneurial Journalism at Poynter, said many organizations that do have a revenue strategy are forging ahead in the hyperlocal space. He gave several examples of current models for supporting hyperlocal, all of which have had varying levels of success.

Some, Briggs said, are surviving on advertising, a media-funding mainstay. But many others are supplementing their incomes with innovative revenue strategies that aren’t typically seen at the local level.

Briggs pointed to the St. Louis Beacon’s successful business events, which have made more than $200,000, and the social media consulting by the Sacramento Press, which now accounts for half of the site’s revenue.

The multimillion dollar investments that large media companies are making in the hyperlocal space is a sign that hyperlocal is still alive. Patch, funded by AOL, has spent tens of millions building a network of local sites. And some local nonprofit sites have found news business success.

Mike Orren, who founded Pegasus News and now consults with several hyperlocal sites, said many of the small local news sites have something going for them that Patch doesn’t -- passion. “A lot of these businesses are passion projects,” Orren said.

Panelists agreed that passion gives hyperlocal entrepreneurs a leg up, despite the financial advantages large, well-funded players in the space may have.

Join Jeremy Caplan, Mark Briggs, Bill Mitchell and Wendy Wallace for Poynter’s Revenue Camp for Journalism Entrepreneurs, May 18-19. You can join by webcast or in person for the workshop in St. Petersburg, Fla., with additional coaching available.