Why is local news innovation struggling financially while national thrives?
On the national level, we’ve seen an exciting burst of investment and innovation in digital news.
The New York Times crowed that “Web News Is Thriving,” the evidence being that Ezra Klein, the wonk’s wonk, is starting an explanatory journalism venture at Vox Media. This comes soon after the news that eBay founder Pierre Omidyar is doing a massive $250 million investment in a new journalism project. And the success of BuzzFeed, Upworthy and Huffington Post has showed that content oriented sites can be business successes.
But the headlines are bleaker when it comes to local news. With a fresh round of layoffs, Patch has now purged three-quarters of its workforce. Main Street Connect, a platform for local news that got much attention a few years ago, filed for bankruptcy in May 2013.
Village Soup, another highly touted company that had created digital sites in New England, closed in 2012. And this is on top of the well-catalogued struggles of traditional local media.
Why does digital news media seem so vibrant on the national level and so anemic on the local level?
First, venture capitalists and other professional investors have little interest in businesses focused on one community. News is tough enough to make money on but at least if you’re national you can generate massive numbers of ad impressions and the possibility of Amazonian reach. Venture capital investors can only get 5x return or more for businesses that promise national or global scale.
But in their rush to expand, some may have fallen victim to the phenomenon captured in the old garment industry joke: “I lose money on every dress, but I make it up on volume.” Perhaps local news has to be done locally.
People complained for years that publicly-traded old media economics were buffeted and constrained by quarterly earnings pressures of Wall Street. True enough. Now it turns out that new media economics rest to a large degree on the special logic of the venture capital sector.
And there’s an ego factor, too. If you’re a gazillionaire, how would you rather spend your wealth: “changing the world” or “changing Akron”?
Another challenge faced by local news startups relates to the nature of digital advertising. Because national digital properties – Google, Yahoo, AOL – can target ads to particular zip codes, local advertisers can reach their customers through them, without having to advertise with a local company. In effect, a local media company is now competing for ad dollars not only with the other media in town but with massive, national institutions with better technology and larger sales forces. Better ad targeting means local businesses no longer need ads alongside locally produced content. Let that sink in, for a moment. The better the targeting gets, the more marginal the local content creators will become.
There has been some positive activity on the local level. You have a few instances of local rich folks taking over a newspaper (Boston and Washington, for instance). Billionaire Joe Ricketts – whose family owns the Chicago Cubs and who is a famous Obama hater – set up the high quality DNAInfo in NY, though it’s not clear how long he’ll maintain interest, especially now that he’s set up another one in Chicago.
The mogul model certainly has ‘worked’ in the past but it’s dispiriting that while the digital revolution democratized media in so many other ways we are left with billionaire vanity as the most encouraging business strategy for local journalism.
Then you have terrific sites like Gothamist which have succeeded but largely on the basis of aggregation – a very useful function but not one that will replace the most labor-intensive reporting work that big city newspapers used to do. Next Door, a next generation system of forums and news sharing, just got significant financing but it’s basically a technology and community platform, not a journalism operation. More hopefully, GoLocal24 has succeeded in Providence, R.I., and Worcester, Mass., and is now expanding to Portland, Ore., with a model that focuses on cities (metro local instead of hyperlocal).
But to plug the enormous gaps left by contracting newspapers, we need not only innovations in journalism and revenue models but also in financing models. Current pools of commercial startup capital have done a magnificent job spurring innovation in the creation of technology and news distribution platforms but they have not underwritten labor-intensive, local accountability journalism. There are few private sources of financing for journalism projects that “merely” break even in a single city but have a huge positive civic impact.
One approach might be for the foundations and philanthropists who care about this to set up a double-bottom line investment fund for local media. It would be explicitly for startups, acquisitions, expansions or rollups for companies that will be both break-even and have positive impact on the community. It could help single-city projects, or help other "platform plays" expand at a logic-driven rather than froth-driven pace. Such a fund would (unlike much philanthropy) place a high emphasis on business strategy but (unlike private capital) would also demand merely financial viability, not 1,000 percent return. There are such funds focused on environmental sustainability; how about one focused on journalistic sustainability?
Perhaps the Knight Foundation’s recent grant to the Investigative News Network for nonprofit innovation will prove to be a breakthrough effort. Or maybe there’s another model out there, but I’m struck by the contrast between how much financially successful digital innovation there has been on the national journalism level and how little has happened on the local level.
Correction: This story has been updated from an earlier version with additional information and corrects the spellings of Joe Ricketts and DNAInfo, notes his family owns the Chicago Cubs, and deletes the reference to his hometown. Also, the Village Soup closed in 2012.
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