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).

And there are scores of local news operations that have served communities well, though few are financially thriving and most are tiny.

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.

Related: Through Facebook, current and former Patch employees stay connected | Local reporting a victim of journalism’s ‘Glory Days’ | The hard truths of hyperlocal journalism reveal themselves in Journatic trouble

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  • happyindc

    There are plenty of local bloggers in DC who cover neighborhoods. They do so without any financial support (only a few bother with ads). They gather audiences because they are motivated, engaged and usually have a natural talent for communicating. Local reporters, the Washington Post and others, pay attention to these blogs because they can be a source of news.

    I’ve always been amazed by how little attention the journalism industry pays to local bloggers. They are generally off the radar. The journalism industry is always in search of a “fix” for local reporting, or some new source of VC funding.

    The Patch was doomed from the start. It competed with local homegrown bloggers and not very well. It’s motivations were all wrong. There have been at least two other efforts in the DC area to try aggregate or compete local blogs and they have failed as well.

    I’ve been in journalism, professional, for more than 35 years, and my view on this is simple. It’s very hard to compete with a truly motivated reporter, with a good network of sources, who has creativity and imagination, and a belief that what they are doing is for the better good. Many local bloggers have these traits, and no amount of VC funding or mass produced Web sites, or social networking, will succeed in competing with these bloggers.

    Instead of trying to compete with local bloggers, the people in the journalism industry who think about these big picture issues, should think instead about how they can nurture local bloggers, who may appear to have trivial, but profoundly local audiences. Don’t try to usurp them, anger them, or come into town and tell everyone that you are going to do something wonderful for local journalism.

    If you want to help local journalism, my best advice is this: Be humble and start from there.

  • Doug Rainey

    Denise is right. You need to go back to the business model of the community weekly newspaper to see the successful hyperlocal business model. By that, I mean the community paper with local ownership before these pubs were stripped of their local flavor and resources by chains. Such publications employed under a dozen people and provided a living of the owner. That approach still works in the digital world.

  • Muncie Voice

    Thanks Poynter!

    I think Steve will get a hundred different responses from a hundred different people on local models. Our local foundation is very pleased with the conservative Gannett newspaper in our community, mainly because they get the content they want and they don’t have to fund it.

    The problem is it’s not journalism, it’s a media source which tells one side of the political story because that’s where its bread is buttered.

    I don’t have a journalism background, but do more journalism in my local community than those who get paid for it. I’m having trouble gaining advertisers because none of the local businesses want to be associated with a progressive news outlet and get shunned by the large foundation which has controlled the community for years.

    I dare say that Indiana isn’t really a conservative state, our foundations and media have painted it that way for years. There are treasure troves of stories to be done in this state, but the employed journalists won’t touch the stories because they’d find themselves unemployed. They don’t do what our constitution instilled them to do many years ago and our democracy has suffered. This whole “business model” dilemma is due to the fact that local news should be JOURNALISM where the news holds both the public and private sectors accountable for abuses of power. That’s the purpose for the free press.

    Most of the companies now are media companies or public relations agencies for the private sector, and when the private sector owns the government, or when the media companies fight the FEC and FCC to withhold buyers of negative ads from real journalists, then Journalism has a problem.

    Local media should be free and independent – nobody wants Gannett selling their version of the news anymore, but private foundations sure want them here telling their version of the truth. It’s the country club selling the serfs what they want us to hear. The truth is shunned, because it will bring change.

    So, maybe the Journalism industry needs to redefine itself, but I think there are online news sources doing this now which is causing havoc for media. This is a credibility problem, and a well deserved one. The industry, Journalism, needs a new model for local, regional and national, but it needs to be an industry standard across the country.

    My proposed solution: Local news and information should be a service specifically for citizens with a citizen board but funded by the chamber of commerce and government via taxes. Advertising is fine but modestly priced so small businesses can afford it. Maybe the state press association could issue a license and setup a mandatory best practice centered in ethics and following journalistic code.

    Bottom line, the “press” needs to be separate and apart from the private and public sector. It should sit outside those realms so it can function as intended.

    My two cents…

  • http://www.arlnow.com/ ARLnow.com

    Forgive the soon-to-be tortured nautical analogy, but I kind of love that all of these media pundits are seeing hyperlocal as a rocky coastline littered with big, wooden shipwrecks.

    Meanwhile, those of us in motorboats are cruising along under the radar. Surely, we aren’t going anywhere, the pundits think — we must just be doing this for fun, or must be dinghies in search of a larger ship to tie our lines to.

    Good. Stay away big ships, these are dangerous waters. Leave this to the real innovators — those finding sustainable business models where the big guys have failed. Whether the pundits can see it or not, we’re building the foundation for a new and better local news ecosystem.

  • http://riverheadlocal.com/ Denise Civiletti

    Steve, local doesn’t scale. That’s why the big media company forays into so-called hyperlocal news flopped. Communities are not cookie-cutter places, at least not yet. Local news — community news — is alive and well. It’s just small potatoes …LIKE IT’S ALWAYS BEEN. It doesn’t feed corporate middle management and shareholders. But it feeds my family. Enough with the wrongheaded generalizations based on failed corporate ventures.

  • http://locable.com/ Brian Ostrovsky

    The problem with local innovation is the conventional wisdom around what ‘being local’ means. Things are either national or local and independent – why either/or? You can target ads geographically but zip level is elusive but, moreover, there are many opportunities authentically local sites have to monetize beyond banner ads which is one aspect of their unfair advantage. Another is that many local readers are also business owners aka potential paying customers, with the exception of certain B2B pubs this dynamic exists nowhere else.

    At Locable, we’ve been working with local publishers for years and have recently expanded to include online-only publishers – local independents can get access to world-class technology built just for local and operational support for just a couple hundred bucks a month. https://www.mediabistro.com/10000words/locable-network-targets-entrepreneurial-journalists_b25325

    Moreover, independent doesn’t have to mean “alone”. LION is a network of independents supporting each other, we take a more proactive approach (one that is complementary to the LION group not competitive with it) in supporting independents. It turns out, there are some things you need scale to do but most things requires local presence, passion, expertise and a dose of execution. We enable this and more and while the downfall of Patch is unfortunate for some communities and the editors who’ve lost their jobs a brighter future awaits for both – provided said editor is not too risk averse to strike out on their own… ahem, with assistance :)

    We help and invest our resources, as @westseattleblog:disqus suggested, in helping hundreds of local flowers bloom.

  • http://borasky-research.net/about-data-journalism-developer-studio-pricing-survey/ M. Edward (Ed) Borasky

    “Why is local news innovation struggling financially while national thrives?”

    Gee, I don’t have a clue – economies of scale, perhaps? ;-)

  • Steven Waldman

    West Seattle Blog, I certainly didn’t mean ‘tiny’ to be derogatory! I’m a huge fan (and champion) of all the innovation happening on the grass-roots level. I just think we’d be all better off if some of those green shoots could be watered with more greenbacks.

  • http://www.poynter.org Poynter

    Hmm. The link seems to work for us, Thomas. Here’s the URL: http://www.journalism.org/2013/06/10/nonprofit-journalism/ — Sandee Oshiro

  • West Seattle Blog

    Yeah, it would be great if the big rich guys decided to support news that REALLY matters – local news – instead of creating yet MORE national news aggregators, pontificators, technological “innovations” that benefit exactly no one, etc. But we can’t afford to sit around waiting for the cash-flush knights to come to our rescue, so hundreds of us “tiny” (do you have to use such denigratory terms suggesting we’re all little-bitty and barely surviving?) entrepreneurs are going it alone. Because LOCAL MATTERS and yes, local DOES need to be done locally. As more than a few of us warned even BEFORE AOL wasted millions and millions and millions on Patch. Imagine if each of those millions had gone to one “tiny” operation instead. You’d have hundreds of flowers blooming instead of yet another corporate-created virtual brownfield (like those that have been created in the print world by national takeovers of community “newspapers” – it’s not an exclusively digital problem). Well, no time to wallow, it’s back to work making a difference in our “tiny” (almost 100,000 people who don’t think of themselves as part of something “tiny”) corner of the world – Tracy @ WSB (a “tiny” operation that has been in the black since its first year, and that’s more than many VC-funded operations can say)

  • ThomasWolkinger

    the link for “[And there are] scores of local news operations [that have served communities well,...]” doesn´t seem to be correct. best, tw