More than a decade into the rise of the hyperlocal news website, conventional wisdom dictates that advertising alone will no longer pay the bills and digital local news publishers must diversify their revenue streams to survive.
While memberships and subscriptions are increasingly important revenue streams, our new study finds that local news entrepreneurs who are thriving — and the not-so-successful ones, too — still rely heavily on advertising as their main source of income.
In the whitepaper “Health and wealth in local news,” from the Center for Cooperative Media at Montclair State University, we sought to answer the question: what do successful online local news sites look like today?
We interviewed 43 online local news publishers who represent outlets across the U.S. that produce substantive, independent, multi-sourced local journalism. Almost all are of the outlets are digital-native, and all are for-profit commercial enterprises.
For this research we put aside questions of content quality and impact, and zeroed in on what it takes for an outlet to survive financially. The factors we focused on were background of the publisher, experimentation with different revenue streams, and the wealth of the surrounding community.
We found that just over half of our outlets (23 of 43) met three of the four criteria we used to define “success”:
They had been publishing continuously for five years or more.
The publisher takes a paycheck from the profits.
They were profitable for 12 of the 12 months before the publisher was interviewed.
The outlet had a gross annual income of $25,000 or more.
A full 33 of publishers (77%) listed advertising as their primary source of revenue, with 87% of those who met our success criteria saying so and 65% of struggling publishers saying so as well.
Many of these news entrepreneurs said they had experimented with revenue streams other than advertising, such as paywalls and subscriptions, but our data show that experimentation did not make a publisher more likely to achieve financial success. In fact, nearly the exact percentage of thriving outlets (61%) and struggling outlets (60%) reported revenue stream experimentation.
For those outlets that had not experimented at all, it was often not because of a lack of willingness on the part of the publisher, as we explain in the report:
Nearly every publisher we interviewed who answered that they had not experimented with non-traditional revenue streams lamented this fact, expressed a desire to do so, and wanted to learn more about how they might do so with limited resources. When we looked more closely at the 14 thriving outlets that do generate revenue from sources other than advertising, we saw that reader revenue (paywalls, subscriptions, events) was most important, and will almost certainly provide key income in the future.
We also found that being situated in and/or serving a community that has at least a moderate level of affluence was key to success; 96% of thriving outlets were located in a community with middle, high, or mixed-income (meaning the population included both low- and high-income people).
The finding of wealthier communities supporting local news better than lower-income ones shouldn’t be surprising. Publishers noted that wealthier communities often have downtowns with a number of thriving businesses that have space in their budgets for marketing. And audiences who have some disposable income are more likely to become members or subscribers to local news outlets.
In addition, only one news site that the publisher identified as serving a low-income community met our criteria for success. This underscores a widely held concern that while local news entrepreneurs have found pathways to success in towns that already have structural advantages, cash-strapped communities that can provide less advertising or reader revenue are in danger of being provided for unequally.
Our third major finding was that while the majority of local publishers come to news entrepreneurship with a background as “legacy journalists,” publishers who have a diverse background that includes sales or business experience may have an advantage when performing the many roles now demanded of local publishers.
One key takeaway from this research is that the economics of digital local journalism are in danger of reproducing economic (and as a result social and political) divides in a way that purely advertising-supported local and regional news outlets may not have; that is, online local news outlets are finding ways forward with a mix of old and new revenue streams, but this new model is working best in affluent communities. Poorer communities are in danger of being left behind even more than they were in the legacy era.
Therefore one of the handful of recommendations we made was that foundations and other philanthropic organizations should directly subsidize local news providers in less affluent communities with operational funding, or by supporting completely new initiatives such as Community Info Districts that direct a small percentage of tax to outlets for this purpose.