After my recent stories on the state of independent news sites, several folks called or e-mailed to say I was barking up the wrong tree by focusing on nonprofits like MinnPost and the Voice of San Diego. The real future, they said, is with sites that are in it to make money. They may be right.
“I think there’s a great business model here,” said Merrill Brown, a media management and strategy consultant. “If you can get a quality product out there, local advertisers are looking for alternatives… I think there’s plenty of evidence of that.”
So far, of course, there’s little evidence that profitability will reliably follow. Even many operations that talk about being in the black do so with asterisks – the key players aren’t drawing a salary, or the site is subsidized with other lines of business, for example. Others argue nonprofits will be the winning models for robust public-service news sites. Only today, a seemingly promising startup in Seattle, Crosscut, announced it was transitioning from a for-profit site to nonprofit status.
But many people say it’s not surprising that profits are not there at this point in the innovation cycle, and point to the rapid growth of businesses trying to tease out local advertising dollars. The day of online profits is coming, they say, and for-profit news sites will be best positioned to thrive.
“We’re still at the very early stages of local advertising on the Web,” said Jonathan Weber of Missoula, Mont., who runs a string of Western state websites under the name, New West.
Weber says the potential is already clear in the disparity between the time people are spending online and the amount of local advertising going into the Web. “You’ve got 6 to 8 percent of ad dollars online, but 25 percent of people’s media time is online,” he said. “I very much believe that gap has to close.”
By the volume of people calling him and asking for advice about starting online news operations, Weber can tell there’s wide interest in running community news sites. Some of the aspirants are former newspaper reporters and editors who took buyouts or lost jobs in newsroom downsizing efforts, and are hoping to find a new journalism life on the Web.
Weber tells them two basic things: First, making a go of a community news site on the Web is no picnic. (His own New West operation remains slightly shy of the break-even point after three years of operation.) Second, the long-term outlook is bright. “I think we’re at the front edge of this,” he said.
Brown said the potential of local advertising can be seen in the number of players stepping in at the national level to aggregate community event and hyper-local information. Sites like Yelp, Zvents and Eventful show the potential demand, he said.
Although these and other national players each take a slice from local advertising, Brown said the size of the pie is plenty big. “There’s lots of money in local advertising,” he said. “Advertisers are unhappy with newspapers; TV websites remain poor; and television is overpriced.” One key to success, Brown said, will be the adroit mining of vertical advertising categories like entertainment, fashion, real estate, the arts, etc., that are “revenue-friendly.”
With so much in flux – mainstream media in severe financial trouble and Web participation rising rapidly – it’s impossible (at least for me) to get a solid grip on the scope and dynamics of news-site development on the Web. Will national news aggregators like Ourtown or outside.in grab a strong foothold in communities across the country? Will national lifestyle networks like Glam.com take a big chunk of advertising dollars? Will the wide-scope offerings of a local newspaper be a sustainable model online? Or will a multitude of niche sites – local sports, local politics, local schools, local traffic – be the winning model?
At a minimum, it would seem we’ve entered a period of intense startup fever, with expectations growing that the marketplace is ready (or almost ready) to support Web operations that combine hometown information and advertising.
Peter Krasilovsky, a digital media consultant and blogger, says the entry point for any community news startup has to be the advertiser. Too many website entrepreneurs are still thinking in terms of the newspaper model — assembling a potluck of community news and trusting that advertisers will naturally follow, he said. “That’s a kind of longing for the old ways,” he said.
Successful startups, he said, will begin with the question of what local small businesses need to be successful. One answer may well be advertising on a local news site, but there are likely to be many other answers, and Web entrepreneurs need to be prepared to provide them, even if it’s at odds with their initial mission. “You’re never going to have a successful business until you focus on the advertisers,” said Krasilovsky.
James Macpherson, who runs the Pasadena Now site, is following this strategy, aiming to serve as Internet and e-commerce consultant for Main Street merchants in Pasadena. But all advise that people who get in the game now will need to prepare for some lean (at best) early years.
Like Weber, Macpherson hasn’t yet turned a profit. And Weber gets close to the break-even point by having sideline businesses like hosting conferences on the Western state issues of growth and change, and a small indoor advertising operation.
“There’s going to be a business there,” said Krasilovsky. “But think of it this way. People are going to have to get accustomed to making $30,000 to $50,000 a year instead of $100,000 or $125,000.”
About David Westphal
Dave: Thanks for including OurTown.com in your commentary, but please note that we are much more than an aggregator. Yes we have input from Topix, Zillow, Oodle, Yelp, the New York Times, Outside.In and more. That makes us an aggregator. But the main business of our 70,000 sites, covering every ZIP code, is licensing local editors to provide hyper-local news and advertising. The aggregated national/international/state/local news and RSS feeds received by local editors give breadth to the websites — but the main thrust is hyper-local.
George Blake
OurTown chief news officer
I wonder if for-profit sites focusing on community news might be a bit of an early-warning system for gauging the territory where newspapers are headed.
I Publish/Edit The B-Town Blog, a local news site for a suburb of Seattle, WA called Burien. Started it as a hobby less than a year ago, and we now have 30 local Advertisers. We are beating our local community newspaper’s website, scooping them daily, updating 3-7 times per day, and building a business. And of course, we’re ready to consult with others trying to do the same. http://www.b-townblog.com
“Privacy
Loss of privacy is the primary concern people have with social mapping and other location-based services. While many people try to build a firewall between their real lives and their anonymized on-line personalities, it will be impossible to maintain that separation should they start using location-based services; anonymity becomes thin when your cell phone tells you that you are standing three feet away from “citygirl105″. Knowing someone’s location is a two-way street, and if users want to reap the benefits of finding out where other people are, they will also be forced to share their own locations. People will know where you are, for better or for worse. Parents may embrace systems that track their teenage driver’s location but they should be prepared for the day when that same system, which perhaps their company uses to help coordinate team members that are flying to a convention in another city, can also be used by their boss to follow their movements when they call in sick. (Did you really stay in bed all day…?). ”
The world as the interface
The problem, in my opinion, is the funders of the non-profit news orgs are pulling from the wrong pool of money to fund these organizations – the grant pool, rather than the investment pool. I think pulling from the investment pool demands a greater level of accountability and creates a greater sense of urgency to hone the business model. Increasingly, foundations are adopting what is called in that world “Mission (or program) related investing”. For example, an environmentally focused foundation would take a portion of their endowment (which looks similar to a mutual fund) and put it towards environmentally oriented businesses. They may accept that it’s higher risk investing (and thus makes up 5% or less of their investment pool) but that’s ok since it’s in their focus area. Google “mission related investing” and you’ll get many articles like this one — http://www.socialfunds.com/news/article.cgi/2470.html — that highlight examples.
I have spent a lot of time (as a volunteer) doing fundraising for non-profits and I am now running a profitable hyper local site (www.sunvalleyonline.com) and making sales calls. The funny thing is that in either situation (non-profit or for-profit news org), you have to regularly go asking for money from either philanthropists or advertisers. I wouldn’t say it’s any easier asking for a donation than it is asking for an ad order.
While we’ve eked out a profit, we put in place a new sales approach ~10 days ago and are seeing terrific results. The difference is that we’ve doggedly and urgently honed our sales approach since we aren’t depending on donor largesse and it looks like we’ve hit the mark (despite the economy, we’re blowing away our targets). Figuring out a sustainably revenue model strikes me as much more sustainable than a non-profit model and not any more difficult than developing and regularly running fundraising campaigns as a non-profit which isn’t a walk in the park.
David – I think you and OJR would do a great service if you dug into the notion of Mission Related Investing as it applied to this world as opposed to the charity angle. I could put you in touch with at least one foundation head that is doing this sort of thing. Thanks to you and the OJR for this series — very thought provoking.
We started Black White Read (http://blackwhiteread.com) 2 1/2 years ago *because* we saw that volunteer, NFP community news and information sites were not viable. We’ve built a publishing system and ad serving system around enabling businesspeople to build online community newspapers. We sell direct ads only, no networks. We pay our contributors. Are we profitable–not yet, but it’s coming soon.
Making profit and publishing independant news are a bad mix. Reporters should keep to reporting news. Managers may think of business models to keep the business running
To DavidW and David Chase:
David Chase’s comment about program-related investment jogged my memory about the Vermont L3C statue, which became law last year. It’s a form of incorporation — Vermont is the first state to have it, but you can operate in any state and be incorporated in Vermont. It was crafted specifically to permit directors of the corporate to operate with a social mission **ahead** of profit, and yet still be a profit-making, stock company. Significantly, it includes language designed to make L3C’s a safe investment for foundations seeking program-related investments with a “social rate of return.” DavidW — This is a model I want us to look at Dec. 3-5 in Missouri at the “Blueprinting the Information Valet Economy,” gathering, because it might be an appropriate corporate form for the Information Valet Project (see http://www.ivpblueprint.org). Some months ago I talked to the attorney in Vermont who, as I recall, wrote the language in the Vermont L3C statute and has been promoting it.
Here are some links:
http://www.drm.com/news/thomas_h:_moody_addresses_utah_philanthropists_regarding_vermont_l3c_act
http://www.drm.com/business_law/l3c_-_low-profit_limited_liability_companies
http://www.nonprofitsassistancefund.org/blog/2008/05/12/where-for-profit-and-nonprofit-meet/
Kate Barr: “This language was carefully developed to qualify these new entities to receive investments from foundations through Program Related Investments.
http://www.sec.state.vt.us/corps/dobiz/llc/llc_l3c.htm
(I should identify myself as the author of this comment: Bill Densmore, [email protected])
And the conact information for the lawyer in Vermont:
Tom Moody
Downs Rachlin Martin PLLC
Burlington, VT
802-846-8316 (direct)
802-734-8316 (cell)
[email protected]
Shocking that Vermont would be the place where something like this would happen, right. Very interesting, Bill, thanks.
Bill – that is very interesting about what they are doing in Vermont. While what we are doing may be viewed as “low profit” by some, our intent is to have it be a viable and hopefully high profit business (we have some work to do!). Would that preclude us from utilizing this model? Thanks for sharing this!