By Peter Frost and Ameet Sachdev, Chicago Tribune –
CHICAGO — Some of the largest, most influential newspapers and media companies in the country have tried it: The New York Times. The Washington Post. The Chicago Tribune. Gannett. AOL.
None has succeeded. Yet.
Their quest to reach readers and advertisers at the hyperlocal level — covering events town by town, neighborhood by neighborhood — has been beset with false starts, red ink and, most recently, an ethics scandal.
The Post, the Times and a group of six Gannett newspapers in New Jersey each abandoned their efforts to cover microcommunities.
AOL, which has invested millions of dollars in Patch.com, its network of hyperlocal websites, hasn’t found a way to make a profit. Patch lost more than $100 million last year, according to some estimates, red ink that spreads throughout more than 860 communities in 23 states.
Started in 2007 with a $1.1 million grant from the John S. and James L. Knight Foundation, Chicago-based EveryBlock was running out of cash. After shopping for investors, it found a deep-pocketed owner two years later in NBCUniversal.
Then there’s Tribune Co.
The Chicago Tribune’s parent company, a partner in McClatchy-Tribune News Service, has egg on its face after revelations that its partner in producing hyperlocal news, a third-party content provider named Journatic LLC, had been using false bylines on some of its stories.
A follow-up investigation by the Chicago Tribune also found plagiarism and fabrication in another story, resulting in the paper earlier this month indefinitely suspending the use of Journatic editorial content.
Aside from ethical issues, questions remain about the model. While the market has identified a need for hyperlocal content, no one has figured out how to make it a successful business. That uncertainty hasn’t stopped a number of players eager to join the fray, including Joe Ricketts, the billionaire whose family trust owns the Chicago Cubs.
“There’s a whole class of advertiser who was shut out by (higher) newspaper rates, and readers who never got truly local news from their metro newspaper,” said Jay Rosen, a journalism professor at New York University and a prominent media critic. “The problem that Journatic was trying to solve is worth solving.”
The media business fascination with hyperlocal news is a reflection of the enormous cultural shifts hastened by America’s migration online.
For the better part of two centuries, print newspapers owned the market for information, holding a virtual monopoly over local advertising. Then along came the Internet, which tore that business model to shreds, allowing anyone to produce a version of the hometown newspaper. All it took was an element of curiosity and access to a computer.
On the other side of newspapers’ value proposition — advertising — even greater forces were working to dismantle the traditional business model. Why pay to take out a classified in a newspaper when Craigslist was free? Profits took a dive. Newspapers cut costs, tightened their focus and hemmed in coverage.
They also started to fight back. Afraid of ceding any more territory to the Web, newspapers launched initiatives of their own.
The challenges have proven nearly insurmountable. Journalism, even without the costs of a printing press and distribution, is an expensive endeavor because of the salaries for reporters and editors. The competition has grown fiercer. And because the idea is still so new, a clear picture of who wants hyperlocal news, which type and who will foot the bill has not emerged.
“The unsolved problem is how to deliver a high-quality informational good at lower costs,” Rosen said. “That problem remains no matter what happens with Journatic. I think the economics of the industry will lead to more such attempts, and (news organizations) will learn from the failures.”
The Chicago Tribune started producing hyperlocal community news in 2007 in both print and online under the banner TribLocal. The first incarnation relied on people in the community providing news and information about their communities on everything from crime to new-business announcements.
But questions about the quality and quantity of user-generated content dogged TribLocal, and the Chicago Tribune started hiring more reporters, editors and freelancers in 2010 to provide most of the news content, said Gerould Kern, the Tribune’s senior vice president and editor.
Late last year, Tribune Co. began exploring ways to increase the amount of hyperlocal content but at a lower cost. Company executives reached out to Brian Timpone, an ex-journalist who in 2006 helped start BlockShopper, a website that writes stories about residential real estate transactions.
He started selling real estate stories to the Chicago Sun-Times, Houston Chronicle, San Francisco Chronicle and other newspapers, later expanding into community news. Timpone also raised money from local investors, including Timothy Landon and Tim Knight, former Tribune Co. executives.
When Knight became involved in an investment group that bought the Sun-Times in December, Tribune Co. executives began discussing making a financial investment in Timpone’s company, according to a source familiar with the matter. Knight is the chief executive of Wrapports LLC, the owner of the Sun-Times.
In April, Tribune Co. announced an investment of an undisclosed amount in Timpone’s company, which had changed its name to Journatic. In May, Journatic filed a brief notice with the Securities and Exchange Commission that it had sold stock in the company valued at $3.2 million. Tribune Co. spokesman Gary Weitman declined to comment on the amount of the company’s investment.
Tribune Co. also added two corporate executives to Journatic’s five-person board of directors, replacing Landon and Timothy O’Neil, a Sun-Times executive.
Journatic’s content began rolling out to TribLocal’s 90 town websites and 22 weekly print editions.
Kern said in an interview that he supported the corporate initiative of expanding hyperlocal content through outsourcing and the financial reasons for doing it.
“Newspapers have been outsourcing content for more than a century,” Kern said, referring to articles from wire services and syndicated columnists.
But Kern said Journatic was contractually obligated to live up to the same journalistic standards and ethics that his Chicago Tribune staff abide by.
“The central issue here is whether you can trust what they are submitting and whether they are doing it professionally and ethically, and whether the information they are giving us is accurate,” Kern said. “Right now I have no faith in that.”
Nonetheless, the Chicago Tribune will try to help Journatic improve its practices. Last week, Chicago Tribune Media Group President Vince Casanova said he had hired Randy Weissman, a former editor at the paper, to consult with Journatic and help implement changes at the company. The suspension, however, continues.
“Our company must persevere in the competitive hyperlocal news space,” Casanova said. “This has been a difficult and challenging setback for us.”
While the Tribune is trying to preserve its relationship with Journatic, some of the company’s other clients are jumping ship or reviewing their options.
GateHouse, which used Journatic content in 28 of its daily and weekly newspapers in six East Coast and Midwestern states, including Illinois, said it will end its contract with the provider by Aug. 1.
“We had timeliness issues, grammatical issues. We felt that, over time, the content being produced was not unique,” said David Arkin, GateHouse’s vice president of content and audience. “There were credibility issues clearly, and the other piece was we found that we could produce content in-house more economically and with more control.”
The company, which laid off reporters and other journalists when it signed on with Journatic in May 2011, plans to move certain functions back in-house, including news briefs, some police blotter information and calendar material.
Timpone declined interview requests.
Shifting some content responsibilities to clerks, or third parties, means reporters will have more time to gather information for meaningful stories, Arkin said.
“We’re all under a lot of pressure to deliver, and things are more challenging than they were 5 to 10 years ago,” Arkin said of newspapers. “You have to rethink all areas of the business. We think we become more valuable by offering more original reporting and more putting more feet on the street.”
Hearst Corp., which has worked with Journatic since 2009, also identified false bylines at the San Francisco Chronicle and Houston Chronicle. A Houston Chronicle spokeswoman said the paper is “closely monitoring our relationship with Journatic.”
For two other large media companies, the issue of ethics wasn’t the problem. It was the model.
The New York Times decided last month to kill its 3-year-old hyperlocal experiment, which consisted of two websites covering the East Village and two Brooklyn neighborhoods.
The sites were collaborations with the journalism schools of New York University and the City University of New York.
Eileen Murphy, a spokeswoman, said the paper viewed the arrangement as an “experiment” but ultimately decided that its money would be better spent elsewhere.
Of the hyperlocal sites, Murphy said, “We just were not getting a lot out of them,” both in terms of revenue and readership.
“This notion of hyperlocal coverage is something not as critical to us,” she said.
Across the river in New Jersey, Ted Mann, a former digital development manager at Gannett Co. Inc., the nation’s largest newspaper publisher, launched six hyperlocal websites, each in a town within one of the chain’s newspaper coverage areas.
Content was culled from the daily newspapers and generated by readers. None of the sites had a dedicated team to run them, and Gannett invested “very little” in the venture, Mann said.
The company pulled the plug after about two years, “mainly because I didn’t see the light at the end of the tunnel,” said Mann, who left the company in 2011 to launch a startup digital company. “We never had a good monetization strategy.”
Mann said media companies seeking to outsource part of their news-gathering operations in order to produce hyperlocal content “is the entirely wrong approach.”
“It all comes down to this: You’re trying to build a community on your site, and you cannot do that unless you’re in the community,” he said.
But even sites that invest in a local reporter, like Patch, are finding that drawing readers doesn’t directly translate into financial success.
“Is there a way to do this right? I don’t know. Patch is still fighting the good fight, but it’s not looking good,” Mann said.
Starboard Value LP, an investment firm that owns just north of 5 percent of Patch parent AOL, published in May a withering critique of the company’s management amid its fight for seats on the AOL board of directors.
In a nearly 100-page report, the investors took aim at Patch, which it estimated lost $147 million in 2011, while generating just $13 million in ad revenue.
“We do not believe Patch is a viable business,” the report said.
AOL, which does not break out finances by business unit in financial reporting, would not comment on the figures used by Starboard.
The combined Patch websites got nearly 12 million unique visitors in May, according to comScore, making the month its best ever in traffic and revenue.
Warren Webster, one of the company’s three co-founders, said Patch is on track to generate between $40 million and $50 million in revenue this year, which equates to between roughly $46,000 and $58,000 per site. He said Patch is expected to be profitable on a run-rate basis by the fourth quarter of 2013.
“It’s an incredible success story. If you look at our trajectory from day one to now and put us up against any other significant media startup, our timeline is great,” Webster said. “I couldn’t be happier with where we are today. We are very, very confident in the direction that we’re going.”
Patch plans to continue targeted expansions in the months and years ahead, but not at the rate it did in 2010 and 2011, Webster said.
Zohar Yardeni, the chief executive of another hyperlocal startup called The Daily Voice, operates about 50 websites in New York, Connecticut and Massachusetts.
While the enterprise has yet to break even, Yardeni said the company is “confident that local news survives. The real questions we’re out there trying to answer is: What is the business model that supports that? We think we’re on a path to figuring it out.”
Despite the confidence of the startups, Patch’s Webster acknowledged that there is no proven business model in publishing hyperlocal content.
When asked why so many traditional media companies have tried and failed in the hyperlocal market, Webster said none of them have dedicated the appropriate amount of time, effort and money to see the ventures through.
“I wouldn’t say they’re failing; I’d say they’re bailing,” he said.
