The New News Networks: Big Media Go Local

When AOL recently announced that its digital network of local online news sites Patch.com now reaches 100 towns and would reach 500 by year end, those milestones signified how serious the hyperlocal online news business has become.

As journalism changes and newspapers undergo seismic shifts, big media companies are setting up local shops, and they’re hoping to win local online ad dollars as a result. AOL isn’t alone  - ESPN, New York Times and NPR are all deepening their coverage of local communities in an attempt to tap into what they believe are new revenue sources in local online ads and a consumer desire for community information. New media startups too, like LocalOnlineNews.TV in Connecticut, are also pursuing the opportunity.

But they’ll face challenges, experts say, because the local media business isn’t so new online, after all. Local online advertising has been growing rapidly for the last five years and may now be leveling off at just the moment when new entrants are hoping to turn a buck or two.

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Local online advertising has grown 45% each year for the last five years, but is only projected to grow 5% a year for the next few years, said Gordon Borrell, president of local media research firm Borrell Associates. He’s been tracking the local online business for several years. Local online ads comprise about 14% of online ad dollars today and will likely cap out at about 15% to 17% of all online advertising in a few years, he said.

“They are entering a medium with mild growth that will eventually flatten out. These national brands have grown so much on national and to maintain that growth and satisfy Wall Street they have to sell local ads now,” he said.

While the market may be more mature than big media players expect, there is an opportunity for share shifting. As local newspapers shut down, their closure makes room for newer entrants to capture ad business.

“We see that reduction as a major opportunity,” said Warren Webster, president of AOL-owned local online news network Patch. “People want their local news to be as comprehensive and easy to get as national and international news. That means 24/7, locally produced, high quality objective journalism, whenever, wherever. A weekly or even daily publishing schedule no longer fills the need, and distribution has to be very fast and simple.”

Via Patch, AOL has established local sites in more than 100 towns. Patch is a community play designed to digitize communities and neighborhoods, both with coverage of local stories but also with events listings and community information. AOL employs local editors and sales people in each community and also markets the sites locally. The company recently said it will hire at least one new journalist in each town it expands into.

According to BusinessInsider.com, AOL added 900 new hires this summer with half of the new employees working in the local online division. BusinessInsider.com also reported that AOL is on track to spend $45 million per year on those new hires.

Entrenched media players are still hiring, too. Newsday is said to be adding 37 new journalists in Long Island to compete better.

Over at ESPN, the sports network is building its localized sites off the backbone of existing local radio stations.  “We look at this as an extension of what we have done with radio in the last few years,” said Jim Pastor, VP of ESPN Local, which has launched local sites for Boston, Chicago, Los Angeles, New York and Dallas. “It deepens the connection with fans and we are reaching sports fans on another platform.”

While ESPN has hired additional staffers and reporters for the sites, it’s also able to share its existing radio talent online. That makes the new business a less risky proposition.

“We have been local for a long time with a radio and radio network, and reporters for TV, radio and online have always been embedded in many of our marketers,” he said. Besides, sports is inherently a local business. Most sports fans are fans of their home team, rather than just the sport itself, Pastor explained.

ESPN has landed new advertisers for its local properties including some automotive advertisers, though Pastor declined to share more details.

He did say that traffic is growing month over month. The five combined sites generated 4.65 million unique visitors in May, up more than 5 percent from the month before. Total minutes and visits are trending up too, according to comScore data shared by ESPN.com.