How are you going to make money? By changing your relationship with your community

I get the same question again and again as I explain our innovation efforts at Gazette Communications: How are you going to make money doing that?

When I explained our plans to separate content from product, people could see that we were moving to an organization built for the future rather than the past. But they still asked: How do you monetize that? (Yes, even journalists have started using the M-word.)

I answer in my Blueprint for the Complete Community Connection, published this week on my blog: We need to move beyond advertising.

Harvard Business Professor Clayton Christensen, the foremost authority on disruptive innovation, says established businesses take two approaches when faced with disruptive technology: They ignore it or they try to cram their existing model into the new opportunity. The newspaper industry did both. When we realized we couldn't ignore the Internet any longer, we tried to cram our newspapers into our websites.

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South Los Angeles community news website offers lessons for all

By William Celis, April 29, 2009

A century ago, The New York Times routinely ran short items on its inside pages about church socials, fund-raising efforts by community groups, programs at public schools. These news nuggets defined the robust neighborhoods of Manhattan and the city's four other boroughs. Though eventually lost as the daily emphasized foreign and national news, these news blurbs from neighborhood are in vogue again a century later, this time on hyperlocal news websites.

These intensely local news sites, now firmly established on the emerging journalism landscape, offer readers more than news about chicken dinners and church functions, of course. Many of them devote energy and money to produce meaningful journalism from and about under covered urban neighborhoods and isolated rural communities. These places are not the easiest communities to write about; distrust of the media runs high, especially in urban communities of color. But enhanced coverage of urban, working-class neighborhoods of color -- long ignored by mainstream media -- is one of the emerging trends of hyper local news sites, including the new USC Annenberg School for Communication news site, Intersections: The South Los Angeles Reporting Project, recent winners of a $25,000 grant from the J-Lab: The Institute for Interactive Journalism through its New Voices program, a community news initiative funded by the Knight Foundation

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The approximately one million people who live in the 13 communities in suburban Washington, D.C., Northwest Chicago and the Bay Area that Backfence tried, but failed, to serve spend about $13 billion annually shopping and dining out. That's right – $13 billion. To reach them, local online advertisers spend $28 million, based on Borrell's 2007 numbers. Of course, established Internet sites in those communities – particularly ones run by well-established metro and smaller newspapers – gobble up most of that $28 million. But what about the ad revenue crumbs that fall from the table?

Backfence shrewdly positioned itself amid all that affluence, but didn't capitalize on it. But couldn't a network of grassroots sites that actually connected with their communities pick up a small fraction of that $28 million by year two or three? How about 6 percent? That would be a little more than $1.6 million. Continuing my back-of-the-envelope math, that splits down to about $750,000 for Backfence's seven communities in the Maryland and Northern Virginia suburbs of Washington, and $425,000 for the three communities in Northwest Chicago and the same for the three in the Bay Area.

By my estimates, the three clusters of sites could break even and maybe squeeze out a modest profit – about $100,000 – from $1.6 million ad revenue (display and paid search).

Here are the estimated expense numbers for each cluster:

• Publisher: $60,000
• Content manager, $50,000
• Two sales reps: $40,000 each (in base salary and commissions that would go higher with bonuses based on sales that top goals)
• Tech manager: $20,000 share of total cost
• Staff fringes and employer taxes: $40,000
• Citizen contributors: $110,000 or $250,000 for $1,000 monthly stipends, with the higher amount for the seven-community metro Washington cluster
• Office rent and expenses: Up to $25,000 (depending on cluster size)
• Computers: $10,000
• Other (including promotion, phones): Up to $50,000 (depending on cluster size)

All this, multiplied by three clusters, adds up to slightly less than $1.5 million. Green-eye-shade folks may argue with some of my cost estimates. I agree a content manager – a good one – is worth more than $50,000. But if the compensation included stock options, wouldn't there be a lot of talented Internet editors – ones with a passion for building grassroots sites – who would be eager to take the plunge?

Success with even a modest budget would hinge on whether the sites succeeded in connecting with their communities and producing content that users found generally interesting, sometimes significant and occasionally indispensable.

It would also depend on a "feet-meet-the-street" advertising staff that could sell strong visitor/page-view numbers to local and regional advertisers who, for good reason, have been resistant to buying display space on grassroots sites.

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