The Models: Hyperlocals & the Framework

Posted on 17. Aug, 2009 by in Hyperlocal, News Ecosystem

This set of spreadsheets incorporates two models: hyperlocal and the sales, support, and technology framework that we believe is necessary to optimize businesses in the ecosystem. We believe an organization that enables advertising networks and other services to support the local news ecosystem is both a sustainable business and will make individual hyperlocal news organizations more profitable. We divided a sample metro market of 5 million people into many smaller markets (20k, 35k, and 60k) to reflect the towns and neighborhoods that comprise a large metropolitan market. Note: all models assume the local daily newspaper has gone away.

View the Framework/Hyperlocal business model as a Google Document here. (To make changes to this document, simply click File>>Create a copy or File>>Export.)

Or, download it as an Excel file here.

Highlights & Assumptions:

  • Operating income (EBITDA) for the framework, year three: $1.3 million.
  • Operating income for hyperlocal businesses, year three: Large, $66k; medium, $32k; small, $26k.
  • In this new ecosystem, we envision a mature market of 5 million people supporting 99 small, medium and large blogs.
  • Hyperlocal news organizations are viable without the framework, but are more profitable with the ability to sell ads across a wider network.
  • Likewise, the framework can scale to other cities and become more profitable. For ease of projecting, we’ve limited that company to one metro market.

Click here to see the other models. (The New Business Models for News Project has been funded by the Knight Foundation.)

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16 Responses to “The Models: Hyperlocals & the Framework”

  1. RickWaghorn

    17. Aug, 2009

    I’m going to go for the tiny eco-system model; very small being the new big… the network comes from an open ad system that can – in Holovaty terms – drill down to the corner of EveryBlock and help fund a hyper-local ‘curator’ for that EveryBlock via enabling Joe’s Pizza Parlour to advertise… as well as being open and elegant enough for corporate advertisers to drill down from above…

    Which is all http://www.addiply.com is…

    So in the county of Staffordshire UK we can now run Addiply.com through two neighbouring towns… http://www.TheLichfieldBlog.co.uk and http://www.TamworthBlog.co.uk (launched just yesterday… Sunday…)

    Next trick is to open up http://www.addiply.com/staffordshire so we can scale and offer ‘top-down’ advertisers the chance to drill down right into the heart of those communities…

    Best of luck with your modelling…

    Best,

    R

    Reply to this comment
  2. Dave LaFontaine

    17. Aug, 2009

    Assumption #1 – percent of online users pegged at 80%. OK, fine. How many of those are “regular” users? That is, they go on for more than just checking email or pr0n? More like 40%. That’s 2 million steady potential audience.

    The effect of this is that when we get to line 23, where we have “Percent who are large blog users” pegged at 35% – well, OK, I’ll give you that. Maybe you have some monster viral marketing scheme & white-hot content that drives 1 in 3 of the people on the web to visit your site at least 3 times a week. It’s possible. Maybe there’s some big budget meltdown with the school district, or lurid murder. I live in L.A., these are happening on a regular basis.

    Somewhere in here there should be at least some acknowledgment of language diversity. Maybe it is because I live in LA, where 40% of the population speaks Spanish, and more than 127 languages are spoken in the LA Unified School District. On the block I live on, I’ve got Spanish, Tagalog/Ilocano, Thai, and Russian. Maybe that will be a non-issue, since there will also be blogs/coverage that speak to & attract these people. Mostly, they seem to watch TV for their news and read hometown papers from the Old Country when they go online. Big metro areas in the U.S. are diverse; it’s not just NY & LA.

    But I’ll assume they are covered, somehow. When you take 54% of 2 million in large blogland, and then reduce that to 35% , you get (1.8M * .35)=630,000
    630,000 * 12 = 7.56M PViews
    This is a fairly good-sized discrepancy. But more than this, the numbers under Revenue-Blogs are the ones that give me heartburn. The month-to-month growth rate is looking pretty rosy. 1000% growth in six months? Dude, are you giving out free crack to regular users? In year two, the site actually declines in UV, from 39K to 36K. What happened?

    Under Revenues-Framework. Metro Ad Network revenues are projected to grow nearly 300% between Year 1 and Year 2. And then 200% between Year 2 and Year 3.

    Is this based on the assumption that between Year 1 and 2, the local newspaper will just totally implode, and local advertisers will have nowhere else to put their ad spend?

    I’m all in favor of optimism. And I think there is great growth opportunity. But I think the returns & growth are going to take place over a longer period of time – especially in light of the meagre ad/marketing budget…

    Reply to this comment
  3. Mike_Hartley

    22. Sep, 2009

    I read the following article:

    http://www.guardian.co.uk/media/2009/sep/14/ecosystem-hyperlocal-bloggers

    and Tweeted to Jeff Jarvis who are the bloggers earning $200,000 per annum with an audience of 50,000 people? He asked me to consider this model, so I have, and here are my thoughts from the front line.

    In the Google spreadsheet drivers master and drivers blogs I identify the following CPMs which revenue calculations are based on.

    Average CPM
    Local Banner Ad (Effective CPM) $12.00
    Local Ad Network CPM $7.50
    Metrowide Ad Network CPM $12.00
    National Ad Network CPM $5.00

    In my experience undertaking sales as an online Webby Award winning publisher, and with the other publishers I know and confided with, I would suggest the average CPM for a display ad sold over a network is less than $1. You might get $5 occasionally, even $10 once in a blue moon, but $1 or below is the average. The network ad providers who I am aware of and have worked with include: Glam Media, Gorilla Nation, E-Type, Google Adsense, Interluxe, FlipGloss, Fast Click and Casale. If you sell the ads yourself, you would definitely get more, but we’re talking small budgets here and I assume network delivered ads.

    The other factor at work here is the number of ads on the page, 6.6 it would seem. At least half of these will be off-screen when a page loads putting further pressure on the CPM you might get for an ad. The $1 average is for leaderboard/rectangle/skyscrapers that are on page as the page loads.

    So in my view, this model over estimates revenue by a minimum of 500%. You assume no print newspapers, so one might assume CPM goes up, but increased inventory online at the same time as print declines (from more people publishing online) means this is unlikely. There is talk currently of Google Market actually display lowering prices. It won’t be long before publishers are paying advertisers for their content!

    So in summary, I think this ‘Operating income for hyperlocal businesses, year three: Large, $66k; medium, $32k; small, $26k’ is wildy optimistic and not even that large if it were true.

    Reply to this comment
  4. Jeff Jarvis

    22. Sep, 2009

    These aren’t network ads. They are locally sold ads to local merchants serving the site’s targeted audience. We spoke with many sites and went with the conservative end of the CPMs they are actually getting. Some think theyr’e high; some low. Only experience will tell. But this is about LOCAL; a site like the Webbys’ is very, very different.

    Dig into our numbers and you will find very little revenue associated with national advertising – that is, networks as you quote them. And that we project would be at a higher rate because it would be handled by the framework, putitng together quality networks of quality sites & advertisers, not just the remnant ads that national networks are today.

    We also found local sites have up to 20 ads per page. We went more conservatively on that.

    Note that we also see many ways to improve the quality of service local sites gives to local advertisers; we’re not accepting the current as the right.

    One can and should quibble with all the numbers in this or any model and bring experience to it. But we need relevant experience from local sites. That’s what we’re tackling here. We’ll look at national verticals later.

    Reply to this comment
  5. Mike_Hartley

    22. Sep, 2009

    1) ‘These aren’t network ads. They are locally sold ads to local merchants serving the site’s targeted audience.’

    On an annual income of $26K where is the small blog going to find the resources to sell these locally sold ads? If they don’t aren’t they network ads, even if it is not National? I see what you are saying, but without more evidence, I just don’t believe it. I want to. I wish it were true.

    2) “We spoke with many sites and went with the conservative end of the CPMs they are actually getting.’

    Really? Is there anonymized data on the CPMs these sites are getting so we can see it? I really don’t believe this. I need more evidence. What was the population size, sample size, sampling method? Evidence please.

    3) ‘We also found local sites have up to 20 ads per page. We went more conservatively on that.’

    Where does the content I went to read go? I appreciate this and understand, but really, it’s not leaving much room for great design and it seems like a poor standard to set.

    4) ‘One can and should quibble with all the numbers in this or any model and bring experience to it. But we need relevant experience from local sites. That’s what we’re tackling here. We’ll look at national verticals later.’

    Can you give me an example of local site? Plus give me a call when you do national verticals.

    Reply to this comment
  6. Jeff Jarvis

    22. Sep, 2009

    1. Mike, we built in a cost of sale and discussed having citizen sales people. Did you watch the presentation? That is where the framework sets up a structure that enables others to set up companies as sales organizations for local networks of sites. that local network creation is critical for we agree that a loner can’t do it all alone. The way to build that cost in is as a cost of sale of advertising; that’s the way it’s done on media business models.

    2. Yes, this is what our research found. We have some of our survey info up on the site. Other comes from in-depth interviews. It is what fed the models. Believe us or not but that’s what we found. We agree that a site is not going to get to $200k a year on $1 cpms. They aren’t.

    3. Look at a bunch of local sites and you’ll find that button ads are almost a new form of directory & promotion but that is working so far in local sites. We are not saying this is the right model but we went with current experience so we could answer questions such as yours.

    4. Look at our site for a large list. You’re sensitive to the need for anonymity and I appreciate that.There is no end of examples.

    5. Of course.

    Reply to this comment
  7. Mike_Hartley

    02. Oct, 2009

    I’ve looked through this site more, and understand the models and proposition more. I also looked at some of the participant sites. I am truly appreciative of it as a framework and as a piece of research that is practical, specific and informative. It’s very helpful.

    I still think the CPMs are optimistic. 78% of the participants in the survey seem to have average CPMs of less than $5. Which means the average CPMs in the model at $5 and above are high. I ranted on my blog about why ‘the average online CPM is now a piece of purple cloth and a gobstopper’. I think transparently demonstrating the value of online advertising will be a very important task if this model is to work.

    Reply to this comment
  8. Kishore Jethanandani

    13. Jul, 2010

    There was a passing mention of technology in the new world of hyper-local journalism. I would be interested to hear more about the use of mobile technologies. What has worked and what had not? Would hands-free technology help in some way? Are there issues of cost or technology management? Are there specific situations in which mobile technology would work even better such as in catastrophic situations or rapidly evolving situations?

    Reply to this comment

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