In the June/July 2007 edition of the American Journalism Review (AJR), Washington Post reporter and frequent AJR contributor Paul Farhi writes about efforts by media companies to establish hyperlocal online news outlets. He notes the successes and failures of several, and concludes that no one has developed a sure-fire way to make these types of sites financially feasible.Farhi writes:It seemed like a good idea at the time. With blogging flourishing and citizen journalism just budding, Mark Potts and Susan DeFife thought they had a winning formula for a new kind of journalistic enterprise. One evening in the summer of 2004, they sketched out their common vision: A series of hyperlocal, news-oriented Web sites whose tone and content--news, commentary, blogs, photos, calendar listings--would be supplied primarily by the people who knew each community best, its residents. By May of 2005, the venture, dubbed Backfence.com, was up and running, with sites serving two affluent Virginia towns in Washington D.C.'s suburbs, McLean and Reston... ...And then the bottom dropped out. Backfence's rapid expansion burned up its $3 million war chest. The partners have split; Backfence's staff, which once numbered as many as 25, was laid off. The company's online communities are largely ghost towns now. "We ran out of money," says a somewhat chastened Potts today. "And we ran out of runway..." ...A few of the estimated 500 or so "local-local" news sites claim to show a profit, but the overwhelming majority lose money, according to the first comprehensive survey of the field. The survey, conducted by J-Lab: The Institute for Interactive Journalism (affiliated with the University of Maryland's Philip Merrill College of Journalism, as is AJR), documents a journalism movement that is simultaneously thriving and highly tenuous. While independent sites such as WestportNow.com (Connecticut), iBrattleboro.com (Vermont) and VillageSoup.com (Maine) have sparked useful civic debates and prodded established media outlets to compete more vigorously, the field as a whole is so far financially marginal. As the report puts it, "their business models remain deeply uncertain." In fact, many operators don't really have a business model. The first wave of hyperlocal sites has featured seat-of-the-pants operations, staffed part-time by dedicated volunteers, community activists and impassioned gadflies. About half of the 141 respondents to the J-Lab survey said they didn't need to earn revenue to stay afloat, thanks to self-funding and volunteer labor. A full 80 percent said their sites either weren't covering their operating costs--or that they just weren't sure. Only 10 of the 141 said they were breaking even or earning a profit. This is why industry observers such as Peter Krasilovsky remain skeptical: "I don't really see a model right now that allows [hyperlocal sites] to build up a sales staff and an editor beyond a very limited point," says Krasilovsky, a consultant and blogger (Localonliner.com). Then again, money isn't necessarily the issue, says Jan Schaffer, J-Lab's executive director and the author of a report accompanying the survey. "When they talk about success, they're not talking about revenue," she says. "They're talking about the impact they've had on their communities." She adds, "I'm not sure in this iteration, these [operators] see themselves as making big salaries and having big offices. I'm not saying it won't happen somewhere down the road, but in this iteration it isn't there yet..." Click here for Farhi's article in its entirety on the AJR website.