Yes, our work assumes that “in a metro market of 5 million people, the hyperlocal network will be able to get 1.75 million readers (35 percent penetration) in Year 1, growing to 3 million readers (60 percent penetration) in Year 3,” as TechCrunch points out.

That would allow a large blog to increase its gross revenue from $126,976 in the first year to $331,640 in the third, while growing its net income from $42,277 to $148,269 in the same period — assuming that staffing costs will also increase. Some sites are already coming close to those figures without optimization and efficiencies we believe ad networks and the framework would provide. Click here to view the Hyperlocal & Framework models as a Google Document. Be sure to click on the Revenues for Blogs and the Income Statement for Blogs tabs at the bottom of the spreadsheet to view all figures related to this post.)

We’ve compiled our numbers for each market size based on several revenue opportunities, including advertising, business-to-business services and e-commerce. While not all of these opportunities would work for all sites, our team found enough revenue models to support our assumptions.

And from what we’ve been reading, there is certainly strong interest in hyperlocal news these days. See the PBS Engage/Knight Commission online survey about community information needs published in April, as well as our post on ESPN going local. As a final note: to cover the largest targeted readerships we extended the taxonomy of hyperlocal to include vertical sites such as music, food, sports and mom blogs.

Again, we welcome readers to play with these numbers and see what they can come up with. (The New Business Models for News Project has been funded by the Knight Foundation.)

Download the Hyperlocal/Framework Excel file here.

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.)

Notably, Shapiro’s territory includes Millburn and Westfield, where he rubs shoulders with some big-time media players–Patch (recently bought by AOL) and The New York Times’ The Local (in Millburn)–experimenting in hyperlocal.

How has the launch of Patch and The New York Times’ The Local blog affected your business?
It’s interesting; I’ve been pleasantly surprised so far with how it’s affected our business. Before they got there, I wondered how it was going to impact us. I thought the lure of a big company, with lots of money, would cause a problem. But, we’ve not only held our own, we’ve attracted a lot of their users and one of their reporters came over to us.

The only place it’s hurt us is in the area of publicity. Believe it or not, despite what we’re doing and the success we’ve had, not a single media outlet has covered us at all. They’ve done all of these stories about Patch, The New York Times, and BaristaNet and here we are, I created the site from scratch, we’re bringing in money, we’re bringing in more in revenues than any of those sites with the possible exception of BaristaNet, which has been around for years, and nobody has covered it. [Editor's Note: The NYT launched a self-service advertising vehicle for The Local on Wednesday.]

It’s kind of frustrating because it’s like, “this is newsworthy!” Here’s a local guy, with all local people competing with him in the same market and we’re never mentioned. If it was something where we weren’t getting traffic or we had no advertisers, I well could understand it. But at this point, we have more advertising than both of them combined. That’s incredible to me.

Have you done marketing to get the word out?
We’ve done PRNewswire and other things to get publicity but nobody picks it up. Otherwise we have grassroots pr. We’re at the Summit street fair and we’re doing email marketing. But, that kind of limits us at this point. Our traffic keeps going up, but if we could get mentioned in a major publication, even in the stories they’re doing about Patch or the Times, our users would go through the roof.

Talk about how you’ve been able to ramp up so quickly. Your staff has grown right along with your coverage area, how have you been able to manage it?
We now have over 100 paid freelance reporters, over 20 columnists and a 3-member sales team, all built up since October.

On the sales and business side, one avenue has been bringing on people like realtors or people with sales experience who are looking for part-time gigs. Like moms whose kids are gone in the morning until three, so they have that chunk of the day and then they’re back to being moms.

Basically, we’re always looking for sales people. We are struggling to handle the volume, we cannot handle the number of calls coming into us. Just in our 10 towns alone, there are approximately 20,000 businesses, so we need more bodies reaching out to the businesses that are not calling us.

What do you see as the potential for growth on your sites?
We have almost unlimited space for advertising, even if we hit the space we can start rotating ads. If we do a back of the envelope, it’s literally millions in revenue. We say to people you can advertise on our site for as little as $99 up to google.

We have a free business directory. For $99 you get an annual premium directory listing, which includes a logo or photo, a link to their website and it comes up first in the directory.
The same goes for real estate listing, which runs $15 to post your house for 3 months, as well as the community calendar. Inventory for those is basically unlimited, but our sales people aren’t even selling them right now.

As far as growing the number of towns, we could be in 100 towns tomorrow, but my feeling is you do it right. Before we launch, we go to do outreach to leaders, build a local advisory board, and put some reporters on the ground.

We’re probably going to continue a gradual expansion to more towns in our area. I don’t know if we’ll grow at the pace we went in the first year because 10 towns is a lot to cover.

“Mobile is really the sweetspot for local sites,” he says. “Google Traffic is never going to pick up the two-car accident downtown or stuff of interest to a small subset of people, like the little league game tonight has been rained out. Those are the classic hyperlocal stories, and that’s where mobile would be great.”

As he wrote in a two-part series on local mobile last week:

What really distinguishes mobile is immediacy and location…The phone in your hand is your direct pipeline to solving problems right here, right now, and mobile-enabled services have to recognize that. It’s the purest definition of the old “news you can use” chestnut.

Beyond editorial content, mobile advertising revenues are potentially too large for new metro organizations and hyperlocals to miss. According to the Mobile Marketing Association, mobile marketing budgets will increase 26% this year while overall marketing expenditures decline by 7% (via MediaPost).

While mobile is bucking the downward spending trend resulting from the recession, the emerging medium is still only a small fraction of total marketing budgets, at 1.8%. The MMA projects that mobile ad spending will grow from $1.7 billion this year to $2.16 billion in 2010.

So, even though the examples of successful mobile products–including Yelp–Potts cites are organizations with substantial r&d budgets to burn through, he says there are inexpensive ways for smaller companies to compete. He says they should look at off-the-shelf offerings, new products coming down the pike from the content management providers or by turning to a company like Newsgator for a custom iPhone app on the cheap.

Potts argues that the hyperlocal play in mobile advertising will grow as more phones start to geolocate (or even begin to augment reality). An app could blast out coupons or special sales from local vendors—like half-priced slices from the corner pizza guy—to readers walking by.

“Local sites end up as an ad agency at that point and everybody wins. The sites take a little slice off the top,” Potts says.

So, are there any independent hyperlocals out there with killer mobile apps? Let us know, we want to hear from you.

The project is researching best practices in the business of journalism online, gathering new ideas and experiments in revenue for news. We will build complete business models to share with the industry and with the journalists, communities, entrepreneurs, technologists, and investors who will create the future of news.

The project is funded by the Knight and McCormick Foundations. Two earlier conferences leading up to the work of the project were funded by the MacArthur Foundation. The work of the project’s first phase will be presented at the Aspen Institute in August and will be shared, publicly and in progress, on this site.

Our work begins with the assumption that there will be a market demand for quality journalism, watchdogging those in power, and that the market will find a way to meet that demand. The question so many are asking is how. We will attempt to answer that by projecting the future of news in a metropolitan area, concentrating on four perspectives — hyperlocal, the new news organization, publicly supported journalism, and the framework to support this new news economy as a whole.

We will use as our model market a hypothetical top 25 metro area in the U.S. where the sole daily newspaper has ceased publication. In short: We are asking what will fill the void. We posit that no single company or product will do that. Instead, an ecosystem made up of many players operating under many models and motives will emerge. In all cases, we are agnostic as to who owns and operates these entities: legacy or new companies, large or small. In that context, we will examine:

* The optimal hyperlocal (town or neighborhood) blog or site. We will look at how to maximize revenue to such sites, whether they are run by sole proprietors, larger startups, or established media companies. This will include helping sites provide the best and most valuable service to local advertisers; establishing local networks of fellow hyperlocal sites to increase sales and revenue opportunities; larger metro-wide networks; and exploring other revenue opportunities, such as paid models and commerce. We will look at what these sites need to succeed, such as networks, promotion by aggregators, and technology.

* The new news organization. Even after a market loses its daily paper, we believe there is an opportunity for a new news organization to be reconstituted around key journalistic roles serving the metro-area. We will project the scale of such an enterprise: its audience and revenue yielding its resources and functions: reporting, aggregation/curation, perhaps organizing the broader community and its news efforts. How many employees can a profitable, journalism-centered business support and what can and should they do? What is its relationship with other players in the ecosystem?

* Publicly supported journalism. We do not believe that any single savior– foundation, government, device, or massive public contribution — will rescue an existing news organization as it operates today from the crush of the market. But we do believe that publicly supported journalism — that is, from individuals, foundations, and perhaps companies — can play a role in this model city’s news ecosystem. This could take the form of a local Pro Publica or of crowdsourced funding through a platform such as Spot.US or of an expansion of public broadcasting’s role. The key question we will answer is what level of support will likely be available — projecting from current efforts locally — and what those resources could provide.

* The ecosystem’s framework. We will examine the supporting infrastructure this ecosystem will likely need, bringing together independent players to reach critical mass so they can recognize greater market value (in, for example, advertising networks and in mutual promotion) and greater efficiency (in, for example, technology platforms, the ability to create collaborative projects, training in journalism and sales, search-engine optimization…). Once again, we are agnostic to ownership: These functions could come from a single company (which is how we will present the model); they also could be provided by a legacy player or they could be offered by various players. To quote Mark Potts at one of our CUNY conferences, “You may want to be small, but to succeed at being small, you probably have to be part of something big.”

In addition, the project will gather and also propose a catalog of revenue models, working with those who are building systems to support paid content; interviewing local advertisers to learn more about their needs; talking with sites in the U.S. and elsewhere to learn what is working and not working for them; examining the possibilities for more unusual revenue streams such as e-commerce.

After this work is well underway and after the Aspen report in August, we plan to extend the project’s work to examine more business models, such as national and international content exchanges; interest-based sites and networks;

The project is headed at CUNY by Prof. Jeff Jarvis, head of the interactive program. Peter Hauck is project director, working with Jennifer McFadden, business analyst; business researchers Kate Albert, Gary Frangipane, Noah Xifr, Darshan Dedhia, Frank DiBartolo, and Senem Coskun of Baruch’s Lawrence N. Field Center for Entrepreneurship at the Zicklin School of Business; and reporters Matthew Sollars and Damian Ghigliotty, both graduates of the CUNY Graduate School of Journalism. We are grateful to the Field Center’s Edward Rogoff and Monica Dean for their support.

Kramer: The directory businesses are in huge trouble.

Diller: The directories businesses still make nothing but money. They’re overleveraged, they’re bankrupt entities, but they still are the largest. This is all going to move online over time. Why Citysearch and ServiceMagic are so important to us, is because nobody has really colonized it yet completely. There’s no question that local activity is going to continue forever. Organizing it online is probably the most difficult area (thumping desk for punctuation) because it is so local. There are so many merchants, so connecting it into a service that both gets you the things you want to know about all of those services in one place and then has the commerce relationships, the merchant relationships—talk about impossible tasks. Citysearch has been working on it for 10 years and it’s a third of the way there, 20 percent of the way there. It’s way ahead of everybody else.

Later in the interview he says that the Daily Beast isn’t so much in search of a new business model as an attempt to take “a magazine approach to advertising, an art approach to advertising rather than an internet approach to advertising.”