To download the complete version of "The Story So Far: What We Know About the Business of Digital Journalism," a new report on digital news economics from the Columbia University Graduate School of Journalism, click here.

These distinctions suggest two axes for plotting the local news ventures working online, depicted in the chart shown here. The vertical axis distinguishes online-only outlets from those that also have traditional print or broadcast assets. The horizontal axis arrays organizations according to their editorial footprint: single-site, hyperlocal outlets covering a community or neighborhood; sites or small site networks covering a cluster of communities; and site networks with a regional or national scale.

The local news sites on the top half the chart are tied to substantial legacy operations, whether they are based in one city or spread across a chain of newsrooms that share back-end resources. These sites enjoy the same advantage in serving their local audiences that the New York Times site does in delivering national news online: access to the editorial resources of established professional newsrooms. But that editorial product published online yields only a tiny fraction of the ad revenue that it does in print or broadcast. The health of these sites is effectively wedded to the health of their traditional parents.

The hyperlocal networks in the bottom right quadrant don’t have legacy newsrooms to draw on. They must either build an editorial staff from scratch, like Patch and Main Street Connect, or cull local information from public sources and other sites, as do EveryBlock (now owned by MSNBC) and Outside.in. Their key asset lies, potentially, in uniting hundreds or thousands of hyperlocal channels with back-end infrastructure for selling and serving advertising.

It is easy to understand the argument that these networks ought to occupy the sweet spot for hyperlocal news. Like a stable of trade publications or a chain of small newspapers, Patch can pull together a large audience out of many small ones. Its size should confer advantages unavailable to local competitors in the individual markets where it operates: lower costs, better technology, access to bigger advertisers, and so on. And as noted above, those markets have been carefully selected for their commercial potential.

The bottom left quadrant is the source of the most surprising lessons about building commercially viable journalism online. The independent, locally grown news sites that populate this quadrant would seem to be at a clear disadvantage. They lack the editorial backing from established newsrooms that many competitors enjoy. Their infrastructure costs—bandwidth, content management, ad serving, and so on—are fixed and cannot be shared across a network. They lack what has been considered a crucial element of success in the media business: scale.

That several of these grassroots sites have nevertheless built viable businesses raises two questions. The most obvious one is how they have managed to make ad revenue align with expenses. But just as important—and perhaps still to be determined—is whether their model can support serious accountability journalism.

The city of Batavia, N.Y., is unlikely to show up on AOL’s carefully calculated list of promising Patch sites. It is a Rust Belt community of just 16,000 people in the western end of the state, about fifty miles from Buffalo. The prison system is one of the few growth sectors in what was once a thriving industrial center, and Batavia’s downtown merchants have struggled to compete with big-box retailers.

When The Batavian’s website went live in May 2008, the local paper, the Batavia Daily News (owned by the Johnson Newspaper Corp.) didn’t have a website. (It does now.) Gatehouse Media, which publishes small dailies, weeklies, and “shoppers” around the country, launched The Batavian as an experiment in online-only publishing. In addition to hiring two reporters, who are no longer there, Gatehouse provided its in-house digital guru, Howard Owens, who became the new site’s publisher. In early 2009, Gatehouse laid Owens off and he assumed ownership of The Batavian, which runs as an independent site with no editorial or business ties to other publications.

Bill Grueskin, Ava Seave, and Lucas Graves are the co-authors of "The Story so Far: What We Know About the Business of Digital Journalism." Grueskin is dean of academic affairs at the Columbia University Graduate School of Journalism. Seave is a principal of Quantum Media, a NYC-based consulting firm. Graves is a PhD candidate in communications at Columbia University. For further biographical details, click here.