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.

That local online journalism can succeed in such different environments—prosperous suburban New Jersey and Rust Belt upstate New York—is an indication that it can be viable elsewhere. A 2010 survey of sixty-six “promising local news sites” around the country, conducted by the Reynolds Journalism Institute at the University of Missouri, found that the top objective of these sites was to “produce original news” and that on average nearly half of their content came from paid staff, rather than, for instance, aggregation or reader contributions.

Advertising was far and away the most important revenue source for these sites, accounting for 45 percent of revenue on average. (Foundation grants came next, at 17 percent of revenue, and reader donations followed at 12 percent.) For twenty-eight of the sites surveyed, advertising supplied three-fourths or more of annual revenue. Fifty-six percent of the sites operated as for-profit ventures, and of these, half reported making a profit the previous year. (It is important to remember these results are entirely self-reported.)

Clear lessons emerge from the experiences of Baristanet, The Batavian, and the Alaska Dispatch. First, all three sites have embraced calendar-based advertising pricing systems that yield more revenue than they could expect pricing strictly by the number of impressions. Low prices, anecdotal successes, and a sense of community engagement allow local merchants to find value on terms that a national advertiser might reject out of hand. The sites have managed to appeal to local advertisers by selling in terms that work for them. “A lot of advertisers don’t understand CPMs,” says Victor Wong, CEO of PaperG, a company that helps publishers attract local ads. “They don’t understand what a page view means, they don’t know when the page ran, they don’t trust CPM measurement.”

But it would be a mistake to see in these examples a formula that any local venture could replicate just by asking merchants for a few hundred dollars each month. Each of these sites filled a vacuum when it launched and has remained popular even as new competitors have appeared. Their real feat is having built sizable audiences on the cheap. The same is true of niche or “vertical” sites that aim for a particular demographic segment or “community of interest,” rather than a geographic area.

Henry Blodget’s Business Insider (reviewed in detail in Chapter Seven) offers a good example: The financial news site reached break-even last year by building a monthly audience of 5 million unique visitors, on a yearly budget of about $5 million. An even more dramatic example is DailyCandy, the decade-old trend-surfing e-mail newsletter that occupies roughly the same journalistic space online that Lucky magazine does in the print world.

DailyCandy was launched in March 2000 from the kitchen table of Dany Levy, then a young editorial-side veteran of New York magazine and Lucky. Levy’s venture offered one of the most bare-bones editorial propositions imaginable: a short daily e-mail alerting readers to something hot—a new cupcake shop, a shoe style—in New York’s (and the Internet’s) fast-changing retail culture.

“One simple thing in your e-mail inbox that told you one thing you needed to do that day,” Levy explained to a Harvard Business Review blog in 2009. “It was meant to save people time and keep them plugged in. Not everyone can afford to eat at Mario Batali’s new place, or some other hot, new restaurant, but this kind of knowledge is cultural currency. It’s water-cooler conversation.”

That interview came after her company had been bought by Comcast, in the summer of 2008, for a reported $125 million. By the time of the sale, DailyCandy had grown from a one-person shop to a company with fifty-five employees, running twelve editions across the country and reaching a total audience of 2.5 million people—most of them women, and two-thirds of them younger than thirty-five. Financial details were scarce, but an internal e-mail from early investor (and veteran of MTV and AOL) Bob Pittman reportedly said the company would reach $25 million in revenue in 2008, with profits of $10 million. Analysts had been speculating eagerly about what the company might be worth since 2006, when The Wall Street Journal reported it was on the auction block at $100 million.

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.