A Land Grab Is Under Way in Hyper-Local Media

With the national and international news game more or less dominated by traditional media and web giants like Google (s goog) and Yahoo (s yhoo), much of the focus for companies that want to grow online is moving toward niches: sports, technology and other topics. But one of the biggest remaining unfilled niches in online content is hyper-local news. AOL (s aol) has made the biggest investment in this segment, spending an estimated $50 million or so on rolling out its Patch.com network last year to almost a thousand towns. But Topix CEO Chris Tolles — whose company aggregates news and community discussions around thousands of small towns and regions — says that’s likely just the beginning of the hyper-local land rush.

The Topix co-founder says one of the reasons why local content is ripe for investment, and one of the things likely pushing AOL in that direction, is that “local monetizes better than just about anything else” in terms of advertising. “The figures show that ads are about four times as effective if you localize them,” Tolles said. This phenomenon has likely been driving advertisers to work with other avenues like Groupon, which can target individual regions or towns. Topix, meanwhile, has been making an average $4 eCPM (cost per thousand) for its advertising, says Tolles, and has also been getting much more response from large ad agencies than in the past.

Two to three years ago when a sales rep would call on some Madison Avenue firm, the 25-year-old sales guy would say “local sounds like my local news, and that sounds like my mom and dad — so no thanks.” Now they’re saying “local sounds like Foursquare and I have an iPhone and that sounds interesting, so yes.”

Local Advertising Rates are Climbing

The fact that CPMs for local advertising are up means that lots of companies like AOL and Yahoo — which is pursuing a Patch-like strategy with its Associated Content unit, which it acquired last year for an estimated $100 million — are going to be looking to amass as much content as possible so that they can get the scale necessary to make an impact on their businesses, the Topix CEO says. “It’s all about who can create a large local footprint,” he said. “I think we will see acquisitions this year, as part of a land grab from these companies, looking for someone who can deliver a large enough local footprint.”

Not surprisingly, Tolles says Topix is in a pretty good position if that happens. The local news aggregator was profitable for the first time in 2010, he says — with revenues that were up by more than 50 percent compared with the previous year. “We are one of the largest local sites in the U.S.,” the CEO says, “larger than any other except maybe one of the big newspaper chains like Gannett (s GCI) or McClatchy (s MNI). Not bad for about 30 people in an office in Palo Alto [Calif.].” The site gets about 8 million uniques a month, he said, which is roughly the same as twice what AOL’s Patch is estimated to have across its sites.

Topix doesn’t get much attention when it comes to the online-media space, perhaps because it has been around so long. It was created in 2004 as an automated news aggregator by a team that included Rich Skrenta — who now runs Blekko — and Tolles. They used algorithms to crawl tens of thousands of news sites, blogs and other sources of information and then filtered it into topics. Over time, the company started to focus on location as the main filter, and categorized the information into more than 20,000 towns and cities. In 2005, it got a large investment from several media companies including Gannett Communications, the Tribune Co. and McClatchy.

News Is Easy — Community Is the Hard Part

And what does Tolles think about competing with Patch, as AOL pours more money into the hyper-local effort, which is now in close to a thousand different towns across the U.S.? The Topix CEO says his site doesn’t really compete with Patch in many locations yet — and when Patch has good content from a local area, “we can aggregate that too,” he says. In some ways, Topix approaches local news in the same way that The Huffington Post did with national and international news: the site pulls in and shows excerpts of stories from other news sites. But more important even than the news, says Tolles, is the fact that Topix gives readers from those areas somewhere to discuss the news.

“We started out as a news aggregator, but the thing that we have done a really good job of is giving people a place to come and talk about the content, the news from their local community” the Topix CEO says. During the mid-term elections, for example, the site created pages for every local race, all the way from sheriff to local city council. Across all of its pages, Topix gets about 4 million comments a month from readers, which is roughly the same as The Huffington Post.

“Patch may be able to set up thousands of sites in local towns, but it takes time to develop that kind of community — it doesn’t just happen overnight,” says Tolles.

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Post and thumbnail courtesy of Flickr user See-ming Lee