This article – an overview of the local media scene in the UK – appears in the latest issue of Government Gazette.

The local media are currently trying to ride through a perfect storm of change, from a decline in readers that long pre-dates the internet, to advertisers fleeing their pages in droves and a new medium that steadfastly refuses to give them the profits they enjoyed in print.

It’s a complicated picture, and anyone who pretends to blame one company, or one business model, for their demise, probably wants something.

Digital media – and in particular the internet – have in a very short space of time transformed the way the business of publishing works. Fundamental to this is the difference between atoms and bits, the disintermediation of the web – and the rise of a currency that most publishers don’t even know exists.

The great decoupling

The first big change that local media are facing is the ‘decoupling’ of elements that they previously packaged for profit: a platform, content, and advertising. Online, those elements have become increasingly separate.

Unlike print, publishers don’t own the platform. Users have already paid for access to the internet, and for mobile phone contracts. Furthermore, the content publishers so carefully packaged for mass market appeal in print, is a virtual pick and mix online. If someone wants to read one story, or cartoon, crossword, or TV listings, they no longer have to buy everything else that went with it. If you want your sports coverage from your local paper but your politics from a national and celebrity news from an American website, then you’ll do just that.

But finally, and most importantly, advertising and content are becoming decoupled, on two fronts: firstly, because the web is a place full of tools, advertisers can choose to advertise against actions rather than content. This is why Google is successful – it does not sell advertising against content, but against searches. Likewise, sites like Autotrader and RightMove allow advertisers to reach potential customers when they are actively looking to buy.

But secondly, because advertisers can create their own content, and communicate with audiences without the need for publishers, they have started reducing their advertising spend in favour of communicating with potential customers directly. In some cases publishers are adapting by offering content production services themselves – for example, producing video ads for local businesses.

Cutting out the middlemen

It costs a lot to print and distribute newspapers. That’s why most towns and cities have only one newspaper. With only one newspaper serving a community’s information needs, basic laws of supply and demand have dictated the price of advertising to a local community. It has been a hugely profitable industry that has become increasingly concentrated in ownership and lumbered with associated debt. From highs of around 30% the margins are now closer to 10% – still better than Tesco, but the debts remain. And for most publishers the reaction has been to implement efficiencies wherever they can – moving out of city centre offices, publishing less frequently, and laying off enormous numbers of staff.

In contrast, it costs very little to publish online, and the distribution infrastructure is controlled by no one. The commercial and the communal share the same space, and for those who are trying to make money, competition is fierce.

As a result, for a local advertiser, the difference between buying an advert online and in print couldn’t be more pronounced. The enormous competition online, coupled with low cost bases, means advertising is cheap. In fact, competition is so fierce that display advertising – the idea of selling an advert next to some content – has been overtaken by other forms that promise more results: pay-per-click (PPC) advertising, for instance, only costs an advertiser money when someone clicks on an advert (this is the model that Google uses). Pay-per-action (PPA) only costs an advertiser money when someone takes action by, for example, booking an appointment.

Most local advertisers stuck to print. But recent research suggests the recession has increased the rate of change with increasing numbers of businesses looking to move advertising online for its low costs and measurable results.

The difficulty for local publishers, however, is that the profits are so much smaller than selling print advertising. For ad sales staff paid commissions based on the price of the advertising they sell, there is very little incentive for selling web ads.

The local get more local, and the nationals get local too

The buzzword of 2009 was ‘hyperlocal’ – a fuzzy concept that could range in scope from a single street to tens of thousands of people. Johnston and Newsquest have both offered community-level detail on their Yorkshire and West Midlands titles respectively, while Trinity Mirror’s hyperlocal project involved offering postcode-level news on their branded websites that also linked to local blogs. Northcliffe, meanwhile, launched Local People, a collection of forums, listings and the facility for user generated content – but little news.

Meanwhile, publishers at the national level have been eyeing up the local opportunity, with players including ITN, ITV and the Press Association partnering with video production companies, universities and regional publishers in their bids for the Independently Funded News Consortia (IFNC) proposed by Ofcom to fill the local news gap left by ITV. While there has been much talk of the online opportunity in these consortia from Ofcom, the reality of the bids suggests that this will be an opportunity missed.

In contrast, The Guardian is set to launch ‘beatblog’ operations in Edinburgh, Cardiff and Leeds in early 2009 that focus entirely on the opportunities that the online platform presents. Integral to the operations will be working with local bloggers and other online contributors, while the sites will integrate with MySociety and other services that provide civic information.

2009 also saw the launch of MSN Local, which aims to provide a local information service based on a range of data that can complement news stories elsewhere on MSN.

While large newspaper chains close offices and lay off staff, dozens of ‘hyperlocal’ websites have been springing up around the country to cover areas that local residents feel newspapers no longer serve – or never did. Many feel strong civic obligations and regularly attend the council meetings that local journalists no longer visit, while there’s a noticeable absence of the human interest and crime material that fills their print contemporaries.

My own operation – Help Me Investigate.com – launched in Birmingham in an attempt to find a way to pursue investigative journalism on a local level with the involvement and engagement of local people. It had a number of successes, most notably the uncovering of a £2.2m overspend on Birmingham City Council’s new website, and is in the process of expanding to other cities in 2010.

The business models for these startups are varied. Some are run as volunteer operations, while others see a commercial opportunity in a news operation without the costs of printing and distribution, and self-serve ad sales solutions such as those offered by Rick Waghorn’s Addiply – currently being trialled by Trinity Mirror in the north east. AboutMyArea has a franchise model; others sell products or services (such as consultancy).

Ultimately the internet has opened up a new market for local news and local advertising – with new rules. Some entrants are better placed than others to take advantage of the new forms of advertising, new forms of news production, distribution and monetisation that that presents. It’s early days yet.