Let’s say a neighborhood restaurant offers a prix fixe meal for $10 (obviously not a restaurant in New York City). Two hypothetical dollars go towards the actual cost of ingredients and food preparation, while the remaining $8 is profit.

But what if that restaurant wants to draw more customers on a slow night during the week, or perhaps over a holiday weekend? It can partner with a hyperlocal news outlet, which will promote a discounted price and broker its sale to a limited number of readers (or viewers or listeners). For that, the hyperlocalist earns a modest fee.

There are three important thing to remember: The number of discounted meals must be limited; the discount should be valid only for a limited time or on a specific date; and customers must pay for the discounted meals in advance. Promoting the discount can happen through the usual channels (online, in print or on air), or through an emailing list or Twitter feed. The hyperlocal news outlet also can use an e-commerce service such as PayPal to facilitate sales.

In this example, the hyperlocalist must broker four times the number of discounted transactions to match the restaurant’s net profit at the regular retail price. But the beauty of this revenue model is that there is very little work involved. That means a nice piece of change for the hyperlocalist with only a smidgeon of effort.

For the Twin Cities (Minn) Daily Planet, revenues from deal brokering actually surpassed traditional advertising sales in the first two weeks of its “Deal of the Day” program, the Knight Citizen News Network reported last week. My former news site also had success with a brokering program, though the cost of printing coupons eventually erased most of the profit. (Unfortunately, my program launched before Facebook and Twitter gained mainstream momentum, before the iPhone was born, back in the Stone Age.)

The numbers above are for illustrative purposes only. In fact, the Nieman Journalism Lab and Knight Citizen News Network articles recommend bigger paydays for deal brokers, and brokering services can be sold to retail businesses other than restaurants. Now go make money!

In the parlance of mainstream media, contextual advertising means partnering an ad with a related piece of content, Kathy Best, managing editor with The Seattle Times, described last month during a NewsU.org webinar. For example, an ad for a cruise line might appear with content on travel, or a restaurant might advertise alongside foodie content.

The most exciting thing about contextual advertising is this: News consumers respond more strongly to advertisements that have a local spin to them, Best found in consumer surveys. For instance, a local travel agency’s ad may get more attention in the travel section than one for a big cruise line. In this case, context has more to do with location than content. Score one for hyperlocalists!

But to make local (and hyperlocal) ads successful for sponsors, context must be coupled with customer service, Best indicated. The ad must do more than just announce the sponsor’s presence in town — it’s got to connect the consumer directly with the sponsor’s services. An advertisement might encourage consumers to order goods immediately via phone or online. Or it could promote a weekly special, giving the ad context in time (double booyah).

Best’s recommendation supports something that CUNY J-school’s Jeff Jarvis suggested previously, that local businesses aren’t interested in advertising their presence to consumers who likely already know they exist. Instead, contextual and service-oriented ads allow local advertisers to build on existing customer relationships by offering more (or at least different) services.

It’s a strong sales argument for why the local dry cleaner (the one who’s been around for twenty years and whom everyone knows) should advertise with hyperlocal media. Even if the advertisement provides only the dry cleaner’s telephone number, it’s one more extension of customer service that can drive repeat business.

There are some dangers to contextual advertising, Best warned, mostly having to do with the placement of ads with hard news. A media outlet shouldn’t place a politician’s campaign ad alongside content about his or her rival, unless one’s goal is to draw that outlet’s objectivity into question. Instead, contextual ads fare better when paired with soft news — food, travel, sports, and news that won’t strike a nerve, Best suggested.

Shuffling ads with content may get cumbersome for small outlets, especially for online publishers who rely on fixed templates. However, there might be tools available to help with that. (I’ll explore that in a future post.) And if an advertiser’s location and the timing of special offers are emphasized, then perhaps the ad’s coupling with relevant content might not be so important.

Photo courtesy of Flickr user FadderUri.

Instead, I think a good prelude to the advertising conversation is to define (if only loosely) what it means to be a hyperlocal news outlet. Steve Safran, contributor to Lost Remote, cracked that nut Wednesday with these succinct definitions: “‘Hyperlocal’ covers neighborhoods, while ‘local’ covers towns and cities. … A mom blog is a niche site.”

(As an aside, I maintained an überlocal Twitter feed on the comings and goings of my living room. It was a fun way to promote my publication.)

Safran’s definitions are pretty damn good — flexible enough to fit the varied sizes of individual municipalities, yet simple enough for readers and potential sponsors to digest. A follow-up post considered other criteria, but I think Safran’s initial post was on the money.

What I’d like to add to Safran’s definitions is the potential overlap in categories. For example, a food blog focused on a specific neighborhood can be considered a hyperlocal niche blog. A website covering urban planning in a metropolitan area may be called a local or regional niche site.

Am I splitting hairs? Probably. Specific subcategories don’t mean a whole lot outside the newsroom. But I think it’s important for entrepreneurial journalists to have a good handle on the size and scope of their media outlets. It makes it easier to explain business operations to potential sponsors and hopefully removes some doubt over the return on their advertising investment.

With this preface out of the way, I unleash my three-part epic on advertising starting Monday. Queue the “Lord of the Rings” theme song.

Image of Vancouver, BC’s neighborhoods courtesy of Flickr user svacher.