Creative Destruction in the Collapsing Local News Market: Innovation vs. Intervention
Local journalism is struggling as it competes with new age technologies like social media and now artificial intelligence (AI). Some observers of this phenomenon have deemed it a market failure that necessitates public policy intervention. The very technologies allegedly causing part of the decline, however, could now revive the industry.
The search for a sustainable business model in the face of a collapsing local journalism market has become something of a holy grail. The latest entrant into this high-stakes arena is not a legacy publisher or a philanthropic billionaire, but a digital utility: Nextdoor.
The hyperlocal social networking service is undertaking a significant strategic pivot to transform a platform largely defined by lost pets and neighborhood disputes into a centralized, AI-enhanced hub for local news and real-time information. Local news stations and reporters can create free accounts on Nextdoor where they can gain followers and drive traffic to their various primary sources (Nextdoor has not yet released data on traffic). AI then synthesizes this information and offers curated news summaries to users. There is no profit-sharing model proposed as of yet.
By integrating AI to synthesize local information and collaborating with local publishers rather than trying to compete with them, Nextdoor is attempting to lower the marginal cost of producing and distributing local intelligence. This is the exact type of efficiency the market rewards and that government subsidies actively discourage.
Steve Waldman of Rebuild Local News was the first to suggest, in 2023, that Nextdoor embed reporters and include local news in its feed. Whether this gamble will succeed in the market, however, remains an open question. It is entirely possible that Nextdoor will struggle to monetize this shift or fail to overcome the content moderation challenges inherent in hyperlocal social media.
For policy analysts concerned with the precarious state of local media, the success of this specific company is less important than the nature of the attempt. Nextdoor’s experiment represents a critical test of the market’s ability to solve the “news desert” crisis through innovation and risk-taking. And if firms discover there is not a strong demand for local news, that may help to more specifically define the problem.
This distinction is vital because the prevailing narrative about what to do with the decline of local journalism in Washington and state capitals has become increasingly interventionist. The data is undeniably grim; the United States has lost more than one-fourth of its newspapers since 2005, and the number of working journalists has plummeted. In response, a chorus of advocates has coalesced around the idea that the market has “failed” to provide the public good of local information. Consequently, they argue, the government must step in with direct subsidies to prop up legacy institutions.
However, treating the decline of the 20th-century newspaper model as a failure of the free market is a diagnostic error that inevitably leads to bad policy. What we are witnessing is not a failure, but a massive, turbulent transition. The bundle of services that defined the local newspaper—classifieds, sports scores, comics, national wire reports, and city hall reporting—has been unbundled by the internet. The advertising revenue that subsidized the reporting has migrated to search engines and social media because those platforms offer advertisers better targeting and efficiency.
The Nextdoor strategy is instructive because it attempts to address the core economic hurdles faced by modern local news: distribution and cost. Traditional newspapers are burdened by high fixed costs—printing presses, delivery trucks, and physical newsrooms. Even digital-first legacy outlets often struggle with customer acquisition costs that outpace their subscription revenue. Nextdoor, conversely, is trying to bypass these hurdles by leveraging an asset that already exists: a verified network of neighbors with high penetration in suburbs and cities across the country.
The danger of the subsidy mindset—exemplified by various proposals to use the tax code to fund journalism directly—is that it freezes the industry. When governments provide tax credits for maintaining print operations, they are rewarding inputs rather than outcomes. It encourages failing firms to maintain obsolete business models rather than innovating. In economics, we sometimes speak of “zombie firms”—companies that are not productive enough to survive in a competitive market but are kept alive by cheap credit or government aid. Subsidizing legacy media risks creating a zombie press: outlets that exist to collect a tax credit rather than serve a reader.
Forces far more powerful than any subsidy are currently reshaping the market for information: the rise of the creator economy, the collapse of institutional trust, and the dawn of artificial intelligence. We are seeing a fragmentation of news towards a diverse array of Substack writers, independent podcasters, and hyper-local aggregators. While these outlets are often critiqued as providing commentary on national news rather than local journalism, Nextdoor’s entry into this space is a signal that the private sector sees potential value in local information, even if the delivery mechanism looks different from what we are used to.
It is important to reiterate that Nextdoor’s plan is not a guaranteed panacea. The platform faces significant headwinds regarding content moderation, the “echo chamber” effect, and user trust. But in a free market, failure is a feature, not a bug. It provides the essential data points that tell entrepreneurs what works and what doesn’t. If Nextdoor fails to crack the code on monetizing local news, its investors will bear the cost, and the lessons learned will inform the next startup.
If, however, the government steps in to “save” the industry, it would be short-circuiting this evolutionary process. It blocks the entry of new competitors by tilting the playing field in favor of old firms that refuse to innovate. It stifles the process of creative destruction that is necessary to clear away the old to make room for the new.
Nextdoor’s pivot offers a glimpse of a possible future, one where technology and community networks converge to fill the information gap. It may not be the final answer, but it is a credible attempt. By rejecting bailouts and embracing market experimentation, local news can build its future on the solid foundation of consumer value, not the shaky ground of taxpayer support. The news desert will bloom again, but only if we let the market hold the watering can.