"The unsolved problem is how to deliver a high-quality informational good at lower costs," Rosen said. "That problem remains no matter what happens with Journatic. I think the economics of the industry will lead to more such attempts, and (news organizations) will learn from the failures."
The Chicago Tribune started producing hyperlocal community news in 2007 in both print and online under the banner TribLocal. The first incarnation relied on people in the community providing news and information about their communities on everything from crime to new-business announcements.
But questions about the quality and quantity of user-generated content dogged TribLocal, and the Chicago Tribune started hiring more reporters, editors and freelancers in 2010 to provide most of the news content, said Gerould Kern, the Tribune's senior vice president and editor.
Late last year, Tribune Co. began exploring ways to increase the amount of hyperlocal content but at a lower cost. Company executives reached out to Brian Timpone, an ex-journalist who in 2006 helped start BlockShopper, a website that writes stories about residential real estate transactions.
He started selling real estate stories to the Chicago Sun-Times, Houston Chronicle, San Francisco Chronicle and other newspapers, later expanding into community news. Timpone also raised money from local investors, including Timothy Landon and Tim Knight, former Tribune Co. executives.
When Knight became involved in an investment group that bought the Sun-Times in December, Tribune Co. executives began discussing making a financial investment in Timpone's company, according to a source familiar with the matter. Knight is the chief executive of Wrapports LLC, the owner of the Sun-Times.
In April, Tribune Co. announced an investment of an undisclosed amount in Timpone's company, which had changed its name to Journatic. In May, Journatic filed a brief notice with the Securities and Exchange Commission that it had sold stock in the company valued at $3.2 million. Tribune Co. spokesman Gary Weitman declined to comment on the amount of the company's investment.
Tribune Co. also added two corporate executives to Journatic's five-person board of directors, replacing Landon and Timothy O'Neil, a Sun-Times executive.
Journatic's content began rolling out to TribLocal's 90 town websites and 22 weekly print editions.
Kern said in an interview that he supported the corporate initiative of expanding hyperlocal content through outsourcing and the financial reasons for doing it.
"Newspapers have been outsourcing content for more than a century," Kern said, referring to articles from wire services and syndicated columnists.
But Kern said Journatic was contractually obligated to live up to the same journalistic standards and ethics that his Chicago Tribune staff abide by.
"The central issue here is whether you can trust what they are submitting and whether they are doing it professionally and ethically, and whether the information they are giving us is accurate," Kern said. "Right now I have no faith in that."
Nonetheless, the Chicago Tribune will try to help Journatic improve its practices. Last week, Chicago Tribune Media Group President Vince Casanova said he had hired Randy Weissman, a former editor at the paper, to consult with Journatic and help implement changes at the company. The suspension, however, continues.
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