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"Our company must persevere in the competitive hyperlocal news space," Casanova said. "This has been a difficult and challenging setback for us."

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While the Tribune is trying to preserve its relationship with Journatic, some of the company's other clients are jumping ship or reviewing their options.

GateHouse, which used Journatic content in 28 of its daily and weekly newspapers in six East Coast and Midwestern states, including Illinois, said it will end its contract with the provider by Aug. 1.

"We had timeliness issues, grammatical issues. We felt that, over time, the content being produced was not unique," said David Arkin, GateHouse's vice president of content and audience. "There were credibility issues clearly, and the other piece was we found that we could produce content in-house more economically and with more control."

The company, which laid off reporters and other journalists when it signed on with Journatic in May 2011, plans to move certain functions back in-house, including news briefs, some police blotter information and calendar material.

Timpone declined interview requests.

Shifting some content responsibilities to clerks, or third parties, means reporters will have more time to gather information for meaningful stories, Arkin said.

"We're all under a lot of pressure to deliver, and things are more challenging than they were 5 to 10 years ago," Arkin said of newspapers. "You have to rethink all areas of the business. We think we become more valuable by offering more original reporting and more putting more feet on the street."

Hearst Corp., which has worked with Journatic since 2009, also identified false bylines at the San Francisco Chronicle and Houston Chronicle. A Houston Chronicle spokeswoman said the paper is "closely monitoring our relationship with Journatic."

For two other large media companies, the issue of ethics wasn't the problem. It was the model.

The New York Times decided last month to kill its 3-year-old hyperlocal experiment, which consisted of two websites covering the East Village and two Brooklyn neighborhoods.

The sites were collaborations with the journalism schools of New York University and the City University of New York.

Eileen Murphy, a spokeswoman, said the paper viewed the arrangement as an "experiment" but ultimately decided that its money would be better spent elsewhere.

Of the hyperlocal sites, Murphy said, "We just were not getting a lot out of them," both in terms of revenue and readership.

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"This notion of hyperlocal coverage is something not as critical to us," she said.

Across the river in New Jersey, Ted Mann, a former digital development manager at Gannett Co. Inc., the nation's largest newspaper publisher, launched six hyperlocal websites, each in a town within one of the chain's newspaper coverage areas.

Content was culled from the daily newspapers and generated by readers. None of the sites had a dedicated team to run them, and Gannett invested "very little" in the venture, Mann said.

The company pulled the plug after about two years, "mainly because I didn't see the light at the end of the tunnel," said Mann, who left the company in 2011 to launch a startup digital company. "We never had a good monetization strategy."