There's no question that small-town daily newspapers are faring better than most regional and national papers, which tend to dominate the headlines. According to the Audit Bureau of Circulations, comparing October 2006-March 2007 to the same six-month period a year earlier, the total Sunday circulation of newspapers with circulations less than 20,000 was down a modest 2.7% compared to 4.6% for newspapers overall, and an average decline of 7% at 12 leading metro dailies, including The New York Times, Los Angeles Times, Chicago Tribune and Boston Globe.

In some cases, small-town papers are actually enjoying circulation growth. Take the Dothan Eagle, in Houston County, Ala. According to ABC, daily circulation rose 5%, to 35,416 and Sunday circulation rose 4%, to 35,293. The Munster Times of Northwest Indiana saw daily circulation grow and Sunday circulation grow 3%, to 85,195 and 92,347, respectively. At the Macomb Daily in Mount Clemens, Michigan, daily circulation rose 16% to 48,741, as Sunday circulation was basically flat.

That's not the only place that smaller newspapers seem to be defying gravity: Many are also enjoying revenue growth, said Ken Doctor, an analyst with Outsell, Inc. "Small dailies and weeklies have done better, both in advertising and retaining their circulation. They're not growing greatly, but they have been up a little bit, versus the big city dailies, which have been sharply down."

So what's behind their continuing success?

Above all, they've had more time to adapt to the Internet, says Doctor. Many smaller markets still lag behind big metro areas in broadband penetration, although the gap is closing--especially with the advent of satellite Internet service. More importantly, however, small markets present more barriers to entry to online competitors than big metro areas. The most popular content areas for big city papers--including national sports and business news--have been increasingly commoditized, leaving them vulnerable to competition from news aggregators and broadcast news outfits that post text stories on the Web.

Dick Porter--the CEO of Publishing Group of America, which publishes a number of newspaper-distributed magazines, including American Profile and Relish--observed: "If you pick up The New York Times, the front page of the Times is national and international news, and you can get a lot of it from another news source, in one form or another. But if you live in a small town and trash day moves from Tuesday to Thursday, who else is going to report that?"

Small-market newspapers also benefit from the conservative approach of many local advertisers, which have not hurried to move their ad dollars online as quickly as big national brands. This gap will close eventually, too, but Doctor said small-market newspapers may actually benefit from the shift--provided they retain their positions as essential local news sources, while moving to embrace online capabilities that work to their advantage.

Their virtual monopoly on local news reporting allows small-market papers to approach the Internet from a position of advantage. Here Doctor pointed to the example of VillageSoup.com, a combined portal for three local newspapers in Maine that is a community destination, thanks to updated interactive business listings that users check every day--including for daily menus and special offers.

With their local primacy, small-market newspapers are also capturing more national ad dollars online--especially from national businesses with a local presence, like big-box retailers and other national chains. Shawn Riegsecker, the CEO of Centro, an online platform that allows national advertisers to execute campaigns across many local newspaper sites, says: "Brands are especially mindful of being associated with the best content, and the best content has traditionally resided in newspapers."