As newspapers struggle to attract new readers and adopt new revenue streams, some are emulating daily deal sites like Groupon or LivingSocial and selling their own deals. Given the headwinds facing daily deals companies, have newspapers arrived too late to a losing game, or do their strong advertiser relationships give them a leg up on Silicon Valley?

The daily deals business—deeply discounted, time-limited coupons for services or products— heated up in late 2010 and early 2011. Local small businesses, previously overlooked by internet advertising giants, jumped on the concept to attract new customers in a way that is more measurable than traditional advertising. But the heyday appears to have passed. The two biggest daily deals companies, Groupon and LivingSocial, are experiencing rapidly declining financial prospects and smaller deal sites have been acquired or disappeared.

Newspapers copied the tech companies, figuring their local sales forces and strong advertiser relationships with merchants would give them an advantage. Today the Boston Globe offers BostonDeals, the San Francisco Chronicle has SFGate Daily Deals, and the LA Times has LA Deals. The Washington Post initially offered restaurant deals through a site called The Capitol Dish, then relaunched a more general deal site called The Capitol Deal last year. Several third-party companies including NimbleCommerce, ShoutBack Concepts and Second Street offer to handle the back-end—processing coupons and payments—for media companies offering daily deals.

WaPo takes aim at a different demo

How have these strategies played out for newspapers hoping to diversify their revenue streams? It’s been a tough time to enter the market, but some papers are claiming success. For one, newspaper readers typically aren’t the tech-savvy twentysomethings who might buy daily deals for bars, tanning sessions or personal training. “Our audience tends to be different from LivingSocial and Groupon’s audience,” says Tim Condon, director of digital ventures at the Washington Post. The Capitol Deal once fielded a call from a couple who had mistakenly cut an ad out of the paper and drove to a high-end resort in Southern Virginia, where they tried to use the ad like a coupon. Condon’s staff completed the transaction over the phone and gave the couple their voucher code to redeem at the resort.

The Capitol Deals team has learned through trial and error to focus on deals for an audience in their late twenties to mid-forties. “We’ll run a local bar deal that sells nothing on us and sells a ton on other deal sites,” he explains. “The deals that have typically done well [for WaPo] tend to either be higher price point and higher savings or they tend to be more of an experience-type deal where someone is looking to make a weekend out of it like wine tasting deals.” Recent deals include $70 worth of hairstyling for $30 and $18 for a pair of tickets to a George Mason basketball game and the typical Washington Post deal sells around 250 coupons, says Condon, who wouldn’t disclose how much money the Post is getting from the program.

Although large newspapers have built-in brand recognition in their area, they don’t necessarily have the ability to reach a huge share of local consumers anymore. “You’d expect a major newspaper to have the largest share in their own markets, but good newspapers typically have under 20 percent of the market in this space,” says Peter Krasilovsky, who follows the daily deal space as a senior analyst at media research firm BIA/Kelsey.

Behind newspapers’ deals, profits from advertising

The Boston Globe, LA Times and Star Tribune all declined to discuss how well their daily deals programs are doing or didn’t respond to requests for comment. While daily deals may not turn into huge money spinners for the papers, they could act as a sweetener for advertisers (much like digital ad space does) and a way to promote the newspaper to a different demographic.

A company spokesperson at the Los Angeles Times said the weekly email promoting the Times’ LA Deals goes out to over 150,000 people. A 2011 report from Hearst, which owns the San Francisco Chronicle, stated that over 180,000 consumers in San Francisco have opted to receive daily deal offers from the newspaper. WaPo’s Condon said the Post can offer something that Groupon and LivingSocial can’t: ad space in the Washington Post. “The key selling point to the merchant is you’re getting your brand exposed to hundreds of thousands of people who aren’t going to buy your deal but are going to remember your brand,” says Condon.

Condon cites a deal that WaPo ran in June 2011, offering a free pizza from a local Papa John’s franchise to anyone who claimed a code. Over 100,000 people took advantage of the deal, doubling WaPo’s subscriber list overnight and creating buzz in the local business community thanks to front-page ads in the paper. “It had that halo effect of ‘Oh, those guys are the ones who ran the Papa John’s deal,’” says Condon.

Krasilovsky, the media analyst, sees newspaper daily deals as part of a larger strategy. “A number of newspapers, the Washington Post and others, are really pushing hard on this and they see it as a very relevant business,” he says. “I think the key is not only to have a daily deal, but to provide all kinds of relevant local marketing services: a daily deal, a sweepstakes, coupon offering, all these things theoretically can be integrated with each other.” For example, the Post also has an Angie’s List-style website for home services called Service Alley, while the Dallas Morning News partnered with a local ad agency to create a marketing service for local and national brands.

“We expect to see quite a lot of activity with newspapers and daily deals,” concludes Krasilovsky. “Newspapers are working more on local business marketing solutions.”