Hyperlocal websites - what newspapers should become?

Lost Remote, a TV-centric blog on new media, lists several hyperlocal web sites in New Jersey and Washington.
These hyperlocal sites (generally speaking) are the next-generation portal sites. Portal sites, as far as I can remember, were jumping-off points across the Internet with all the news and info you'd want all in one convenient place. AOL had one, Yahoo does, Google does, heck every newspaper in the U.S. has one.

It goes without saying that they don't really work. How could you possibly include everything every user wants? How much of it needs to be human-compiled versus aggregated by machine?

Google comes closest, IMHO, with its customizable homepage. Mine has news feeds from queries like "Richmond, VA."

Anyway, the hyperlocal web site hopes to gain readers and repeat visitors by offering info on specific communities or even city blocks. Local crime, local civic events, local sports, local restaurant reviews, local things to do, local weather, you get the idea. Content is submitted by Joe Sixpack in Internetland, and could be anything from a yard sale to a fundraiser to baby pictures. User interaction and feedback, in the form of "votes" on each story or item, comments, and posts, is ubiquitous.

The New York Times has started several of these, called The Local.
In contrast to some other sites, the Times has deployed actual reporters from its staff to add content, which you might assume boosts the quality of the reporting. (Assuming that even matters anymore)

How do these sites make money? Maybe they don't, but advertising from local businesses would make sense. My question is: how do you offer quality info without paying people for it? I've seen lots of sites where the entries or "stories" are basically PR pieces, self-advertisements. If you're encouraging user submission of content, but not giving people money for what they do, what incentive would they have to give it to you? How does the viewership grow?

Perhaps the delivery vehicle needs improvement. A lot of this hyperlocal stuff would be better on a mobile platform. I can see a good use for whipping out an iPhone and using an app to find restaurants near where I'm standing, with impartial reviews, and patron comments. It's so useful.

But that service is not a hyperlocal web site, it's a service that might tie into a hyperlocal site's database. I don't know how to make a hyperlocal site work right, but there's a good chance they do a better job at localizing things, or at least presenting them in a more accessible way, than the newspaper.