The Rocky Mountain News published a lengthy, heartbreaking video obituary of itself today, its final day of publication.

What is most poignant about the piece is that it demonstrates how powerful — and potentially, profitable — newspaper websites can be when they embrace new media, in this case, broadcast-quality video.

Final Edition from Matthew Roberts on Vimeo.

The economics are compelling: Despite the recession, research firm eMarketer predicts spending on online video advertising in the U.S. will grow 45% in 2009. 15-second video ads can command CPMs (cost per thousand viewers) of $25 to $35, while the display ads found on news sites are typically priced at no more than $5 to $10. (And ad space the newspapers can’t sell is filled by ad networks at even lower rates.)

Local news organizations (formerly known as newspapers) that want to survive need to make their websites the #1 Internet destination in their region — a place the audience (formerly known as readers) will spend more time and national and local advertisers will want to sponsor.

That means not articles with a handful of amateurish videos (typical of newspaper websites) nor TV with a little text (typical of local TV affiliates’ sites). It is a third animal altogether, combining the power and immediacy of video, where appropriate, with the depth and analysis found in the best newspapers.

It is a site that has a multimedia tool chest and uses those tools in the most appropriate way to tell the story: Event stories (parades, community celebrations) may be best told as videos or photo slideshows. For more complex stories (e.g., the economy) video adds little if the only pictures are B-roll footage. (Does anyone need to see what a gas pump or a supermarket checkout line looks like?). For these stories, print or audio combined with charts and graphics, particularly interactive graphics (e.g., a calculator showing how the new tax law will affect you), can be extremely effective.

Local news websites will never generate the revenue newspapers did in the monopoly days before the Net. They will be smaller. They will be less ambitious. (Foreign reporting will be the province of national publications; lengthy investigative projects will require some form of non-profit model.) They will be less profitable. But there is a business model to be created here.

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When publisher Gatehouse Media accused the New York Times Co. of copyright infringement in a widely-watched Internet publishing case in December, some observers feared the worst: “The future of online journalism may depend on the outcome,” wrote columnist and journalism professor Dan Kennedy.

As it turned out, the case resulted in a settlement that - while requiring the Times to change its practices — did not set any clear legal precedents. And while the outcome may influence future disputes, the debate about what constitutes “fair use” on the web remains unresolved.

The background: Last fall, the Times’ Boston Globe launched “Your Town” Web sites covering three Boston suburbs, the first in a series of more than 100 “hyperlocal” sites the Globe said it plans. GateHouse, publisher of 400 daily and weekly newspapers, complained that the Globe’s sites were reprinting headlines and lead paragraphs (ledes) verbatim from its own “Wicked Local” websites.

The settlement, announced January 26, prohibits the Globe from “scraping” the headlines and ledes from Gatehouse articles via RSS feeds or other automation. But it allows Globe staffers to write summaries of the Wicked Local content and post links to the original articles.

“To put it in the language of online-journalism theory, they have to shift a bit from raw aggregation to something closer to curation,” wrote Joshua Benton, director of the Nieman Journalism Lab at Harvard University.

At the heart of the dispute is the “fair use” provision, which allows one to quote excerpts of another’s work without permission or payment. Section 107 of the Copyright Act lists four factors for determining what constitutes “fair use.”

1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

4. the effect of the use upon the potential market for or value of the copyrighted work.

Gatehouse alleged that the Globe sites did not clear these hurdles because the hyperlinks sent readers directly to “Wicked Local” stories, bypassing the ads on its home pages and creating confusion on the source of the original reporting. And because online readers only scan the headlines and ledes of many articles, the practice deprived Gatehouse of any benefit from its reporting on that content, Gatehouse complained.

“The issue here is whether the unauthorized borrowing deprives the original author of some substantial income stream or opportunity,” wrote UCLA law professor Douglas Gary Litchtman in a report filed in support of the Gatehouse suit. The Globe’s sites “target the same audiences, and the same advertisers, for the same purpose of furnishing news and information for and about a specific local community, each and every day.”

According to Gatehouse’s complaint, the Globe was scraping 10 to 30 headlines per day from its sites. A February 14 search of the Globe’s Your Town site for Needham, Mass. found no Gatehouse links on the home page. But Gatehouse content represented 8 of 16 headlines on the schools page and 14 of 24 headlines on the sports page. (The Globe has until March 1 to remove the copied links from their website archives.)

Although the Gatehouse settlement created no legal precedent, David Ardia, director of Citizen Media Law Project, told Nieman the case could have “persuasive power” — used by news organizations for guidance in future disputes and by judges looking for evidence of  “common practice.”

The Gatehouse case was the latest legal skirmish over web sites linking to other publisher’s content. Google has been paying the Associated Press for use of its content since 2006 and it settled a similar dispute with news wire Agence France-Presse in 2007.

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