It is working in my community. http://www.berkeleyside.com/ has run a (very modest) profit for the last two years and continued to expand. Their focus is the greater Berkeley area; a population of about 350,000. It is a more educated and well-off population than national averages. The revenue split is 65-35% between supporters and advertising. They've also recently done a direct public offering of stock allowing for $800K in investment.

Local news, supported locally is possible.