Todd,
I think Gordon's "West VALLEY Party News" offers a rock solid way to bore down and carve out your own Family oriented business niche, which will hopefully open up to a big one for you! (Sowpub never ceases to amaze, eh?)
Here's a few more ideas to help your brainstorming:
http://www.babynewspaperbusiness.com...ePictures.html - Baby Newsgram site that demonstrates the power of personalization and maybe a few other product ideas, angles, or twists (What do you think, Phil?
Neighborhood Marketing - I'd recommend you read Street Smart Marketing by Jeff Slutsky, who does a great job of presenting specific examples of how to get into the trenches and multiply your efforts one neighborhood at a time. Which could also imply an effort to offer more concentrated neighborhood editions.
Web Video - Helping to sell the family party experience, and building substantially more advertiser value, with short on-site video clips to compliment the print newsletter. Nothing fancy, could be just your average youtube quality video posted to a blogger site, where you can also post more ads and comments. Could likely do a trade-out with a local photographer.
Prospecting - With Halloween just around the corner getting out and seeding prospective advertisers with some type of free How-to trick or treat, party, etc. hotsheet. And, during Halloween to take note of who's doing what (and trying hardest to reach) families with kids in your community.
Good luck,
Rod