Results of a newly released survey of 93 publishers of nonprofit news start ups underscores the need to build business capacity in the field. Foundations and large donors should insist that their news start up grantees devote resources to longterm sustainability.
The growing nonprofit news sector is showing some signs of economic health, and most leaders of those outlets express optimism about the future ...But many of these organizations also face substantial challenges to their long-term financial well-being.
... large, often one-time seed grants from foundations help many of thsee news outlets get up and running. But as those grants expire, many organizations do not have the resources or expertise necessary for the business tasks needed to broaden the funding base.
The survey confirms a pattern that has been evident since at least 2009 - one that was underscored by the collapse of the high-profile Chi-Town Daily News that year after about four years in operation and by the failure of the Chicago News Coop, which lasted only two years before it folded last year. Both organizations were launched with significant fanfare and foundation support, only to founder when they failed to divert enough resources - people and expertise - away from editorial work in order to develop the revenue side.
That said, a number of nonprofit news sites - MinnPost and Voice of San Diego, for example - have adopted entrepreneurial approaches to revenue development with promising results.
That promise is not evident in the Pew survey, which includes a variety of types of sites, not merely the independent nonprofits that have been the focus of much attention.
Pew identified 172 organizations for its study, including outlets that are part of a larger mission-driven organization. Most of the sites are quite small, with five or fewer employees. Most cover metro or state news and focus on niche topics rather than general news. The survey was conducted in 2012 and most respondents reported information for 2011.
Reliance on start up grants: "Nearly two-thirds of the survey respondents (61%) began with a startup grant that accounted for at least one-third of their original funding—and a majority of those grants were for $100,000 or more. But at the time of this report, only 28% of those organizations reported that the funder had agreed to renew that grant to any degree."
Revenue diversity: "A majority of outlets that responded to the questions (58%) are drawing upon at least three separate revenue streams—including grants, individual donors, advertising, media partnerships and events. But about half of those organizations are still generating at least 75% of their income from a single revenue stream, almost always foundation grants."
Revenue development: "While 80% of the outlets say that business, advertising and marketing work consumes some staff time, nearly one-third of them said thatkind of work consumed less than 10% of their staff time, and more than half said that business-side tasks accounted for between 10% and 24% of staff hours."
Seven in 10 of the sites were launched since 2008, when the recession and an eroding business model displaced many journalists from traditional newsrooms. A quarter of the sites were launched in 2010-11, and their relative youth may account for some of the lack of business development in the overall survey. As well, about one-fifth of the sites are investigative and these generally are facing very steep revenue challenges.
It is important to note that start ups - whether news or other businesses - typically do not immediately begin producing significant revenue beyond foundation or donor support. In today's dynamic environment it may take significant experimentation to determine what will work.
Even before that, the site must create something to sell to revenue sources, whether they are foundations looking for impact or advertisers or sponsors looking for a profile. After launch, news start ups face a months- or even years-long "proof of concept" stage, during which the site must demonstrate that it can produce content and engage and grow an audience for it. That may also be a time to experiment with revenue sources but will not necessarily quickly create significant revenue streams.
The Pew report cites nonprofit culture as a factor in the lack of revenue development, saying it "rewards organizations for spending money on program services instead of business and revenue development."
That is not universally the case, at least with independent news sites. In dozens of interviews with publishers since I began research in this field in 2009, it has become evident to me that publishers who are journalists - and that's most of them - are so heavily invested in the content that they do not devote significant time or money to revenue. Even those who are willing, do not have the skills or even the understanding that they are running a business, even if they are a nonprofit. It is no accident that MinnPost, founded by a former newspaper publisher, has been one of the most successful of the independent start ups in growing and diversifying revenue.
As well, sites whose early funders recognize the importance of revenue development and push for it are developing promising streams. Among these, I would count New Jersey Spotlight, funded by the Community Foundation of New Jersey and others, as well as Voice of San Diego and Texas Tribune, with backing from venture capitalist donors.
A couple of years ago, I began suggesting that potential funders review any site's business plan and make sure that resources would actually be designated for revenue development. (I once reviewed a grant proposal for a start up that said revenue would come from advertising and sponsorships - but the budget allocated no salary for this activity.) If the journalism is getting done, a foundation might want to specifically fund building the organization's capacity to develop future revenue.
Leading foundations with investments in journalism are paying attention to building capacity on the business side. Knight Foundation, starting in 2009, offered consulting to seven independent nonprofit sites, and produced a 2011 report, Getting Local, on their sustainability efforts. Knight recently made a $1.5 million grant to the Texas Tribune to further develop its successfuly business practices and provide models for the field. The Ethics and Excellence in Journalism Foundation is a leading funder of the Investigative News Network. The Patterson Foundation has funded pioneering business training for start up publishers - Community Journalism Executive Training - and Knight Foundation and the Geraldine R. Dodge Foundation are supporting extending that training to more publishers.
That's all for the good. And one lesson of the Pew study is that more of that investment is critical to the longterm viability of this segment of new local news ecosystem.
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