Larger local news websites seek to move beyond heavy reliance on foundation grants with new sources of revenue. A new report from the Knight Foundation details the paths of seven sites, including The Texas Tribune, Voice of San Diego and MinnPost.

Knight today publishes a first-of-its-kind report that sheds light on how several prominent nonprofit sites are moving toward more diverse funding sources. The report, “Getting Local: How Nonprofit News Ventures Seek Sustainability,” also explores the role that user engagement plays in their strategies.

I am co-author of the report, with Mayur Patel, Vice President/Strategy and Assessment at Knight Foundation. The new report is based on analysis of sustainability of these sites by Community Wealth Ventures, a management consulting firm that focuses on growth and sustainability of nonprofit organizations, commissioned by Knight in 2009-10.

The sites studied are: MinnPost, The Texas Tribune, the St. Louis Beacon, the New Haven Independent, The Bay Citizen, Voice of San Diego and Crosscut in Seattle, as well as Chi-Town Daily News, which closed in 2009 while an initial study was under way.

While none of the sites has created a clear business model, the report states, “as a group, these organizations are making progress toward becoming sustainable and developing practices that are worth sharing with others interested in the future of news.”

The report contains details of the revenue and expenses of the sites as well as their engagement practices. This post focuses on a few highlights of the revenue/expense report. I’ll write more about engagement practices later this week.

Among key findings about revenue:

1. Diverse revenue streams
Sites are actively experimenting with new revenue streams in order to wean themselves from heavy reliance on foundations or a few large donors.
MinnPost, for example, drew about a third of its 2010 revenue of $1.28 million from advertising, corporate sponsorships and an annual fundraising event, MinnRoast. The site, which received another third of its 2010 revenue from foundations, hopes to reduce reliance on foundations to 10 percent by 2014.

2. Different revenue models
While most of the sites expect to grow non-foundation support, they have somewhat different ideas about where revenue will come from. The Texas Tribune, for example, projects revenue streams from events, sponsorships and specialty publications, along with donations and gifts. By contrast, the New Haven Independent anticipates relying very heavily on large donors. The Bay Citizen foresees revenue from memberships, corporate sponsorships and gifts and foundations.

3. Different bankrolls
The two newest sites, The Texas Tribune and The Bay Citizen, contrast with sites launched earlier in their start up fundraising ability. Both started with large funds that enabled them to launch with a comfortably runway for experimentation with new revenue sources.  The Bay Citizen, for example, raised more than $11 million in 2010, its first year, more than three times 2010 expenses of $3.6 million.
By comparison, other sites report more modest fundraising. Two older, highly entrepreneurial sites, Voice of San Diego and MinnPost, have slowly increased revenue each year and saw annual revenues of more than $1 million in 2010.

4. How they spend their resources
For the most part, the sites devote about two-thirds of their resources to editorial, raising the question of whether they are devoting enough resources to marketing and development and to tech capacity. The Bay Citizen and The Texas Tribune spend about half their resources on editorial and have higher spending than the other sites on IT and business development.

Interestingly, especially for people watching the local news space and for the foundations that may fund news projects, the report sets out a framework for assessing the viability of a nonprofit news organization.

Simply creating revenue does not equal sustainability for nonprofit organizations. According to the Community Wealth Ventures analysis, the sustainable nonprofit must create:
- Social value - Creating content and engaging the community - and being able to measure and demonstrate impact.
- Capacity - A balance of expertise and a runway to innovate rather than simply producing content in the day to day.
- Economic value - Creating multiple revenue streams.

As other news organizations are learning, being a newspaper on the Web is not enough. Community engagement is critical to their sustainability.

Next: Getting Local II: Terms of Engagement

The News Leadership 3.0 blog is made possible by a grant to USC Annenberg from the John S. and James L. Knight Foundation.