The Bottom Line for Nonprofit News - Pacific Standard

The Bottom Line for Nonprofit News

Across America, nonprofit Web sites are trying to keep public interest journalism alive at the local level. But to provide what print newspapers increasingly do not, these digitized nonprofits must overcome the challenge facing every startup: Eventually, they have to break even.
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Late last Halloween afternoon, four Chicago police officers allegedly bashed a teenage boy's head into a bus station pole until he could barely stand. The Chicago Sun-Times didn't send a reporter. Neither did the Chicago Tribune. But as soon as she could, Kimberly Michaelson of the Chi-Town Daily News rushed to the scene, notepad in hand.

She took the 'L' train to Uptown, a working-class neighborhood on Chicago's north side, and then walked the streets, asking shopkeepers, homeless people and diners at a fried chicken joint what they’d seen. Though the Chicago Police Department didn’t comment for her story, its breadth of sources demonstrated the sort of shoe-leather reporting that editors adore. Readers agreed: Daily News Web site traffic tripled the day it ran.

Few news organizations would have assigned a story to someone like Michaelson. She works in marketing for a real estate company, and her only prior journalism experience came on the business side of the University of Minnesota student newspaper during the Bush administration — the George H.W. Bush administration.

Yet Michaelson is just the sort of person the Daily News depends on. Former Tribune investigative reporter Geoff Dougherty launched it to do what he says his ex-employer fails to: produce hard-hitting public interest stories on all 77 of Chicago's neighborhoods. Weeks before, Michaelson had responded to its Craigslist advertisement seeking volunteers; she’d begun reporting after a few hours' training. Even for the optimistic Dougherty, her article "was an eye-opener. I realized that I'd underestimated the power of the people and the model."

Over time, Dougherty wants to train an army of citizen journalists like Michaelson, with a small staff of professionals and interns providing guidance and high-level contributions and the result distributed entirely online. He's funding the Daily News through a nonprofit corporation, hoping to free his site from the commercial pressures that have left many for-profit daily newspapers shrunken — and shrinking — versions of their former selves. This dive into media entrepreneurship may seem quixotic, but with the Daily News, Dougherty is just one among many.

Civic entrepreneurs across the country are offering multiple visions of local journalism’s future, from technology-heavy, amateur-dependent nonprofit sites to more traditional approaches to news that just happen to be tax-exempt and distributed online, with a variety of nonprofit efforts that fall between those poles. Questions remain as to which of these alternatives to the daily newsprint paper will stay afloat if or when the foundation money — now seemingly plentiful — runs out. But as media executives and editors struggle to chart a course through the information age, these tiny nonprofits — from Chicago and Minneapolis to New Haven and San Diego — are, at the very least, trailblazers. Some have become crucial to keeping their communities informed. All share a challenge: growing an audience while learning to break even.

Geoff Dougherty should have been satisfied. It was 2005, and in less than a decade, he'd clawed his way from a part-time gig covering cops for The Record in Hackensack, N.J., to a coveted spot on the Chicago Tribune's investigative team. A computer-assisted reporting expert, Dougherty had written high-profile articles on coal mine safety and mistreatment of juvenile offenders. But he was restless and bored. Stories he'd filed sat in the editing queue for months without action or explanation, and he felt the paper was disconnected from its community, with more reporters stationed in Europe than on the South Side of Chicago.

The overarching problem, though, stretched beyond Dougherty's personal job dissatisfaction. Like many American reporters and media watchers, he saw an industry in crisis. At the Tribune and elsewhere, there wasn’t enough public interest journalism, the sort of reporting that keeps a watchful eye on government and corporations.

The predicament hadn't arrived overnight. Events differed from city to city, but the story went something like this: During the late 20th century, family-owned metropolitan newspapers sold out to the public companies that feasted on the near-monopoly status of many dailies and fattened up their editorial staffs. But Wall Street demands high profit margins, and several trends — including, notably, the rise of direct mail and consolidation of department stores, advertising mainstays of the metro daily — cut into revenue. So the papers shaved costs by cutting back on newsroom employment, and the journalism suffered. Readers were turned off, buying fewer papers, so advertising dollars dropped. Owners responded with more cuts, continuing a vicious cycle.

The rise of the Internet magnified these defects. Paid print circulation plummeted as readers flocked to the Web. Sites like Craigslist ended newspapers’ monopoly on classified advertising, a cash cow that had often been likened to a license to print money. Online ad networks began to cannibalize the papers’ display ad franchise.

Newspapers’ own Web operations fell behind destinations that fed off content from papers, wire services and, in the case of YouTube and other so-called Web 2.0 sites, their own customers. Print dailies were gradually "disaggregated," their financial model torn apart as online sites with very low costs poached ever-larger pieces of the newspaper revenue pie.

"What kills newspapers is they're in the business of selling advertising online, and in order to draw people to look at these ads, they spend millions of dollars producing news," former Los Angeles Times editor John Carroll says. "How can a company that spends money creating content compete with companies that don't?"

The short answer is: It can't. Trends that arose in Silicon Valley spread throughout the United States. In Chicago, for example, the Sun-Times cut 29 newsroom jobs in January, less than two months after alternative weekly the Chicago Reader laid off four of its most prominent staff writers. Last summer, the Tribune eliminated 100 positions (many of them in the newsroom), deepening a cut of 28 editorial staffers in late 2005. During the next decade, the U.S. Department of Labor predicts, the number of reporters, about 67,000 nationwide in 2006, will flatline. Entire news sections have disappeared at some dailies, and investigations and foreign coverage have been sharply curtailed.

"Our democracy relies on this. We've got to know things in order to govern ourselves," says Missouri School of Journalism professor Geneva Overholser. "People who care about poverty or the environment or government ethics — how are they going to know what to do with their dollars or how to help unless they have a pointer that tells them? No matter what their concerns, engaged citizens will soon have a rude awakening."

The explosion of independent blogs and for-profit online sites hasn’t filled the news gap, particularly on the local level. "It's not that we have a volume problem," says Ken Doctor, an analyst at research firm Outsell Inc. and a 21-year veteran of dismantled news conglomerate Knight Ridder. "We have a quality problem."

For Dougherty, the last straw came when editors spiked a planned story on lofty executive pay that cast Dennis Fitzsimmons, then chief executive of Tribune Company, in a critical light. His supervisors wouldn't explain why they killed the piece on a Friday when it was scheduled to run in Sunday's paper, but Dougherty believed it was spiked because of the boss. So he quit, vowing to create a news organization that wouldn’t pull punches.

Dougherty launched the Daily News with zero employees, $10 per month in Web hosting fees and an ambitious plan to report on every neighborhood in Chicago. Though costs were low and he saw ways to save by using citizen journalists, Dougherty knew he couldn’t raise enough venture capital to fund the startup if it were organized as a for-profit.

He recalled his years at the St. Petersburg Times, a Florida newspaper owned by nonprofit journalism education center The Poynter Institute. Its reporters were free to write stories that delved deeply into community issues, and Dougherty attributed that leeway to an ownership structure that didn't put pressure on management to cut costs. Tribune's Fitzsimmons, Dougherty says, "had a responsibility to his shareholders to maximize return on investment, even if it meant crappy journalism."

A Tribune spokesman declined to comment directly on Dougherty's claims, saying the company "continues to invest to best meet changing customer needs and achieve its goals for long-term growth." The publication did win six Pulitzer Prizes during the past decade, though none for investigations.

Dougherty decided the Daily News would have its best shot as a nonprofit, following a path that’s been fairly well-trodden at the national level. With the recent help of a $200 million bequest from the estate of Joan Kroc, widow of McDonald's Corp. founder Ray A. Kroc, the nonprofit National Public Radio has rowed against the tide of broadcast news cutbacks during the past 25 years, expanding to 18 foreign bureaus and growing listenership from 2 million to 30 million. The Associated Press, a not-for-profit cooperative, employs 3,000 journalists worldwide who file stories published in 1,700 U.S. newspapers.

Meanwhile, independent groups such as the Berkeley, Calif.-based Center for Investigative Reporting and the Center for Public Integrity in Washington, D.C., churn out investigative reports and documentaries that they feature on their own Web sites and place in traditional media. Journalism schools at Brandeis University and University of California, Berkeley are among several that now fund investigations by students and visiting fellows. And ProPublica, a $10 million-per-year investigative reporting outfit overseen by former Wall Street Journal managing editor Paul Steiger, is gearing up for a 2008 launch.

"If you give good people the time and resources and equipment and technology, you're going to have superb journalism," says Charles Lewis, a former 60 Minutes producer and founder of the Center for Public Integrity. "Increasingly, nonprofit news venues are more nurturing of that kind of journalism than our news-as-a-commodity, celebrity-saturated environment."

Yet the need for investment in public interest journalism is arguably more dire at the local level than on the national scene. This is partly because two industry trends — the increased importance of the bottom line and the migration to the Web — push papers to focus on subjects with a broad potential audience, such as Washington political news or lowbrow celebrity coverage. Reporting on a single Chicago neighborhood likely interests few people other than residents of the neighborhood, and many papers have amped up coverage of the suburbs, hoping to attract the higher-income readers coveted by advertisers.

For decades, a handful of traditional newspapers, including the St. Petersburg Times, have maintained a local, public interest bent by incorporating (or reincorporating) under the umbrella of a tax-exempt organization. But the recent boom in nonprofit local journalism is unprecedented.

Around the time Dougherty launched the Daily News, Paul Bass, a 25-year reporter in New Haven, Conn., founded the New Haven Independent, a nonprofit news site staffed by a handful of journalists. Last fall, Minneapolis-based MinnPost went online, fueled by reporting from several ex-Minneapolis Star Tribune and St. Paul Pioneer Press reporters. In January, journalist and computer programmer Adrian Holovaty unveiled EveryBlock, a site that filters news and public records information relating to every single block in Chicago, New York and San Francisco. There are dozens more of varying stripes. What they have in common is an idealistic mission to give readers the information they need, with little concern about cost.

Wealthy donors and foundations such as McCormick Tribune and Knight have taken a keen interest. Program officers say startups account for a significant portion of media-related grants, which the Foundation Center estimates reached roughly $158 million in 2005. Knight alone has committed $25 million over the next five years to community news projects like the Daily News, many of them nonprofits. Funders who once viewed the news media as a way of identifying which charities should receive grants now believe reporters themselves may be rightful recipients.

"High-quality journalism isn't a consumer good; it's a community asset, in the same way a museum is," MinnPost founder Joel Kramer says.

On a snowy December evening, Dougherty and associate editor Pat Dunnigan lead a training session at Daily News headquarters. They sit in a circle of plastic chairs with community organizer Frank Edwards, four citizen journalists and an intern. The entire room, from the bare, exposed brick walls to the pizza box in the corner, screams "startup."

Even among this diverse group, the editors make quite an odd couple. Dougherty, a weekend punk rocker, sports trapezoid sideburns and a scraggly growth of beard on his double-chin. Dunnigan wears a shoulder-padded jacket over her small frame; she’s accessorized with earrings, a shiny bracelet and plum-painted fingernails.

They're explaining media ethics at the workshop, part of a series of sessions Dougherty hopes can teach "the minimum you need to know to do credible journalism." Much of the session consists of discussing ethical dilemmas. In one scenario, a resident at a community policing meeting fingers a building as a drug-dealer haven.

A volunteer journalist suggests she’d visit the address before writing it up.

Dunnigan agrees: "Anything in a story that impugns or remotely reflects ill on anyone needs to get a response."

"A lot of this is common sense," Dougherty adds. "Think about how you'd feel if you woke up in the morning and read in the paper that you were dealing crack out of your house."

It's hardly a master class in investigation, but volunteers seem to learn enough to competently cover community meetings, press conferences and other subjects local media often don't have the resources to report. While few articles have the impact of Michaelson's, in the Daily News they’re more advanced than often-maligned posts plaguing some citizen "journalism" sites, which highlight local events like the birth of a litter of kittens. And the Daily News site boasts innovative, locally focused features, such as distinct pages that allow readers to easily access news, businesses and government event listings within specific neighborhoods; maps are included with almost every story.

"I have no doubt that once we get the full network in place, once we have 75 to 100 people writing, the quality is going to shock a few people. We're going to have something really interesting," says Edwards, whose chief job is organizing the volunteers.

If the plan succeeds, it will be extraordinarily cost-effective: A Knight Foundation grant of $340,000 over two years (the price of perhaps two Tribune reporters) funds the bulk of the operation.

Would-be nonprofit media moguls have taken a variety of approaches in pursuit of similar goals. In the Twin Cities, where the two major papers have cut nearly 100 newsroom jobs during the past two years and reoriented coverage toward the suburbs, two projects show how different nonprofit startups can be. In 2006, former Star Tribune restaurant critic Jeremy Iggers began publishing the Twin Cities Daily Planet, running articles written mostly by unpaid citizen reporters, along with stories republished from local ethnic papers. Barely three miles away, MinnPost, founded by former Star Tribune editor and publisher Kramer, uses freelance contributors with decades of journalism experience. Both have broken key stories from a troubled local school budget to a planned wood waste burner/power plant in a low-income neighborhood.

Yet these reporting models all face real challenges.

Citizen journalism, in particular, remains unproven as a method of producing quality news. Steve Rhodes, ruthless Chicago media critic and editor of the independent Beachwood Reporter, sums up the attitude of many professional journalists when he says of Dougherty's project: "I'm not confident the people he lines up to report from Chicago’s neighborhoods are going to be producing compelling news." He found even Michaelson’s piece "soft" and in need of further reporting.

People may be excited to offer commentary on a personal blog, but many sites struggle to attract amateurs willing to report and write for free, especially in low-income areas. Keeping them working is even more difficult. Dougherty says some volunteers last for months, while at least one quit abruptly midway through his first daily assignment. The tough-guy editor approach seldom works, and coddling is often necessary. Like the Daily News, the Daily Planet hired a community organizer to recruit and motivate volunteer reporters.

That part of the process "doesn’t feel like journalism," says David Cohn, director of distributed reporting at NewAssignment.net, a nonprofit affiliated with New York University.

Last year, a NewAssignment project called Assignment-Zero attempted to corral hundreds of citizen journalists into producing articles on crowdsourcing, or work done collaboratively by large groups. (Citizen journalism is an example, as is YouTube.) Until late in the experiment, confusion reigned, and little progress was made. Cohn describes it as "definitely not a success" and "like pulling teeth," though he was encouraged by several articles and question-and-answer interviews it published. His current effort advises mainstream media journalists in creating social networks around their reporting. It’s one of many nonprofit endeavors seeking to make it easier for professionals to find sources and for readers to contribute information.

Dougherty, too, initially expected citizens would be more often tipsters than reporters, but after editing stories by Michaelson and others, he’s optimistic they can meet professional quality standards, at least on certain assignments.

For nonprofits intent on hiring experienced journalists, the reporting seems more likely to succeed, but the costs can be prohibitive. At MinnPost, freelancers earn less than they were paid in former full-time newspaper jobs. The pioneering online Voice of San Diego has written stories that forced a police chief to admit he'd been inflating pronouncements on crime and persuaded the school board to reject the district’s unintelligible budget. It also has injected competition into what became essentially a one-newspaper town after the Los Angeles Times cut its San Diego edition and the Union and the Evening Tribune merged. Yet the Voice’s young, talented editorial staff of seven is dwarfed by even the Union-Tribune’s stripped-down employment levels.

Thom Fladung, editor of the Pioneer Press, says he hopes MinnPost and the Daily Planet succeed but doesn't think they're making an impact yet. "They haven't changed anything," he says. "There are differences in scale. We have 100-plus reporters; they have a relative handful."

And eventually, every nonprofit media company with ambition must answer the question: If for-profit newspapers can't afford to pay for public interest news, how can a nonprofit?

Operating a nonprofit news startup, Dougherty says, is "one gigantic chicken-egg problem."

No one will visit your site until you post stories worth reading, so you have to hire (or train) reporters. But without advertising revenue, you don't have money to pay them. And you can't sell ads until you can afford to hire an ad salesperson. But sales reps can’t attract advertisers without enough readers visiting the site.

For the Daily News, a Knight Foundation grant last year was a godsend. "They gave us the chicken," Dougherty says. But it didn’t eliminate all his budget woes. He recently started a $250,000 fundraising campaign, hoping to hire experienced reporters and open bureaus on the city's south and west sides. Because the Daily News can't afford to hire a development director, Dougherty is chief fundraiser, part of a laundry list of positions leading him to routine seven-day, 80-hour workweeks.

Other media entrepreneurs face similar difficulties in adapting the traditional newspaper business model to online, nonprofit sites.

At the average medium-sized city newspaper, display and preprint insert ads bring in 49 percent of revenue, classified ads another 30 percent, circulation a much smaller 14 percent, Web ads just 5 percent and ancillary activities around 2 percent. Operating expenses are huge, in terms of both personnel — roughly one-third of the budget — and ink and printing, which eat up roughly one-quarter, though numbers fluctuate over time and across the industry, according to the Inland Press Association, a newspaper trade group.

A local online site, on the other hand, has extremely low salary and distribution costs, but its revenue side is thin. Typically, such a startup has no subscription income and few or no classifieds. There are display ad revenues — the banners and pop-ups of the Web — but they typically bring in far less than print advertising. The same is true of site-targeted advertising, such as Google AdWords. Nonprofit news sites have borrowed from business models that have sustained NPR and the St. Petersburg Times, complementing advertising revenue with reader donations and grants from foundations and corporations. But it’s a tough balancing act.

The Daily Planet's Iggers says the site is overly reliant on foundation money and thus far unable to attract as many donors or advertisers as he'd hoped. At the New Haven Independent, one of the most well regarded in nonprofit media, Paul Bass isn't certain he'll have funding to sustain his full staff beyond 2008. "We go year by year," he says. "I don’t know if it's going to work [next year]. If it weren't for health insurance, I'd say yes."

The Voice of San Diego, which takes in half its revenue from charitable institutions, demonstrates that news nonprofits can go from zero to financial viability in just a few years. And Kramer says MinnPost has raised $1.5 million from 700 people — most from six wealthy donors — during its first several months. By and large, though, the obstacles to bringing in money are daunting.

For most news nonprofits, people aren’t willing (or can't afford) to pay much for the service they offer — otherwise, for-profits would likely be selling it already. So they must persuade donors that their activities are important, even if the market’s invisible hand disagrees.

Prominent foundations have begun to treat potential grantees more like corporate subsidiaries, asking them to establish benchmarks and report measurable outcomes. This puts journalism nonprofits at a disadvantage: It's harder to track the impact of an investigative reporting project than, for example, the number of people who receive meals from a food pantry.

"Sometimes there’s a great cause and effect. But sometimes you have a huge story, and it's hard to even know who's read your stuff," says Christa Scharfenberg, associate director at the Center for Investigative Reporting.

When they take money from foundations, nonprofit media editors may run into the same difficulties they faced under meddling corporate ownership. "Some funders think if they’re putting money into the reporting, that means they have a say in the reporting," says John Funabiki, former deputy director of media grants at the Ford Foundation and now a professor at San Francisco State University.

Most editors say they maintain independence, but the perception of a conflict of interest may linger. "There's this assumption that they're controlling what we’re reporting on. They're not. We can say they're not until we're blue in the face, but it's still a problem," Scharfenberg says.

Some have taken advantage of foundations' targeted interests. The Independent, for example, does health reporting funded by grants from local health-oriented foundations. Whatever the fundraising challenges, though, the chief financial obstacle holding many nonprofit ventures back may be their founders. "These people are very mission driven but often don't have business or management skills. They're doing it because of passion," Funabiki says. "A lot of these things are built on untested dreams. That's great — we want people to be risk takers. But over the long haul, that raises the question of how successful they can be."

Iggers says the Daily Planet doesn't have the business expertise it needs, and he's recruiting board members with nonprofit management backgrounds. The Voice's executive editors say they culled their initial business knowledge from their experiences of reporting on city budgets. Dougherty's main financial advisers are a brother with an M.B.A. and a college friend who worked on the business side of The Miami Herald.

"Geoff is by background, by practice and by type a journalist. He is not a businessman, and he will admit to that," says Aaron Stearns, part of a team of University of Chicago business-school graduate students analyzing and advising the Daily News. "But frankly, in order to oversee this type of venture, you need to be a journalist," establishing its news bonafides before turning to profit making.

Dougherty has a similar view: "There will be a point when we look carefully at whether we'll become a viable business. We're not at that point. Now we have $340,000, and we've promised to do stuff with that money. We have to do that first."

A recent debacle at the Center for Public Integrity demonstrates how important the right leader can be to nonprofit media success. One of the most respected investigative journalism entities in the world, it almost collapsed in the years after founder Charles Lewis left in 2004. Most of the center's senior staff quit, it raised half as much money during 2006 as in 2004 and it posted stories that required embarrassing public corrections. In a series on ethics violations and privately funded congressional trips, for example, center staff misidentified or mischaracterized sponsors of several trips and displayed the photo of a congresswoman even though references to her alleged violations had been cut from the piece. The organization eventually had to be bailed out with $1.5 million from its sister Fund for Independence in Journalism, using money reserved for legal defense against potential libel lawsuits.

"The truth is, it would've gone out of business this year without extra help and a hell of a lot of other work," says Bill Buzenberg, the executive director leading the center’s recovery.

Lewis, a sort of evangelist for nonprofit news, believes his success is replicable. "Can these nonprofits be self-sustaining? The evidence is of course they can," he says. "Is it easily done? No."

Journalists-cum-nonprofit-entrepreneurs may discover new ways to fund public interest news. Some might employ profit-making business units unrelated to journalism, like Minnesota Public Radio CEO William Kling, who used catalog and radio tower subsidiaries to build MPR's endowment. Others may adopt untried financial paradigms, such as Kennesaw State University professor Leonard Witt's notion of "representative journalism," which would have a nonprofit hub help groups of readers pool their money to fund a reporter who covers a specific topic.

As traditional daily newspapers struggle in the feedback loop of lower circulation, lower advertising and Internet disaggregation, these myriad possibilities of nonprofit local news — in terms of journalism and its financing — are driving startups in more cities and more directions. These news sites could provide a bridge to a revived, financially healthy, for-profit news industry; replace for-profit media partly or entirely; or be an experimental sandbox where journalists play, on the way to a technological world in which we get information through methods unfathomable to those raised with a daily newspaper at the breakfast table. For all their progress, though, they've yet to prove they’re more than a sideshow, one of many failed attempts to divine a way to support quality news on the Web.

"I feel like we're pointing the way toward what news organizations of the future are likely to look like and do," Dougherty says. "If I’m right, we'll be Chicago's dominant news organization in 10 years. If I'm wrong, we won't be around."

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