knight-nonprofitsThe Knight Foundation finds progress in the nonprofit news sector in its latest report, released today, with average revenues up 73 percent in two years at 20 outlets it has been tracking.

"But the issues are not going away," Jon Sotsky, Knight's director for strategy and assessment, said in a phone interview. "They're still over dependent on foundation grants," with many potentially in trouble if key grants are not renewed or replaced.

Today's report, third in a series, includes a bonus -- a comprehensive study of Texas Tribune, a leader among regional sites in developing diverse revenue streams which built to a $7 million annual budget in five years.

On the positive side of the ledger, the report finds:

  • Earned income increased from 18 to 23 percent of revenues over the two years.
  • Sites grew web traffic by an average of 75 percent and seem to be developing social media referrals and mobile-friendly display to stay current.
  • Spending remains concentrated in editorial (an advantage digital start-ups have on legacy media), but organizations now also see the need to invest in technology, marketing and other business functions as they mature.
  • Sponsorships and in-person events have shown particularly strong growth as advertising revenues have stalled.

The report found:

Organizations that report having specific financial goals (are) experiencing the most success: news sites that invested in business planning saw 88 percent revenue growth from 2011 to 2013 versus 16 percent among sites without any plans in place.

On the other hand, Sotsky told me "Very few are making strong efforts to transcend" conventional traffic metrics and measure engagement as well.  And the sector could use stronger planning of editorial goals and coverage, the report concludes, to demonstrate impact that can attract new rounds of funding and reader support.

The strongest outlets -- Texas Tribune, MinnPost and others -- have well-structured membership and donor programs that tap both support of the site's goals and journalism with access to hot-ticket events or other services.

Sustainability has been typically defined as five-year survival and an escape from the start-up equivalent of living paycheck to paycheck --  being able to absorb a revenue setback, for instance, without heavy layoffs or other abrupt changes of course.

But "the end game is probably not just to get bigger every year,"  Sotsky said in reply to my suggestion that sustaining sustainability could prove a challenge for the most mature sites.  Handling churn in members and donors, cultivating new foundation backers and identifying even more revenue streams may be indicated.

The report (and accompanying case study) both note, for example, that Texas Tribune is beginning to offer forms of sponsored content.  In general, the report found "too few organizations have seriously piloted new earned income strategies."

This particular report does not address the climate for new non-profit launches.  However, Sotsky said in the interview that too is an important concern. He expressed hope that access to pooled services like legal and accounting and a growing body of wisdom on best business practices may make getting started easier for the current generation of launches.

The study of the Texas Tribune is the work of Jake Batsell, an assistant professor of journalism at Southern Methodist University, who spent a year at the Tribune an a Knight-funded fellowship.

Batsell retells the story of the organization's enviable launch path -- from $4 million in start-up funding led by venture capitalist John Thornton to early embrace of events, a multimedia television and podcast presence to free searchable databases on state government that drove traffic and were the springboard for investigative projects.

But the larger part of his paper considers how much and which parts of the Texas Tribune model can be replicated by other smaller organizations.

It's all worth a read, but in a nutshell, Batsell finds the Tribune unique in three ways:

  • The "runway" Thornton provided was invaluable but at the same time "not too generous" -- so the Tribune needed to step hard on the gas in developing as a business from the outset.
  • Editor-in-chief, CEO and co-founder Evan Smith was already a prominent media figure in the state. He hosted a weekly interview program developed during his years as editor of Texas Monthly that could simply be transferred to the Tribune flag. And he had a wealth of contacts among the state's philanthropic donors and ability to sell them on the concept.
  • Going big -- with top-of-the-line salaries and grand ambitions -- was a particular match to Texas's self-image. Being in Austin, a hot business town and cultural center as well as the state capital, was also a big help.

But many other principles are replicable, Batsell writes: a relentless drive for revenue diversity, plenty of entrepreneurial creativity and customization, a feel for the elements of local culture (arts and barbecue!!) that could be monetized as events, attention to keeping the editorial and business models aligned.

Coincidentally, I will be in Austin visiting the Tribune the morning this post appears as part of a foundation-backed project my colleague Katie Hawkins-Gaar and I are doing on changing digital publishing dynamics that bear on non-profits.

In preparing, I found myself struck by a point that looms large in Batsell's conclusion -- Smith and the rest of the organization work hard and smart with intense mission-driven focus. They also have a "bold self-promotional mindset" with just the right leavening portion of charm. Smith described himself in a city magazine profile as "the least interesting man in the world.

Those probably are principles that will serve any news organization well -- including established for-profits.

The report is the third in series of studies benchmarking nonprofit news sites release by Knight Foundation. Previous reports include: Getting Local: How Nonprofit News Ventures Seek Sustainability, released in 2011 and Finding a Foothold: How Nonprofit News Ventures Seek Sustainability released in 2013.