New Knight study identifies 3 surprising keys to nonprofit news business success

The Knight Foundation has a new study out this morning examining the business models for seven locally-based nonprofit news sites in their drive to achieve sustainability.

Focusing on high-profile ventures such as Texas Tribune and Voice of San Diego, the report, “Getting Local,” concludes that none of the sites are all the way to sustainability yet.  But they are well along and developing best practices that other geographically-based ventures can learn from.

The report identifies three “next-stage” opportunities, each with a flavor of paradox:

  • While the sites were founded in part as a reaction to declines in newspaper and other traditional media coverage, they do better if they set editorial goals beyond simply replacing what is gone. Engaging a specific audience and demonstrating social utility will be key to attracting continued and broader support.
  • While all relied on foundation grants and/or a few big-ticket donors to get started, the best are diversifying income streams to include membership campaigns, events, sponsorships and advertising.
  • Being online-only slashes production and distribution expense and allows the sites to put a majority of their budget into editorial (unlike newspapers which typically devote only 10 to 15 percent to news). But there is a strong case for “balancing resource allocation” by adding technologists, development professionals and engagement specialists — rather than just hiring more reporters and editors.

The report, written by consultant Michele McLellan and Knight’s Mayur Patel, examines Bay Citizen, Crosscut (of Seattle), MinnPost, New Haven Independent, St. Louis Beacon, Texas Tribune and Voice of San Diego.  All are geographically based and have “modest sized professional staffs.”

The study was started by a management consulting firm in 2009. This published version updates financials through 2010 and traffic measures through the first quarter of 2011.

The target market among the sites varies greatly from 24.9 million for Texas Tribune to 220,000 in New Haven. Traffic varies too, but not quite as much — from a high of 450,000-plus uniques a month for the Texas Tribune to a little over 50,000 for the St. Louis Beacon.

Texas Tribune, with an extensive database as well as stories, also scored highest in average monthly time on site at about 4 minutes. Bay Citizen had the highest budget at more than $11 million.

The report highlights a variety of engagement-building initiatives — a “Politifest” community event in San Diego, MinnPost’s annual political roast and a “You Fix the Budget Deficit” interactive that drew 10,000 visitors. The Bay Citizen has a Bicycle Accident Tracker, and the St. Louis Beacon hosts regular discussions of neighborhood development issues and of race and class.

Such activities, Michael Maness, who directs Knight’s journalism and media innovation programs, told me in a phone interview, have a business payoff as well. Some contributors, he said, “are not among particularly active users but believe in what the site does.”

The New Haven Independent provided heavy coverage of education issues and Voice of San Diego took up the cause of Cambodian refugees who were being evicted from a community garden. The report cites both as examples of actionable reporting with high social impact.

Despite the efforts at diversification, the seven sites studied collectively  got 57 percent of their 2010 income from foundations and another 34 percent from donations.

Further, many of the sites rely on a a small circle of foundations and donors. At the St. Louis Beacon, 94 percent of the donations came from seven individuals with an average contribution of $174,000.

Several of the sites are making big progress on funding diversification, the report finds.  Texas Tribune showed 37 percent of its $1.8 million in revenue earned, as opposed to donated, in 2010; For MinnPost, it was 26 percent of $1.3 million.

Some of the 7 nonprofit news sites studied relied on diversified revenue sources; others depended more on foundation support. One factor could be how mature the nonprofits are.

The partnerships the Texas Tribune and Bay Citizen have formed to provide content to The New York Times regional pages produce good exposure but not much income. Each received less than half a percent of its revenue from the arrangement.

Besides building “organizational capacity” by adding non-journalists to the staffing mix, the study commends the sites for many experiments with content partnerships. It also praises the exploration of mobile apps and social media features like the Tribune’s “TweetWire,” which aggregates the Twitter postings of Texas politicians.

Since the report’s financial information ends at 2010, I wondered how the sites are weathering this year’s tough economy. Maness said that in this instance the reliance on large donations, some already in the bank as start-up funding, helps.

Paul Bass, founder of the New Haven Independent, e-mailed me that the site is fine for 2011 and already has financing locked in for 2012.

Similarly, Joel Kramer, editor and CEO of MinnPost, wrote that spending will be up 25 percent this year, advertising and sponsorships are on track to be up more than 30 percent, and that he is more than halfway to goal on a special $1 million capital campaign.

The study also tracked expenses for the 7 nonprofit news sites, showing where they spent their money.

I asked Maness if the robustness of the seven sites studied suggests that other big states like Florida and New York could have their version of Texas Tribune while cities like Cincinnati or Pittsburgh emulate the St. Louis Beacon and MinnPost.

That is beyond the scope of this study, he said, but a cookie-cutter approach probably would not work. The successful sites tend to have strong community roots and adapt to information gaps specific to the areas they cover.

By way of illustration, the study originally included the Chi-Town Daily News, which folded in 2009. The report finds that Chi-Town relied almost exclusively on foundation funding, was mostly staffed by out-of-towners and spent heavily on editorial and an attempt at citizen journalism — while neglecting business development.

This report continues Knight’s heavy involvement in exploring and supporting community information initiatives. Maness’s predecessor, Eric Newton, now special assistant to the president, announced at an international news conference in Vienna last week that the Knight Challenge grants are being renewed. There may be as many as three competitions a year rather than one, Newton said, to speed the pace of innovation.

Also, Knight released yesterday the eighth in a series of reports in collaboration with the Aspen Institute, this one on how communities can measure the vitality of their local information systems.

Five years ago, I thought Knight was being hasty in shifting funding focus so sharply away from experiments housed at newspapers and other traditional media.

Now I am more inclined to think that the for-profit sector needs to fend for itself. Despite a much smaller scale, what Knight and these sites have been building is valuable — and has plenty of room still to grow.

Joel Kramer from MinnPost and Melissa Bailey from the New Haven Independent talked about how nonprofit news sites can work toward sustainability in a live chat, which you can replay here:

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