Letter to Romenesko:
From DAVID CAY JOHNSTON: Alan Mutter has written a provocative post on the endowment model for financing journalism. Some thoughts:
First, very few charitable activities are 100% supported by endowment income. Endowments supplement, as with professors who get a premium salary and travel money because they hold an endowed chair, sometimes endowed by an individual or family, but often by subscription when, say, a class from a particular year raises money to endow a chair.
The endowed chair model deserves serious inquiry to determine if it can work as well for journalism. (BTW, there are fewer than 80,000 people, including freelancers, who are editors and reporters and commentators, the Current Population Survey shows.)
Second, we do not live in and do not face a world in which the economic model produces zero dollars for news.
An $88 billion endowment is a bloated straw man.
The current economic model is the problem, not demand for news. Newspapers profit by connecting buyers and sellers (especially individuals through the highly profitable classified ads that Pulitzer called “mustard” because profits from these tiny seeds) and from image advertising.
The Internet reduces all sorts of intermediary costs, primarily affecting the connection aspect, not the image aspect, of print advertising.
Third, CNN, MSNBC and Fox “News” have found a way to develop serious subscription revenue. As cable channels they are financed partly with ads partly with fees paid by cable subscribers. Big money here, yet I see very little reporting and economic analysis by journalists generally and TV/media writers in particular on the economics of this and its cultural and political implications. Alan?
Fourth, some people pay hefty fees for their news — and high quality journalism. This is not necessarily good (see item 5 below).
For decades newspaper publishers have shortchanged their customers. Their de facto model is pay more and more for less and less. No successful business does that. When my tiny hotel management firm raises prices we give customers something (better soap, nicer towels) and we make sure they know that. The rise of monopoly newspapers resulted in outsize short-term profits that could not be sustained and encouraged cutting corners until no one could miss that the papers were literally smaller and their contents degraded, especially at papers that stupidly treated copy editors as a frill.
Fifth, we are moving toward a world in which the affluent, and those with expense accounts, get quality news, while the typical citizen gets less. It’s not a digital divide that threatens us so much as a quality divide in news.
Read a copy of American Banker and see how much first rate journalism it produces. Its coverage of the mortgage crisis is vastly superior to what the major newspapers provide and almost as readable.
AmBanker costs $895 a year. Most of those subscriptions are tax-deductible business expenses, which means all Americans share in about $360 of the cost when the federal and start tax expenditure are combined. (Most home delivery newspapers are not tax deductible so a $710 NYTiimes daily subscription is equates to more than $1,000 of pretax income for most readers.)
Tax Notes, the nonprofit (and almost no advertising) daily and weekly that I am a columnist for, charges $1,999 per year. For that you get about 100 pages a week of news and documents from one of the largest newsrooms in Washington (more than 40 reporters, more than 100 journalists counting editors and others, many of them lawyers).
Generally, speciality publications that charge serious subscription fees are doing much better than general interest newspapers. Over time this means those who pay for their news will be better informed than those who rely on less well financed, and thus less well reported, publications.
Sixth, current law does not make a hybrid of commercial-endowment supported journalism possible. We should think about ethical, logical and accountable methods by which endowments can supplement journalism. We have some models already. Some nonprofit magazines rely on donations to finance articles.
If newspapers were to evolve into nonprofits (and a few are already owned by nonprofits) can a new model emerge? As nonprofits they could still take in advertising and subscription money, just not to benefit owners. And they could establish endowments to supplement the revenues from ads, subscriptions and ancillary income.
Viewed as a supplement, endowments a tenth the size of what Mutter writes about could have a profound impact.
Indeed, just 1% of what Mutter calculates — a well-managed endowment of $900 million — could generate a million dollars a day, adjusted for inflation, forever. That could be the margin that matters for producing original and vital journalism. As time passes, and new incomes are earned and fortunes made, donation could build that endowment.
JOHNSTON SENDS THIS ADDENDUM: The $900 million endowment would generate $36.5 million a year, not the $365 million I wrote (see why copy editors matter).
The tenth of Mutter’s suggested endowment, $9 billion, would be needed to generate $1 million per day inflation adjusted forever.