July 27, 2020

This is an abridged version of an article on Northwestern University’s Medill Local News Initiative website. It can be read in its entirety here.

As many legacy news outlets struggle to survive, industry analysts are looking to digital startups as a promising way to revive coverage of local news. After all, digital-only means you don’t need massive presses or barrels of ink or fleets of trucks. The barriers to publication are low, so there’s great growth potential.

Right? Well, maybe not. At least not yet.

A recent update of the University of North Carolina’s “news deserts” research by Penny Abernathy showed that since the fall of 2018, more than 80 community-scale digital news sites have been started — and an equal number have closed.

Jed Williams, chief strategy officer at Local Media Association, assesses it this way:

“You’re a digital startup. You have no legacy costs. You have no overhead. … But you also have no existing brand assets whatsoever, and building a brand from scratch is really hard.”

The Medill Local News Initiative talked to industry leaders and people who have created their own startups to get a sense of the potential of this segment of local news. The bottom line: Launching a startup isn’t as easy as it looks. But industry groups such as Local Independent Online News Publishers, the Institute for Nonprofit News, the Local Media Association and the American Journalism Project are working to make it easier. LION and the Google News Initiative just announced an eight-week startup boot camp to begin in September. Perhaps the big era for startups hasn’t happened yet but is about to begin.

Sue Cross, executive director and CEO of the Institute for Nonprofit News, is bullish about the future of startups as awareness and momentum grow.

“The public is just really realizing what’s lost,” Cross said. “And it’s never easy to do a startup and there’s a cultural change in helping the public understand that the news isn’t out there just free and it’s not just going to always be there, but that the community needs to support it in some way, or some combination of ways. That’s a big cultural shift and we’re very early into it. In most communities, the shrinkage is just down to a point where people are saying OK, we have to do something.”

Among the advice from Williams, Cross and others for people thinking of launching a startup:

  • Start with a year’s financial stake, but don’t raise so much money that it tempts you to grow too fast.
  • Worry about the business as much as the journalism.
  • Diversify your revenue sources. Beware of over-reliance on ads.
  • Learn your audience. When you think you’ve talked to enough people in your community, talk to some more.

“Digital startups will increasingly be critical players in local news, no question. But what we’re seeing now is that it’s really challenging,” said Tim Franklin, senior associate dean at Northwestern University’s Medill School of Journalism, Media, Integrated Marketing Communications. “It’s true that local news startups aren’t stuck with the cost structures and debt of legacy organizations. But they also don’t have the brand equity and audiences of the legacy outlets, and they face many of the same economic headwinds in growing revenue as well as the same competitive pressures.”

But Franklin, who heads the Medill Local News Initiative, sees reasons for optimism.

“I think foundations and civic-minded investors increasingly see local startups as a pathway to strengthen decimated local news coverage,” he said. “And there are success stories around the country. I think the thriving digital-only operations share common traits — they have clearly defined audiences, they go deep instead of wide in their coverage, they have diversified revenue streams and they’re disciplined in their growth.”

A startup that began with some advantages is Block Club Chicago, a nonprofit that launched in June 2018 with the aim of serving the city’s neighborhoods.

Block Club Chicago was built by veterans of DNAInfo Chicago, a for-profit site started by TD Ameritrade founder Joe Ricketts that was a journalistic success but not a financial one. DNAInfo shut down suddenly in November 2017.

“Not only did we close, we closed very publicly, so a lot of people knew our story already,” said Shamus Toomey, who came to DNAInfo as managing editor after serving as assistant managing editor/metro at the Chicago Sun-Times. Now he’s editor-in-chief and co-founder of Block Club Chicago, and he believes the credibility from DNAInfo was “hugely important” when it came time to launch the new digital-only site with co-founders Jen Sabella and Stephanie Lulay.

Block Club Chicago began with financial help from the now-defunct Civil media project as well as from a Kickstarter campaign.

“I always urge these sites to start with a crowdfunding campaign right off the bat,” Toomey said. “Do not announce your newsroom without a Kickstarter or a GoFundMe or something in place.”

Don’t depend too much on advertising, said Toomey, who wondered whether some of the outlets that closed in the last year or two made that mistake.

“How many of the 80 that closed had been reliant on banner ads as a main revenue driver?” he said. “That to me is perhaps something that the digital startup 10 years ago may have gone into, launched with that as a main revenue stream and perhaps seen it dry up or never come about.”

Block Club has received support from foundations, including Joyce and McCormick, but its long-term strategy is centered on reader revenue. Some are “locked,” and non-subscribers can access five of those a month before they hit the paywall. “We intentionally keep many stories unlocked, however, for the public good,” Toomey said.

Block Club had a staff of seven when it announced its Kickstarter campaign. “When we actually launched with our first stories, we had five reporters and three editors. We are now at 15 (total).”

Another digital startup worth watching is The Daily Memphian, which began in September 2018 with strong financial support but took on a daunting mission: compete head-on with Memphis’ legacy Commercial Appeal newspaper, following a broad agenda.

“We cover everything,” said Ronnie Ramos, executive editor of the Memphian. “Most of the journalism startups in this country are focused on a specific area, whether it’s business or Chalkbeat with education, or Texas Tribune with politics and government, or ProPublica with investigations. There’s nobody that is really doing a full local news site. And so, that part of it really attracted me to it as a way to sort of try and figure out what the future of journalism is.”

Ramos came to the Memphian in January 2020 from Gannett’s Indianapolis Star, where he was executive editor. “It’s been incredibly liberating not to worry about print,” Ramos said.

The Memphian is a nonprofit with subscriptions and a paywall. “Three free articles (a month) and then you have to buy a subscription. There is no discounting, so we’re not doing $1 for five months or $9 for the year that other sites have done. You can either pay $10.99 a month or $99 for a year. Those are your options. The result: We have very low churn, which is great.”

The Memphian launched with journalism credibility because it hired key staffers away from the rival Commercial Appeal. It began with an impressive war chest, about $6.7 million in startup funds, but also was criticized for allowing donors to give money anonymously to the foundation that funds the operation. Ramos said this policy was “a hindrance to getting funding from some of the traditional nonprofit funders” but insisted that he had a free hand editorially.

While Block Club and The Daily Memphian started with advantages, some other entrepreneurs are less prepared when they plunge in. A host of organizations have stepped in to share best practices.

One effort is Project Oasis, run by LION Publishers; the Center for Innovation and Sustainability in Local Media at the University of North Carolina’s Hussman School of Journalism and Media; the Google News Initiative; and Douglas K. Smith, co-founder of the Poynter Institute’s news transformation program Table Stakes, part of the Knight-Lenfest Newsroom Initiative.

As part of Project Oasis, “one of the things we’re going to set up is called a ‘Starter Pack,’” said LION executive director Chris Krewson. That will include advice on topics such as building a budget and forming a board of directors.

The Local Media Association, meanwhile, works “with an increasing number of digital startups,” said Jed Williams, the group’s chief strategy officer. LMA and the Google News Initiative recently announced creation of the Center for Journalism Funding, a six-month program to explore philanthropic support for news. Fifteen news publishers will be selected to participate, including newspapers, broadcasters and digital news sites.

The American Journalism Project, formed by Chalkbeat CEO Elizabeth Green and Texas Tribune founder John Thornton, provides financial support and guidance to select local news organizations.

Sue Cross’ organization, INN, works with a wider group of news outlets — nonprofits, whether they are digital startups or not. But she thinks the rise in segments of INN’s membership is a good sign for startups. In June 2016, 30 local news outlets and 38 state news outlets were INN members. In May 2020, INN’s membership included 89 local outlets and 57 state outlets.

INN provides an environment in which nonprofits, including startups, can swap tips. “They are on our listserv every day,” she said. “They share vendors, they share resources, they share their financials.”

Many startups need a stronger business sense. After all, “how many of the best editors that you know were also good business people?” asked LION’s Krewson.

Rick Edmonds, media analyst at Poynter, said startups need to be sure to hire support staff.

“They’re started by journalists. Everyone’s sort of gung ho,” Edmonds said. “They grow a little bit and they want to hire another journalist, another journalist. That’s a real trap because the next phase, you need some capacity on the business side. … You’ve got to have somebody who’s out there developing advertising and sponsorships. You do need a business head in the publishing slot.”

Startups might want to beware of starting on a shoestring.

“We’re really lucky in that we have a full year of runway,” said Kelsey Ryan, whose Kansas City startup The Beacon soft-launched in May. “… My No. 1 piece of advice is to figure out how you can start getting the money put away for at least a year for operating.”

But beware of too much money, said Jim Brady, whose Spirited Media ran and sold three digital startups: Billy Penn in Philadelphia, The Incline in Pittsburgh and Denverite in Denver.

“In some ways you could argue maybe a big pile of money is the worst thing that can happen to you,” Brady said, “because then you feel like you have to spend it all, and then you stretch yourself too thin. I don’t think it’s how much money you get at the start that dictates much. It’s how disciplined you are.”

Getting the customer to pay up, either with a subscription or a membership, is the No. 1 goal for many startups. While events have been lucrative for some news outlets, that revenue stream seems largely blocked by the pandemic. On the other hand, foundation support of local news seems to be on the upswing. According to Edmonds, “there’s a lot more receptivity” by community foundations.

Developing a deep understanding of the audience is vital.

“Our first hire was actually ‘audience’ by design,” the Beacon’s Ryan said, “because if you start writing but nobody’s there to read it, what’s the point? We wanted to make sure, for us, we spent several months just doing listening sessions, surveying people — and this is part of our Google News Initiative grant that funded this position — making sure what we were building was something that people would actually use in our community, because otherwise there’s no chance of it becoming a sustainable business.”

INN’s Cross said successful startups “form a broad board or advisory board, and really go out and find evangelists outside of journalism to help extend the evangelism and build broad support in the community.”

Nationwide, more startups run by and serving minorities are needed, said Ryan, who works for LION in addition to her Beacon role. “I really hope we have more founders who come from diverse backgrounds. That is a major problem.”

In the end, the success of startups comes down to thousands of day-to-day decisions. Here’s Jim Brady with a reality check:

“A lot of them go bad because they’re run poorly. People are always looking for a reason why some startups make it and some don’t, and there are a lot of reasons. But the one that’s discussed the least is just: Did you run it well?”

Mark Jacob is editor of the Medill Local News Initiative website at Northwestern University.

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