June 10, 2013

The Pew Research Center is out with a new report this morning documenting just how difficult it is for startup, nonprofit news sites, to achieve financial stability.

A typical site starts with a substantial foundation grant, often more than $100,000, according to Pew’s survey of 93 outlets. They handle their money conservatively; most have cash in the bank. While they recognize business and financial capacity to build other revenue streams as their top staffing need, many cannot afford that help and still meet their news mission.

That leaves them reliant on the original funder, though only 28 percent of those getting a significant initial grant reported getting additional money from that source.

On the positive side, Pew found all but nine states had at least one nonprofit news outlet. Their focus is on investigative (21 percent) and government (18 percent) reporting and most report healthy audience growth. And they are optimistic — 81 percent said they were confident their sites would be financially solvent in five years.

It is clear by now that such sites have several alternate sources of revenue — attracting other foundation backers, contributions from readers, advertising and sponsorships, and media partnerships paying for their content and events.

However, Pew finds that the “broader nonprofit culture” is problematic. Organizations are rewarded by prospective funders and monitoring agencies for spending money on program services rather than business and revenue development.

“Part of what we hear is the extent to which there is a strong sense of uncertainty about how to manage,” Amy Mitchell, acting director of Pew’s Project for Excellence in Journalism and co-author of the report, told me by phone. “They say ‘We don’t really understand — we’re getting mixed messages.'”

One organization cited in the report summarized its problems raising money this way: “We don’t have time to do this. And we don’t know how.”

The Pew methodology of surveying active sites did not directly measure rates of survival. But Mitchell told me seven of the sites agreeing to be surveyed went out of business or merged during the six months it took to complete. Earlier screening showed 23 sites had closed or become inactive between 2008 and 2012.

Other Pew findings of note:

  • More than two-thirds of the outlets are sponsored by another organization, including many universities. However, the independents tend to be less reliant on seed grants.
  • The peak years for launches were 2008 and 2009 when newspaper’s fortunes were at their worst. Forty-six percent launched during that period with roughly equal numbers between 1987 and 2007 or in 2010-2011. One described its editorial mission as “filling the holes that chain media outlets swerve around.”
  • More than one-third of the nonprofits focus on state-level news (a particular casualty of newspaper cutbacks). While many do have a community focus, 20 percent specialize in national or international news.
  • The sites typically specialize in brief straight news reports. In two weeks Pew sampled, 77 percent ran no opinion pieces, and 63 percent produced no story longer than 1,000 words. The output is text-heavy with 73 percent producing no video or database journalism.
  • Staffs are small. About three-quarters have five or fewer full-time staffers.  Those are often supplemented by part-timers and volunteers.
  • 15 percent of the outlets surveyed had annual budgets of more than $1 million, while 59 percent operated on less than $500,000.

While several studies have focused on the difficulty of obtaining nonprofit status from the IRS (construing news gathering as an educational activity), 86 percent of those surveyed didn’t view this as a major business challenge.

The Pew findings are broadly consistent with earlier assessments of the nonprofit group. Michele McLellan and Mayur Patel closely studied eight of the largest and found that the successful ones had business managers and fundraising specialists rather than spending all they could raise on hiring journalists.

Jodi Enda (who has since joined the Pew Research Center staff), just last week won a Mirror Award for her piece on the sector titled, “Staying Alive.” Her finding: “The journalism is the easy part. Supporting it is hard.”

Earlier research by J-Lab’s Executive Director Jan Schaffer identified a great many sites that are mainly volunteer in nature sustained by a few committed individuals, who do not expect to be paid much or at all. So they can survive as long as the founders’ community service impulse stays strong.

A piece of mine in October 2009 conservatively estimated that newspapers were spending $1.6 billion less per year on editorial than in the first half of the 2000s (a news deficit that has increased in the years since). Though nonprofits are not burdened with legacy printing and distribution costs and can focus on a few important topics, their scale and collective mass are not coming close to replacing what has been lost.

Mitchell told me that Pew regards its new study as a baseline. The center will likely revisit the topic with the same questions in another few years, she said, to assess financial strength, growth and other changes.

Meanwhile, I can’t improve on the Pew report’s concluding summary:

“Even some of the outlets that expressed higher degrees of confidence in their future did not see a perfectly clear path forward: ‘All experimentation welcome,’ wrote one. Said another, ‘It seems to us that sustainability, meaning very little dependence on grant funding, is a long way off.'”

(Disclosure: I work for Pew on the annual State of the News Media reports but had nothing to do with this research.)


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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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