The dark side of journalism’s fairy godmother business model

August 19, 2019
Category: Uncategorized

Be careful what you wish for, journalists. Fairy godmothers can have a dark side.

Just ask the fine folks at the Pacific Standard, a magazine respected for its decent salaries and long-form stories. The small staff of 16 journalists known for their impressive work have packed their desks, polished their résumés and published their last stories. Why? Because their sole funder cut off the $3 million-plus it took every year to pay their salaries and expenses.

Philanthropy may still be one of the best options for American journalism, but the stunning and rapid death of Pacific Standard is a cautionary tale. A single, generous donor can be risky business.

Among journalists these days, there is a common prayer: Please, gods of truth and democracy, send me a patron, a fairy godmother, a kind uncle, anyone who will buy my news company, then invest millions so that I might do award-winning journalism that will change the world, amen.

 

It’s a dangerous dream. Just like winning the lottery, finding a generous patron is no guarantee of a happy future. The permanent shuttering of Pacific Standard is a wake-up call to those who entertain this fantasy.

Pacific Standard debuted in 2008 as the Miller-McCune Report, named after its patron, Sara Miller McCune, the founder and controlling partner of Sage Publishing. The magazine was rebranded to its current title in 2012. It was known for deeply reported, well-edited stories on social justice issues, with a particular focus on the environment and education. And it was deliberately located on the West Coast to counter the East Coast flavor of its competition, like The Atlantic and The New Yorker.

Here’s how the money flowed: The for-profit Sage Publishing would give a couple million dollars every year to the Social Justice Foundation, a non-profit whose sole function was to run the Pacific Standard.

This Daily Beast article gives the best insight into what went wrong. It appears that Sage abruptly notified the Social Justice Foundation that there would be no more donations. It’s not clear why. The four board members at the Social Justice Foundation are all Sage executives, so it stands to reason that they were aware of any financial issues that Sage might be having.

A close look at the foundation’s tax returns from 2017, the most recent year available, shows that the company was burning close to $3.5 million a year, all a charitable gift from a single source. The publication was making very little headway, less than $300,000 a year, in generating its own revenue.

The moral of the story? News companies don’t need a patron to buy them. They need a freakin’ endowment of $50 million to throw off enough money to keep an operation like Pacific Standard in the black.

Short of an endowment, the rare non-profit news operation with a single donor needs a board and a leadership team that is working on Plan B from day one.

The tragedy of Pacific Standard is that no one gave it a fighting chance. In his string of tweets announcing the magazine’s abrupt closure, editor Nicholas Jackson said he had been reassured that future funding was promised and secured.

Absent an endowment guaranteed to generate the operating expenses, no funder or board should ever make such a promise. And an editor should never believe it. Our industry has the hardest time learning from the past. What if Pacific Standard had invested a third of that income into business development? (Sounds familiar, right? What if newspapers in the late 1990s had invested a third of their profits into developing new revenue lines?)

If we truly believe that journalism is indispensable to democracy, the last 15 years should have taught us that the future is never secure.

I asked the Social Justice Foundation if it really failed to give the leadership at Pacific Standard any heads up. The unsatisfying email response that it sent suggests the answer to that question is yes. Here’s what the foundation said, as emailed by Camille Gamboa, corporate communications director at Sage:

Pacific Standard in recent years has been published by the Social Justice Foundation and over the past 10 years has been funded via donations ultimately from the same source, with very limited additional income. In early years, we worked diligently to build a sustaining or consistent subscription base, but we knew that we could not build a subscription base that would support the magazine independently. Separately, we were also focused on developing funding partners or a syndicate of funding partners, but we were unsuccessful in that regard. More recently, we moved to a digital-only model and while readership was good and rising, advertising revenue was only modest. We were working on diversifying income from other sources but the sudden loss of the magazine’s core funding made it impossible for us to continue publication.

We are proud of what Pacific Standard achieved and would like to record our thanks and admiration to all the staff, past and present, to contributors, and to everyone else who has been involved in publishing the magazine and wish them well in their future endeavors. Pacific Standard has published the stories that matter in a way that few other publications have done, and offers a model for journalism in terms of quality, evidence-based reporting, and engagement in critical issues.

​— From the Board of the Social Justice Foundation

I told you it was unsatisfying.

Since his original string of tweets, Jackson has been mostly silent. He declined an interview with me via Twitter DM.

Journalism is too important and too fragile to have significant publications disappear overnight. Short of creating true endowments, here’s what journalism fairy godmothers owe their beneficiaries:

  • Clarity and transparency. Be honest and open about where the money is coming from and what circumstances might disrupt the flow.
  • A rainy-day fund. From the beginning, a portion of any large sustaining gift should go toward a savings account that could eventually become an endowment.
  • Business resources and guidance. Require that from the start they build a plan to diversify their income so that eventually they won’t be dependent on a single donor.

As philanthropy expands its role in journalism, we should keep our eyes wide open to the fact that all good things will come to an end. While the money is there, let’s think bigger or find a business model.

Comments

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  • The analogy of a fairy godmother is apt – but in the wrong way.

    The leaders of Pacific Standard – and too many other organizations to name – want to wish away financial realities. They want someone else to magically solve their problems.

    Pacific Standard didn’t need a new, fairy godmother. They needed to use the $30 million they’d been given over a decade to invest in a sustainable business model. To put it in the terms of Poynter’s own Table Stakes model: They needed to find a job, and do it well enough, that its readers would gleefully provide ongoing support. Instead, the published an array of stories – from Cameroon to the American West – that didn’t do any one identifiable thing well enough to stand out in a world of essentially unlimited content.

    Ain’t saying they weren’t worthy. I’m saying they were naive, and believed that their fairy godmother would support them forever.

    Leaders of organizations are responsible for ensuring the organization’s health. By relying on magical thinking, the leaders of Pacific Standard failed.

    Two other points:

    “It appears that Sage abruptly notified the Social Justice Foundation that there would be no more donations. It’s not clear why.” No, it’s clear: SJF’s announcement states that Sage needs to reinvest in its own digital future.

    “News companies don’t need a patron to buy them. They need a freakin’ endowment of $50 million to throw off enough money to keep an operation like Pacific Standard in the black.” $3 million-plus per year would assume a 6-percent return on that endowment – too far on the optimistic side. Assume 3 to 5 percent – meaning, to be safe, an endowment of $100 million. Which itself is fantastical thinking.

    The answer is hard, but clear: Do something well enough that the audience will pay for it.

  • Yes we also had a fairy godmother and she pulled the plug overnight citing whimsical (and false) reasons. And we tanked, and were on the verge of closure, when we reinvented and got a new life and broke even. This is a valuable piece, and something that rings true for so many news organisations, especially startups. We run Gaon Connection, India’s biggest rural media platform (www.gaonconnection.com). The foundation that was funding us, had a leadership change and suddenly stopped their funding after the first year of a committed three to five-year run. We were badly hit — and thank god for that. Because of this disaster, we reinvented, created six revenue streams — video, audio, print, digital, ground activation and surveys — and all revenue lines have kicked in. Within two years, we have broken even and shall end the current financial with a profit, I think the only Indian media startup to do so (and we do not have an investor). We reinvented our business model and we currently have zero dependence on advertising. We are proud that it is, in many ways, a case study.
    Thank you again for an eloquent and very useful piece.

    • Neelesh, I’m glad you’re still here. Your story sounds very familiar.