Social Enterprise and the Renaissance of Local News

Part 3 of 5:

While my last post covered The Great Unbundling and Collapse of Local Newspapers, this one explores the first of three factors that may now be coalescing into a renaissance in local news. The three factors include social networks, mobile computing and social enterprise – the focus of this post.

News as Social Enterprise

Local news is a tough, fragmented business. As we covered in the last post, “the great unbundling” caused by the web fundamentally altered newspaper economics so that advertising from car dealerships and other local businesses was no longer sufficient to pay the salary of the reporter covering city hall and the local school board.

It takes hard work to do real journalism and often its real value is hard to monetize. This is particularly true for “broccoli journalism” – the kinds of stories that are good for you and your community, even if you don’t necessarily enjoy reading them. A top-notch expose on the lack of maintenance on a local bridge, for example, isn’t something most of us are willing to pay money to read, even though it just might save hundreds of lives one day. Hard to monetize, but clearly there is immense social – and quite possibly personal – value there.

“Were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter.”
– Thomas Jefferson

Given this, we have to at least open ourselves to the possibility that the new, unbundled business model for local news may well be a social enterprise.

Even after its unbundling, the business of local news has been surprisingly resilient at maintaining its profitability. In the face of declining readership and ad revenues, it’s maintained this profitability through ruthless cost-cutting. When sustained long enough, this kind of ongoing reduction of investment in the business can’t help but undermine its underlying value proposition and ability to compete. This is the notion of harvesting mentioned in the last post, and newspaper shareholders have harvested profits so intensively and unsustainably in this industry, that it has now reached the point where most observers believe it is no longer capable of generating the kinds of profits that once excited Wall Street. It’s an industry deep in debt and essentially running on fumes.

“The online world reflects offline: the news, narrowly defined, is pretty hard to monetize.”
– Hal Varian, Google’s Chief Economist

Incumbents are faltering, and prospects for new entrants look equally dismal – at least based on the old business model. Esther Dyson recently noted that “no thinking person who wanted a return on investment would invest in a news start-up” and that when it comes to accountability journalism, the nonprofit sector will need to play a bigger role.

A recent survey by the Reynolds Journalism Institute of sixty-six new online local news services, validates Dyson’s hunch. While display ads still account for the biggest share of their revenues, the kinds of revenue streams often associated with nonprofits, such as donations, sponsorships, and grants accounted for 36% of revenues. Throw in subscription fees, which many nonprofits do as a benefit of membership, and that total comes within a few percentage points of total ad revenues.

IRS rulings place important, though difficult to understand, restrictions on nonprofit organizations’ ability to generate earned income such as advertising. So many organizations are opting for new, more flexible, hybrid models. One such approach involves nonprofits setting up for-profit subsidiaries. These wholly-owned ventures house earned income in ways that abide by IRS regulations, while directing all profits back to the nonprofit parent, as a new source of support for its mission – a mission which might just focus on ensuring high quality local journalism.

For organizations not interested in the complexities of a nonprofit structure or in nonprofit fundraising, there are other ways to bolster commitment to mission. B Corporations are a certified group of businesses that meet an agreed upon set of social and environmental performance standards. The B Corporation mark also represents a legal framework, backed by legislation in a growing number of states, that enables these companies to operate without enshrining maximizing returns to shareholders as their primary reason for being. The L3C represents a new legal structure, which is similar to the LLC, but which also grants an organization greater flexibility to achieve socially beneficial aims without necessarily prioritizing returns to shareholders.

Making the Mission Work – Locally

Regardless of the particular organizational structure it chooses, the notion of a truly mission-driven news entity is quite compelling. We see examples of it running quite effectively in the nonprofit world in entities such as YES! Magazine, Grist, and High Country News. None of these organizations are rolling in dough, but they have consistently proven their ability to secure a healthy enough mix of earned revenues and philanthropic support to hire excellent teams of writers and editors. While these organizations have editorial voices and geographic territories that make them operationally quite different from a local newspaper, they do paint a picture of what could be possible on a municipal level.

That said, according to the FCC report, newspapers are experiencing a $1.6 billions dollar drop in editorial spending per year. Even with a hybrid model to infuse earned revenues, the world of philanthropy is not really in a position to make up for that kind of shortfall.

No, revenue diversification is not enough. The costs of gathering and distributing local news must also be reinvented and that is the focus of my next two posts on the renaissance of local news.

Up next…  Part 4 of 5 - Social Networks and the Renaissance of Local News

Part 1:   The Information Needs of Communities

Part 2:   The Great Unbundling and Collapse of Local Newspapers

Part 3:   Social Enterprise and the Renaissance of Local News

Part 4:   Social Networks and the Renaissance of Local News

Part 5:   Mobile Computing and the Renaissance of Local News

Image modified from original by Puzzler4879.