Tuesday, November 23, 2010

Another setback for non-profit news

A year ago, I wrote that David S. Bennahum might do for non-profit journalism what Ray Kroc, the founder of McDonald’s, did for hamburgers. But it has not worked out that way.

Bennahum’s disciplined approach to franchising a network of non-profit news ventures has faltered, casting further doubt on whether there is a viable model for filling the void in local coverage left by the meltdown of the mainstream media.

In an email today, Bennahum, the founder of the American News Network, said a 50% drop in revenues forced him to shut his Washington (DC) Independent and sharply cut staffing at the New Mexico Independent.

Bennahum said other sites would continue operating in Colorado, Florida, Iowa, Michigan, Minnesota, North Carolina and Texas, even though staffing has been cut in half in a year when revenues plunged to $2 million from $4 million.

Unlike other news non-profits, which tend to be one-off labors of love cobbled together by trial and error, there was a certain discipline to the systematic way the 42-year-old Bennahum raised some $13 million to launch local sites while paying himself $200,000 a year.

Rather than fixating on the journalism produced at his sites, Bennahum put his energy into managing them: Raising non-profit backing, making money from ongoing operations, monitoring costs, calibrating the metrics of his ventures and even taking tips from Google on how to raise the yield on his banner ads.

Bennahum’s stumble is the latest in a series of setbacks that cast doubt on the ability of non-profit news sites to achieve long-term sustainability through ongoing support from advertising, subscriptions or even the sale of organic vodka martinis.

In a landmark report last month, Jan Schaffer of J-Lab, who put $833,000 into 46 start-up news sites, candidly stated that “community news sites are not a business yet.” Shaffer reported that 31% of the ventures failed (see her comment below) and that the remainder are enduring in large part because the founders are working for little or no pay.

Non-profit news ventures face a flotilla of formidable challenges in the crummiest economy since the 1930s. They include, but are not limited to, raising start-up money, gaining visibility, building traffic and monetizing their audiences through ad sales, subscriptions, live events or any other lawful means that come to mind.

As if those challenges were not enough, they now face competition from the likes of AOL’s Patch (in 18 states plus the District of Columbia) and Yahoo’s still-pending local news effort. AOL and Yahoo not only possess superior funding but also billions of free page views on their existing sites to promote their new local news efforts.

Equipped with these unfair advantages, Patch and the local Yahoo sites have the potential to obliterate individual local grassroots efforts once they achieve cruising altitude.

In light of the above, it appears that the only non-profit news ventures with a hope of success are those that have attracted long-term, multimillion-dollar funding from individual multimillionaires. The list of the fortunate few is very short:

:: ProPublica, which gets $10 million a year from a single wealthy San Francisco family.

:: The Bay Citizen, which launched with $9 million in funding (including $5 million from a single wealthy San Francisco businessman).

:: The Texas Tribune, which has raised $6 million, including at least $1 million from a single wealthy Austin businessman.

In other words, it looks like the only way to succeed in grassroots journalism may be by finding a sugar daddy. And that's not very grassroots-y, is it?


Anonymous Anonymous said...

I think what is killing local news sites is the same thing killing local newspapers - a lack of local businesses with a tie to the community.

In my local town, small businesses with a tie to the community were common 15 years ago. They supported the local paper and the local high school by buying ads and even donating money.

But they have been replaced by out of town owners with no ties to the community or national chain stores who don't see the value of advertising locally. As the federal government continues to strangle small business with harmful legislation, this trend with only continue.

12:45 PM  
Blogger Steve Outing said...

It's too early to be so definitively pessimistic. Some of us are working on possible solutions. It's not an easy problem to solve, and it'll take time and multiple small breakthroughs. (My little program at CU-Boulder is working on at least two ideas that will address this problem.)

There is a need for independent investigative and public-affairs reporting, and it's important enough to our futures that we (that's many we's) will succeed eventually. The independents might fail if the Patches and Yahoo Locals took up investigative and serious reporting, but they'll be in it for the money, so a snowball's chance of hell in that happening.

7:39 PM  
Blogger Rosenblum said...

The greatest problem facing journalism today is that journalists refuse to focus on the only really important thing and that is revenue. If you have revenue, you can do anything. If you don't have revenue, nothing else you do matters. Yet as a profession we are business-phobic. Too bad. Tragic, in fact. For those who want to start a new business, get your priorities in order. Three things are paramount: revenue, revenue and revenue.

10:11 PM  
Blogger Richard M. Anderson said...

This comment has been removed by a blog administrator.

5:00 AM  
Blogger Racoon said...

...and revenue is a function of authority, authority, authority (read: important, valuable information).

5:35 AM  
Blogger Unknown said...

This essay and the comments so far are bulls-eyes. I started CountyNewsLIVE.com in rural Mid-Missouri 2-1/2 years ago. We are a "ratings hit," but are struggling with revenue. So I got me a salesman and gave him ownership. The main thing we struggle with is old habits of local advertisers who waste terrific amounts of money on old black-ink ads. But we are taking on that waste head-on, and getting some traction. We also withhold our best reporting for our 273 paid subscribers ($19.95 per year), but we still manage to get 8,000 non-paying unique visitors a month, so we still have a big audience for advertisers.

But this is good advice: "revenue, revenue, revenue." DON'T ASSUME revenue will follow excellent, aggressive reporting. It won't automatically be there. You have to have an excellent news product, then you need a very motivated, very capable salesperson who will work long hours and will break some dishes to get trial for online advertising.

I disagree with the point in the essay about inevitability of Patch. Patch will ALWAYS be vulnerable on the local ownership/local control issue. We compete with an entrenched 100-year old former monopoly newspaper. They still have 93% market share, but we're tipping that balance every day. We are making much to do about this paper's out of town ownership. It was something local businesses didn't think about until we began bringing it up. But shipping ad dollars out of town is sitting poorly with the local business owners who are very loyal to this town. Patch will ALWAYS be vulnerable on this issue. And many Patch employees who dig the job security will also secretly harbor the dream of being an independent local publisher. Patch might win the battle, but they'll lose the war. The war might take a decade -- or two decades -- to play out, but time is on the side of local ownership and local control of local news.

5:51 AM  
Blogger Unknown said...

Yes, I said, in our new report, that hyperlocal news ventures are not a business YET, but I do think the emphasis is on the YET part. I also think there is a lack of imagination about revenue possibilities beyond ad sales.

BTW, Alan, you overstated in this column the percentage of our pilot projects are no longer active. You said one-third "failed." Actually it's fewer than one-fourth that are no longer active, although 88 percent of the projects are still online.

I don't use the word "failed." Most of them succeeded very well in the execution. But for various reasons, and it was usually personnel turnover not money, they didn't continue beyond two years.

-- Jan Schaffer

6:03 AM  
Blogger Richard M. Anderson said...

Sustainable local news organizations will be those that expand their role from being a provider of news to also being host to the Digital Main Street™

The Internet is designed to give the little person a voice. In the real world, Main Street businesses survive by providing news and information to consumers that big boxes do not. Helping these local establishments to do the same in the digital world generates participation and revenue not achieved through display ads.

The internet is changing the world. The direction of information flow is changing 180 degrees -- One to Many, Neighborhood to World. AOL, Yahoo and TBD will not succeed unless they invest in many more feet on the ground than they have shown the willingness to do thus far. While AOL touts the number of journalists they are hiring, the quotient of the number of journalists divided by the population they are covering does not suggest timely, reliable and trusted local coverage.

The old business model works. In a recent post in my Sustainable Journalism blog, I said “There will be a continuing demand for reliable and impartial news gathering and news reporting, for providing an advertising venue, and for the publishing of reports about matters important to every-day life. The Internet allows us to do more of this and to do it better than we can with print alone.” The key to sustainability is to understand the change in the nature of the advertising venue. Content, not display is what works online.

7:58 AM  
Blogger Nicole Hollway - St. Louis Beacon said...

Jan, you speak volumes: "I also think there is a lack of imagination about revenue possibilities beyond ad sales."


10:39 AM  
Blogger Martin Langeveld said...

I'm not sure why you consider AOL and Yahoo! to be exercising "unfair advantage" in entering the local space — since when is it unfair for a corporation to use resources it has? It's not like AOL is buying up hyperlocals and corporatizing them — Patch is actually a pretty risky bet on AOL's part.

I'd like to suggest that this is actually a case of the more the merrier; that having multiple local news sites in a particular location helps to create a "busy street" or buzz effect, driving readers to explore them for news and information, and driving advertisers to explore them as new ways to reach consumers. In other words, as we are seeing, it's pretty hard for a lone online news operation (whether non-profit or for-profit) in a community to get traction. But when you have a small constellation of hyperlocals (such as in Seattle), the attention that's generated helps all of them thrive. In places that end up with such an ecosystem — a Patch, a few "local" hyperlocals, and local news sites associated with a daily and a weekly — my prediction is that all of them will do well, and that Patch's money, alone, won't be enough for them to gain dominance or drive others out.

[full disclosure: my son is an editor at Patch]

1:41 PM  

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