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Endowing every U.S. newspaper: $114 billion. Innovation: Priceless.

Anybody got $114 billion?

That’s what it might cost to create an endowment large enough to sustain every American newspaper in perpetuity as non-profit organizations. But don’t take that figure too seriously, please. It’s just a thought experiment prompted by this week’s chatter about non-profit journalism. I’ll explain.

David Swensen, the acclaimed chief investment officer at Yale, and his colleague Michael Schmidt kicked off the discussion on Tuesday with an op-ed in The New York Times that explored the merits and plausibility of endowing newspapers to ensure their survival. They estimated that the Times would require a coffer of $5 billion to support its newsroom in perpetuity — or roughly the endowment of Cornell University. Social media blogger Allison Fine called the piece “downright stupid,” but others were intrigued: Steve Coll carried the argument further on his New Yorker blog, picking up some support from Portfolio’s Felix Salmon, while journalism professor Leonard Witt took the proposal in a different direction. What the discussion has been missing, however, is some good data — and a reality check. So I called up the man whose blog I always rely on for hard figures and astute analysis of the newspaper industry: Alan Mutter, former city editor of the Chicago Sun-Times and now a media consultant at Tapit Partners.

Mutter is skeptical of “getting a foundation to bail out an unprofitable business” and warned me: “It doesn’t matter whether you organize as a for-profit business or a non-profit business. If the inflow and outflow of money are not appropriately balanced, that enterprise will fail.” But he kindly indulged my curiosity about what exactly it would take to endow the editorial sides of American newspapers. All of this math assumes that we’re trying to fund an online-only news organization that does not sell advertising or subscriptions but pays the same number of journalists and the same salary as the newspapers we’re trying to replace. Whether anyone should attempt such a thing is for another day, but I hope these back-of-the-very-rough-envelope calculations add some data to that discussion.

Here’s a scenario that Mutter took me through: Consider your typical metro daily in terrible financial shape with 150 people in its newsroom at an average salary of $75,000 a year. (You might call this hypothetical newsroom, say, the Seattle Post-Intelligencer.) Mutter estimates that the news-gathering costs of this paper are about $125,000 per head to pay for salaries, benefits, office space, travel, etc. That means we’re talking about $19 million a year in expenses (rounding up like good, conservative financial planners). Self-sustaining endowments typically pay out slightly less than 5% a year, so it might take $400 million to endow the P-I or a similar newspaper — again, with no print product, no advertising, and no subscriptions. (We’re multiplying annual costs by 20 and investing in the safest bonds we can find.)

If you’re willing to douse these estimates with more salt than a bag of potato chips, you could apply to the same logic to bigger newspapers like the Los Angeles Times, which Mutter estimated has a cost per head of $150,000 in the newsroom. In the good ole days, the Times employed 1,300 journalists, so to sustain such an operation again, we’re talking about an endowment of $4 billion, the size of the Rockefeller Foundation. The New York Times would probably require something on the order of the Mellon Foundation. And if you wanted to endow all 56,900 journalists who were working for American newspapers at their height in 1990, assuming an average of $100,000 per head? Well, that would take at least $114 billion — or the ten largest foundations in the U.S. combined.

Now, that really isn’t the cost of saving American newspapers. Much of journalism is still profitable, and the rest needs more than a bailout. NYU professor Jay Rosen has been particularly eloquent of late in explaining why the future of journalism isn’t about propping up or replacing the system that we’re currently losing but building new ones. So if I had $5 billion to donate to the New York Times, I wouldn’t. I’d fund a 30-person newsroom focused entirely on investigations of local government in New York or a 30-person outfit covering the New York arts and culture. Online-only, of course. And if I wanted the best journalists doing the best work without worrying about ad sales or subscriptions, it would cost me $120 million to endow — or what the Annenberg Foundation gave in 1993 to launch USC’s journalism school. (It doesn’t have to be an endowment: ProPublica is funded by annual grants of $10 million, mostly from the Sandler Foundation.)

I believe strongly that philanthropists should step in to protect journalism, just as they have ensured that pirouettes and librettos maintain their rightful place in our culture. The Tisch Gazette, anyone? But Josh Marshall, whose Talking Points Memo is a for-profit and profitable news outlet, articulated in a speech last year why the non-profit model should never be considered a panacea for journalism:

A lot of people think of independent media as being synonymous with nonprofit media — either intentionally nonprofit or accidentally nonprofit. But nonprofits get their money from somewhere, from foundations; now those foundations tend to have a much more benign set of “asks” of the organizations they support than advertisers do. But it still limits independence.

In my experience, and I get criticized for saying this sometimes, at the [nonprofit] magazine that I worked for before I started TPM, the fact that our continued existence was not based on size or interest level of our readership allowed us to be cut off and not particularly in touch with what our readership had a fine interest in. I think that was not just bad in business terms, but much more importantly, bad in journalistic terms.

I actually think that for the independent media sector to be independent and vital in a deep way, it needs to be not only rooted in the nonprofit sector, but again, in for-profit terms.

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Joseph Lichterman    Aug. 26, 2014
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  • Dick Tofel

    Two quick (and seemingly overlooked) points worth noting in the endowment discussion:
    1) endowing the newsroom of a newspaper wouldn’t get it distributed, so the figures used by Swwensen and Coll would produce only web versions of those papers, not the print papers as we know them;
    2) most of these organizations (certainly the LAT and the P-I , for instance) could be purchased outright for far less than the “endowment” cost– and that is emblematic of their true business problems

  • Jeffrey McManus

    Setting aside the fact that raising all that money would be next to impossible, one big problem I can see with the notion of endowments is that it would put the newsroom squarely in alignment with the interests of Wall Street.

  • Vin Crosbie

    So we’d be setting up endowments to sustain the operations of newspapers that consumers are abandoning in every increasing numbers?

    Oh, that makes good business sense. Endow failed products that demonstrably aren’t serving their customers well.

    These proposals to prop-up failed services are really attempts by journalists (I’m fifth-generation) to continue what they’ve long been doing rather than face the fact that their practices and the services they produce no longer satisfy the people they say they serve.

    Don’t get me wrong. By change practices, I don’t mean journalists should no longer be accurate, objective, probitive, etc. I don’t mean they should pander to the lowest common demoninator (hello, Britney!) I mean it’s blatantly obvious that the packages of content they choose to produce (in newspapers, news magazines, and broadcast programs) is increasingly not what satisfies people’s needs or interests. Those products and services must be radically revamped, rather than sustained.

    Let evolution take its course and let these failed products die. New species will arise to replace them. This unfortunately might mean a brief ‘Gray Age’ when some stories don’t see the light of day, but the more brief this transition, the better for society.

  • Zach Seward

    Thanks for the comments. Dick, I think your first point speaks to the broader problem with these discussions, which is that it would be inefficient, unrealistic, and silly to take a publicly traded company like NYT Co. and turn it into an endowed non-profit. Same with the P-I or any other for-profit newspaper that already exists. What I’d be interested to see is an endowed non-profit that endeavored to replace or supplement one of these newspapers — or better yet, only the vital portions of them — at similar expenses (and therefore, I’m assuming, quality). Replacement may not be a good idea, but that’s at least what I’m talking about.

    Also see Alan Mutter’s wise points this morning here:

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  • Tom Davidson

    As usual, Vin is far more eloquent than mere me on the notion of propping up a failed system.

    But I’ll offer a small, additional twist: The math for newsrooms in question is certainly close enough for hand grenades. But that analysis doesn’t begin to answer a more-basic question: How many people do you really need to cover City X?

    Yeah, I know John Carroll famously said of the L.A. Times newsroom: “I have 1,300 people, and it’s never enough.”

    Yet we all can name legendary characters who took up space and money with zero (or worse) impact on the end product. One senior staffer I could name was derisively referred to “deputy managing editor for lunch.” Her partner was the “deputy managing editor for rearranging furniture.” A third had an uncanny ability to disappear when major news broke. If this discussion were over a beer, any of you could top me three times over.

    But, you say, all of those people have already been forced out. Perhaps. (Really?)

    A better set of questions, I humbly submit: Assume we are starting an organization designed to ferret out the news in our City X. We acknowledge from the start that world and national is commoditized, and will come from other sources. We’re purely local (including local sports, local business and local features). But we’re funding this from our own pockets – so we’re rigorously focus on must-have local coverage, not nice-to-haves (like, say, a “local” movie critic).

    With those assumptions, how many people would we need?

    How would we organize our production process to keep as many of those people on the street with a notebook in their pocket and a flinty look in their eyes?

    How would we organize to ensure as little time as possible was spent jawboning in meetings, or doing rework (like “editing” a piece that has already gone through three sets of eyeballs)?

    The challenge for all of us is to boldly assert those kinds of plans, not simply concoct ways to shave a little more from the existing model.

    (A friend in another shop has already done that for his market – without his bosses’ knowledge, and purely on the back of an envelope. He threw out a number that was roughly one-third the size of the existing newsroom in his market.

    (Y’know what? With the right people, I’d go to war in that market with that number tomorrow.)

  • MichaelJ

    “With those assumptions, how many people would we need?”

    3 per beat. An outside person, an inside person and a great writer (rewrite).

    The outside person walks the street, has meetings, interacts in the real world. She writes her notes on a blackberry, which goes onto a wiki.

    The inside person is online as close to 24/7 as possible. Can be offsite. Could be done by an excessed journalist, or perhaps two part timers working from home to keep a 24/7 watch.

    The rewrite person could also be anywhere. Works in the cloud.

    The inside person twitters, blogs, stays immersed in the conversations in the cloud. The info is organized in a wiki. The inside person keeps the wiki neat and straight.

    Then when an event occurs, all the background information is at hand. Any member of the 3 person team can spark the story.

    The rewrite person – an expert writer – gets a fact sheet from the other two. Then starts writing. Posts the story on the wiki.

    When the publishing event is about to happen, central production goes to wiki, gets the story and copies into a layout program or the web.

    it’s done.

    The paper is grown organically beat by beat. Usually the best beat to start with is education. Every parent in any area is focused on education.

    Depending on the region, beats are added as interest and advertising are developed. First on the web, if it garners enough hits to earn it’s place in the paper, the beat gets into Print.

    You build the audience and the advertising on the web, when it’s mature, only then does it earn a place in the valuable real estate of the Printed page.

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  • David Westphal

    I suspect we’ll continue to see an increase in the philanthropy-funded journalism that’s already begun with the community Web sites and a few ProPublicas, Pulitzer Centers, etc. I’m not seeing how these are going to mess much with the destruction now under way. They are likely to be instructive experiments. And we already have quite admirable examples (NPR, the Guardian) of how philanthropy and outstanding journalism can live happily. I’m failing to understand why this is seen as such a threat. If a philanthropist wants to minimize whatever Gray Age is destined for his/her town, I would think the outcome could well be a good and helpful one. (Especially because no one knows what a Greg Age looks like and how long it lasts.) As Dan Gilmoor has noted, this conversation has a side benefit — it’s letting the public into a clearer picture of what’s down the pike. This has been far too much an intramural discussion.

  • MichaelJ

    It doesn’t make any sense to put in just money to support an organization that can not earn it’s own way. This is true whether it is for profit or non profit. That is not the important distinction.

    The issue should be divided on whether the organization is self-sustainable by creating a value that someone is willing to pay for. Many institutions do need seed money to support them through an incubation period. But if it’s long term, you’ve only traded the advertiser for the funder.

    Foundation support is subject to moral hazard and the dog food business problem. The dog food business is one in which the person who either buys or funds does not use the product. It’s not insurmountable but it makes life much more complicated since the incentives are misaligned.

    It’s a similar problem in education, health and government. Imagine if elected officials and political appointees were disqualified from government health care and pensions. My bet is that we would be much further along.

    It’s a similar problem in the financial industry. The latest stories on the bonuses on Wall Street. Unfortunately it is also a problem in academia. While tenure is important for many things, it is important to appreciate that the unintended consequences can undermine the mission of creating a cohort that is skilled at learning.

    These are complex issues. Different solutions in different contexts. But just more money can actually make it worse, rather than better.

    I only have experience with NPR in NYC – Some years ago it was purchased from the NYC government. What I know is only from the outside, seems that a significant portion of their revenue stream comes listeners who give because the service has value. They do not have to give. But clearly they do.

    It’s not profit, but they do have a definable metric from the user of their service whether the service is good. The issue is not one of morality. The issue is getting a clear signal of what is working – for the listener – not the advertiser or the funder. With good management that signal informs a natural evolution to incremental improvement.

    How many people would willingly contribute to get the New York Times, The Washington Post, The Los Angeles Times? I don’t know the answer, but I bet it would tell us alot about the product they produce for their readers, not to collect eyeballs to sell their advertisers.

  • Bernie Lunzer

    I don’t think people are suggesting that the product wouldn’t or shouldn’t change. I also think there are ways to mix foundation, and/or public money with private money. Google “L3C” and you’ll see the concept of a new limited liability corporation that would have a stated social purpose, and could mix funds. It could also become a standard LLC if it become profitable enough to shed the L3C. There has to be a way to sustain quality journalism so that a new business model is generated that works digitally. It’s also important to note that newspaper content continues to be among the most popular on the web – it’s just that revenue has not caught up to allow the web to replace print, and meanwhile incredible debt has been taken on at the worst possible time.

  • MichaelJ

    Well taken. But, as long as the question is framed as “web replacing print” instead of how web and print work together to create a revenue stream, we are going to be going up a blind alley.

    To your other points. Exactly. It’s not about profit vs non profit. It’s about sustainability.

  • Zach Seward

    A bunch of great comments above raise issues I’d like to explore in future posts (but feel free to keep going right here). They are:

    — How many journalists do you need to employ to cover a typical metro area? Alan Mutter told me that in the print world, the answer was long considered to be 1 reporter per 1,000 circulation, but many newspapers now settle for .9, .8, and even less. Is there a similar calculation we can make for an online-only news organization? And how is it affected by the ability to include “the people formerly known as the audience” in the news-gathering process?

    — Is it reasonable anymore for one news organization to cover an entire metro area? Should we only be talking about outfits that focus on specific topic or segments of a local area?

    — The L3C. My boss Josh mentioned this to me on Thursday, and it was the first I’d heard of it. Lots of newspapers have been tripped up by their dual goals of doing good and making money (Geneva Overholser has written about this), and the L3C sounds like something of a middle ground. Thanks for the tip, Bernie (and thanks for leading the Guild).

  • MichaelJ

    1 to 1000 circulation is a mass market idea. If the 1000 includes city hall, does that need 1?

    A more productive way to think about it is how many to cover a beat. Base the beat first on what is most interesting to mass ciriculation. Education, health and city hall are pretty good places to start.

    As a beat gets traction, measured by hits at the website, scale in print.

    Later, organize beats on geographical or ethnic or whatever tribal catogories are appropriate.

    There is a serious argument, most forcefully argued in Riech’s book on SuperCapitalism that the idea of corporate social responsibility and corporations being good citizens is fatally flawed. After readying the book, I think he’s got it just right.

  • Martin Langeveld

    Zach, about question 1:
    As I recall, the 1 per 1000 ratio refers to total newsroom staff, not just reporters. But in any case it was based purely on print economics — it was the point where, for most papers, the publisher was able to generate a quantity of content sufficient for most households in the market to purchase the paper, which kept most of the advertisers on board and generate a nice monopoly profit for the owner. More reporters might make a better newspaper but just ate into the bottom line, so generally they wouldn’t go there. Fewer reporters did hurt the bottom line, by not generating enough coverage to keep subscription and advertising levels high enough.

    Online, the economic balance varies tremendously from site to site, since content may come from many sources including unpaid bloggers and readers themselves. I don’t think you can define a set ratio based on population of a metro area, although for any site there’s going to be a point of diminishing returns where adding more content won’t increase page views or potential revenue. I do think that with a bit more experience, we’ll be able to talk in terms of the content infrastructure necessary to support an online community of a certain size.

  • David Westphal

    I’m guessing the old 1 in 1,000 standard might get closer to .75 in 1,000 during 2009. Eliminating, or deeply cutting, print would allow that to fall more. By comparison, last fall’s CUNY conference was playing with a sustainable online news staff that was only 10-12 percent the size of the current metropolitan daily’s staff. So many miles yet to travel.

    Another point of comparison is the news staffs at the most robust community news sites. (MinnPost, Voice of San Diego, etc.) They’re probably more like 3-5 percent the size of the newsrooms at their respective metropolitan dailies. Their work looks more like the basis of what a future newspaper staff could be: city hall, education, politics, development (no sports). Of course, these sites are overwhelmingly the product of philanthropy at the moment.

    On the L3C front, Vermont’s relatively new law has been kicking up more interest in this arena because, as I understand it, directors of a for-profit would be able to consider their social mission ahead of profits.

  • MichaelJ

    “More reporters might make a better newspaper but just ate into the bottom line, so generally they wouldn’t go there. Fewer reporters did hurt the bottom line, by not generating enough coverage to keep subscription and advertising levels high enough.”

    More reporters, like more teachers doesn’t necessarily lead to better organizational outcomes. The issue is how those resources are used.

    In a google-mart economy labor can be redeployed to create a lot more with a lot less. The real problem is where those resources are focused. If the whole outfit is focused on advertising – aggregating eyeballs or clicks – to sell, there is no positive feedback loop that leads to incremental improvements in the product.

    ‘Eliminating, or deeply cutting, print would allow that to fall more.’ Actually not so much. Print is a well defined process that creates a product with little management time necessary. You don’t have to pull together a web team to figure out the best way to deliver the medium. The recent improvements in Print are only making it cheaper, better, and more flexible every day.

    Also, framing the discussion as Print v Web, eliminates from consideration the proven method of making money. In the local space, most business – especially SMB, values print and sees the web as servingg a niche market. Not the mass market of conumser they need to find.

    A more reasonable approach is to frame it as web + Print as different parts of one communication ecology, whose interaction creates a stable revenue stream from different sources.

    IMHO, the web should be used to locate and aggregate fans. Print + web should deliver what those fans are willing to pay for.

  • Zach Seward

    Thanks for all the responses. I think you’re right, Michael, that it’s more useful to think about how many people are required to cover a specific beat, and your earlier suggestion (three) is intriguing. And as Martin points out, the ratio of 1 newsroom head per 1,000 circulation is just a business calculation. One to 500 might have been better, just not profitable. It’s worth keeping that ratio in mind, though, when we talk about what we’re “losing” and how to “replace” it (in quotes to acknowledge these may not be valid concepts). If Seattle loses nearly half the reporters covering it, how will we know when the city gets back to an acceptable/reasonable/optimal level of journalism? What’s the new media equivalent of the P-I? Not questions that need answers now, but maybe someday.

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  • MichaelJ

    Let me take a crack at “If Seattle loses nearly half the reporters covering it, how will we know when the city gets back to an acceptable/reasonable/optimal level of journalism?”

    When the news product finds it’s fans.

    We know they might be fans when they click on a story. We can guess that they are probably fans, if they come back a couple of times to a story about on the same subject. We are sure they are fans when they exchange money for something the paper has produced.

    That something might be access to a service in which the beat reporter is obligated to respond to reasonable comments and questions by a subscription only group of fans.

    That something might be a paperback book, printed using on demand and digital techniques analyzing the history and developments within a particular beat over say six months.

    Other somethings are best left to the inventiveness of editors, journalists and salespeople who are on ground.

    Two things to keep in mind.
    1. Readers, as opposed to scanners or viewers, are a niche market. The good news is that they are growing.

    2. The big stories of the next few years is NOT the silly but wonderfully entertaining political “he said, she said, he stole, they think.” The big stories are going to be about health, education and regional economic development. Those are the natural beats. IMHO.

    There are many tools falling into place to gather the information to help people understand those stories. i really do believe that 3 is the magic number. Too many more, the communication overhead is not worth it. Less than three, it falls into a personal as opposed to a professional relationship.

    But as long as newspapers think they are in the aggregate eyeball business, as opposed to helping citizens learn to think about the complex choices we are all going to have make business, it doesn’t matter how much staff, what you do with them, whether you Print or don’t Print.

    Better off getting rid of everyone except the five or so people you need to run a very profitable shopper that is all ads.

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  • Mark Loundy

    ProPublica is apparently spending 10% of their endowment on the salaries of just two people.