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What’s keeping news organizations from trying the “low-profit” model?

With so many journalism luminaries focused this week on new business models at Aspen Institute’s FOCAS09 conference, I was a little surprised not to hear more about the potential for the low-profit limited liability corporation, or L3C.

The L3C is a hybrid corporation that straddles the line between for-profit and nonprofit enterprise. Vermont last year was the first state to pass a law allowing formation of L3Cs, and Illinois this month became the most recent. Several other states are considering similar legislation, as is Congress.

Some have looked to the L3C model as a solution for newspapers because it allows a corporation to take on investors who are willing to accept varying rates of return – or possibly none at all. Foundations would be assured that their investment would qualify as a program-related investment – a crucial distinction under tax law – while socially responsible investors might be willing to settle for, say, a 3 percent return.

So where is the grand experiment in L3C newspaper journalism? We’re still waiting to find out. One of the big problems is that nobody really wants to go first, says Jay Hamilton, director of the DeWitt Center at Duke University. The concept remains fraught with uncertainties, not the least of which is whether newspapers can return to profitability after the recession.

Another, Hamilton says, is the cost of navigating the legalities of converting an existing corporation into something new. “Once a media organization has worked out how to transition to a L3C or be formed as a L3C, the next one would be cheaper since the first process would reveal what issues are likely to arise,” Hamilton said in an email. He discussed the idea more fully in a recent article that appeared in the Raleigh News & Observer and other newspapers.

To get an idea of what an L3C might look like, have a look at an idea floated by Chuck Lewis in a recent Columbia Journalism Review article, “A Social Network Solution.”

Lewis, founder of the Center for Public Integrity and the Investigative Reporting Workshop, writes the article from a perspective that CJR calls “voices from an imagined future,” looking back on current events from 2014. In the article, Lewis reveals his plans for what could become an ambitious L3C:

With all of this in mind, in late 2009, I began World Investigative Reporting Enterprises (WIRE), a global gateway to investigative journalism – a multimedia platform for the best original stories by some of the best journalists in the world, commissioned by, reported, written, edited, and published or produced for WIRE. The privately owned company includes investors who are socially committed to this work and who don’t expect 20-plus percent annual profits – people I know personally and trust.

He then states that the enterprise would rely both on payment for content and donations from readers:

(B)y the end of 2013 profits were at 5 percent. By then, we had accumulated one thousand media partners throughout the world, using a syndication model in which content is exchanged for online page views, which WIRE then uses to sell advertising – with a share of that advertising income paid back to the partner site. Revenue is derived from advertising and reader donations. The latter has vastly exceeded our expectations. Thousands of civic-minded individuals became so excited by the historic nature of WIRE and the public service it provides that they became reader-contributors, what we call WIRE Associates – crowd-funding by credit card, not for an individual project or subject area, but for the entire operation.

Lewis said in an email last week that his plans to launch WIRE this fall have been postponed due to other commitments, including his work in forming the Nonprofit Investigative News Network this summer. And he hasn’t committed to forming the enterprise as an L3C. But he adds: “Stay tuned!!”

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“Things” editor, distribution editor, correspondent for progress — as newsrooms change, so do the ways they organize their human resources.
  • Neil Budde

    You might want to go back and look at some enlightened family ownership such as the Binghams in Louisville to see how low profit played out. Some family members were happy to accept really low profit margins, but others weren’t. The other issue was that low profit margins left little room to invest in the business. In those days, that meant no new presses. Perhaps that’s less of an issue in today’s world, but news organizations still need to be investing in technology development.

  • Jay Small

    I’d suggest you look at another industry where altruistic mission and profit mission seem to collide: credit unions.

    As most people know, credit unions are non-profit cooperatives that provide financial services to membership segments defined in their charters. The members are the owners, and rather than accepting dividends or value creation in stock, they gain from lower fees and better rates on those financial services.

    The largest credit unions these days behave more and more like for-profit banks. In fact, some large credit unions changed their charters to become for-profit banks in the past five years, generally to the benefit of their executive teams more than their member/owners. Meanwhile, smaller credit unions that fight to preserve member service missions find it harder to compete, or in worst cases, find themselves targets of acquisitions or even regulator-forced buyouts.

    I’m not saying “do-good” and “make-money” are always mutually exclusive missions, but I struggle with human nature vs. the blend of “do-good” and “make-just-a-little-money.”

  • Dan Mortenson

    If there were a one-click-without-leaving-the-page way to contribute as little as a quarter (25 cents) at a time, to any journalist whose contribution we liked, we might see the trickle amount to a roar of direct support, for the voices we want to hear more of.

    We need a low-capacity form of a site like PayPal, to make this work. It should never claim more than a buck (less would be much better) of the clickers cash, on any page load. This would inspire confidence in the clicker, and encourage free clicking.

    It should also weed out the corporate level of sponsorship, by refusing to take their accounts, keeping the money flow limited to the private-person level.

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