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Buying time in Chi-Town

Like many, I was disappointed to read Friday that the editorial team behind Chi-Town Daily News was giving up on its nonprofit business model in order to launch a new, as-yet-unnamed, for-profit news site about city news. In a blog post, editor Geoff Dougherty says the reason was that CTDN simply couldn’t raise enough cash “to do a great job of covering a city as sprawling and complex as Chicago.”

I don’t know Dougherty, but I must say that I admire his ambition. He figures he needs $1 million to $2 million a year to do the job right. I’d bet that’s still a fraction of what the Chicago Tribune or Sun-Times spends covering city government. But he’s been at it with CTDN for four years now, and he still hasn’t been able to raise more than $300,000 a year. Dougherty wants to get to the promised land, and he wants to get there now. I understand that.

The hard truth, though, is that it takes more than four years to build a donor base and diversify sources of revenue to sustain a nonprofit. The fact that Dougherty got to $300,000 in just four years is a major accomplishment. Sure, it’s easy to look at an outfit like ProPublica and wish that you too could find a benefactor willing to put up $10 million a year to pay for your newsroom. But that kind of one-stop shopping isn’t a business model; it’s a lightning strike — something that the people who run ProPublica know better than anybody. In fact, ProPublica is using a $1 million grant it was awarded in June by the Knight Foundation to hire a fundraising firm to help it figure out how to sustain itself when its initial funding taps out, according to general manager Dick Tofel.

I don’t doubt that Dougherty and his team knocked on every door they thought possible before giving up on CTDN. But the great strength of the nonprofit model, I believe, is that it puts the needs of the newsroom ahead of all others. More importantly, it treats socially responsible journalism not as a product, but as a cause greater than any individual institution that serves it. When you bring on investors, they come first, even if they’re “angel” funders. Maybe not this year, or the next, or even the third. But someday, they’re going to demand a return.

So the question that lingers in my mind is this: What exactly is Dougherty getting from his new investors? As far as I can tell, he hasn’t cracked the code of making a profit by selling socially responsible journalism. The fact is, it is likely to remain a money-losing proposition. So if he’s using the money to do what he says — scale up his news operation — he’s merely buying time until the next instance that his ambitions exceed his revenue base.

I wish Dougherty well, and I do think that we will see more hybrid organizations that blend nonprofit and for-profit activities. But if he plans to stay true to his mission — providing “vibrant public affairs coverage” — he’s going to have to ask permission of his investors. Then we’ll see exactly how angelic they are.

A postscript: In his post on Friday, Dougherty said he was in talks with some local nonprofits that might buy the CTDN website and continue its neighborhood reporting program. This is a reminder to self to check back in three years and compare what the new CTDN looks like next to Dougherty’s next venture.

                                   
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Ken Doctor    April 17, 2014
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  • http://www.metaspring.com Case Ernsting

    Great story. I’m choosing to fall on the side of, “This is the next evolution” rather than, “This is the end”. The CTDN was a pioneer for other groups to follow and hopefully, this is just the next step in a successful model.

  • http://www.growthspur.com Mark Potts

    This statement: “The great strength of the nonprofit model, I believe, is that it puts the needs of the newsroom ahead of all others,” is idealistic claptrap. Indeed, Dougherty found that the primary responsibility of a non-profit was to raise enough money to support that newsroom. What non-profit status inhibited was his ability to sell advertising and pursue other revenue sources to support his efforts, and his switch to for-profit status will solve that.

    Moreover, the idea that investors will somehow inhibit his coverage is similarly ridiculous. What investors care about is making money (that’s not a bad thing, incidentally). If Dougherty’s new venture successfully gains an audience and advertisers, he’ll have happy investors. He won’t have to “ask permission of his investors” for anything else.

    Dougherty’s experience highlights the great limitations of the non-profit model, chief among them that even a non-profit has to generate enough money to sustain its operations. There’s no magic wand that protects any non-profit–even a news operation–from that simple law of economics. For-profit status, in most cases, provides more flexibility.

  • Jim Barnett

    Careful, Mark.

    There’s absolutely nothing about the nonprofit model that precludes selling advertising or pursuing other revenue sources, and Dougherty said nothing to that effect in his post on Friday. (The CUNY News Innovation model, in fact, assumes that about half a nonprofit’s revenues could come from advertising by Year 3.) If CTDN couldn’t generate the advertising revenues they needed, then that’s a reflection of their own effort or self-imposed limitation, and it should not be represented as anything else.

    When you operate a newsroom or any business as a for-profit, your first duty — your fiduciary duty — is to your investors. You owe it to them to protect their investment. A nonprofit’s first duty is to its mission, whether it’s news, fighting homelessness or curing disease. Those are statements of fact, not “claptrap” or idealism. There are different ways of doing things, and they have different outcomes.

    At the same time, to say that a nonprofit has to generate enough money to sustain its operations is a blinding glimpse of the obvious. Any business does. And of course there’s no “magic wand” that comes with the nonprofit model — no one here is claiming that there is. If anything, a nonprofit business needs to be smarter and more innovative than its for-profit counterparts.

    The nonprofit model isn’t a cureall; nor is the for-profit model. There is a place for both, especially in a time of such upheaval in the news business. We’d do well to discuss them both in an informed, thoughtful way.

  • http://minnpost.com Joel Kramer

    Both nonprofits and for-profits have to focus on finding enough revenue and dealing with all the challenges that raises for independence, pressures on management’s time, etc. But nonprofit journalism enterprises can sell advertising — MinnPost is covering about 25% of its expenses this year with a combination of advertising and sponsorships, and we aim to increase that percentage next year. I find it difficult to imagine how a serious local journalism enterprise brings in enough advertising revenue to totally cover the high costs of public affairs reporting and editing, let alone generate profits. That’s why we also rely on individual donors (about 1,700 so far) and foundations. I wish all the for-profit experiments out there great success, but the nonprofit model can also be quite flexible.

  • http://www.growthspur.com Mark Potts

    I’ve spoken to Geoff, who’s a friend, about what happened at ChiTown Daily News, and he believes non-profit status, among other things, crimped his ability to maximize revenue. Maybe you should do some reporting and talk to him about why he’s making the switch, rather than speculating.

  • Jim Barnett

    I’m afraid you’ve misread again. For those who simply want to maximize revenues, I’d agree absolutely that the nonprofit model probably is the wrong way to go. Again, I think this point is obvious.

  • Rex F.

    He wasn’t able to create a sustainable business with 3 years and $300,000. How’s he supposed to be able to do it with $1M and investors who expect an actual return breathing down his neck?

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