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March 31, 2010, 1:28 p.m.

John Thornton: Nonprofit news outlets will be a bigger part of our future than Alan Mutter thinks

[Yesterday, Alan Mutter wrote a post detailing why he thinks nonprofit news outlets “can’t possibly save news.” An interesting discussion ensued in the comments (including contributions from Jay Rosen, our C.W. Anderson, Dick Tofel, and others). John Thornton, chairman of the nonprofit Texas Tribune, wrote a response to Mutter; I’m republishing it below. —Josh]

Alan Mutter is one of the keenest observers of today’s topsy turvy media landscape. I am therefore pleased that he payed me a compliment on his highly trafficked Newsosaur blog:

An amazing number of smart and sophisticated people continue to harbor the fantasy that philanthropic contributions can take over funding journalism from the media companies that traditionally have supported the press.

At least I think it was a compliment. You see, as a co-founder of The Texas Tribune, I am one of those fantasy-harboring loonies who believes that nonprofit journalism is important. But, now that Alan — who I consider a friend — also considers us smart and sophisticated, I suppose we should all be able to call the whole thing off and get back to our day jobs.

Or not. Alan gets so many things right that I can’t resist arguing the other side. I think he is gloriously, deliciously, spectacularly wrong here. Alan’s logic runs aground on the shoals of three m’s: math, model, and motive.

Math

Alan asserts that replacing the $4.4 billion spent in American newsrooms will require an $88 billion endowment, which he points out is a gargantuan proportion of the $300 billion or so of annual charitable giving in the U.S. There are at least three problems with this statement. The first is that it confuses a balance sheet concept (endowment) with an income statement concept (annual giving). In the parlance of Econ 101, Alan has confused a stock variable with a flow variable. Fox news anchors are known to resort to this trick when they want to make our government seem more profligate than it is (no easy task, that). It’s a little like confusing the federal debt with the deficit. If you take a big number and multiply it by 20: shazam! It’s a bigger number! An endowment is built up over a number of years, and so comparing it to annual giving is mixing apples and pomegranates. And besides, none of the nonprofits I know is considering raising an endowment any time soon.

That leads to problem number two. A tiny fraction of nonprofits of any type receive meaningful support from an endowment. And other than foundations, none of them lives entirely on an endowment’s investment income. Consider any nonprofit in your community: it likely operates primarily on a combination of earned income and annual giving. If it’s lucky, it has an operating reserve to shield it from rainy days and enable it to take care of special opportunities. It it’s really, really lucky, it might receive 10 percent of its operating budget from the income off its endowment.

Third, none of us sophisticated, nonprofit dingleberries is proposing that our efforts will replace commercial news. We do assert that what I call “Capital J” journalism is in trouble, because it’s not very profitable. Turns out that it never was. But now that, as Google’s Marissa Mayer asserts, every article on a paper’s web site needs to be a standalone profit center, the jig is really up, and we’re trying to figure out how to help.

You’ll never confuse what you read on Voice of San Diego or ProPublica or The Trib with content you can get on TMZ, TV Guide, Epicurious, or ESPN. We in Fantasy Land are trying instead to help shore up what Alex Jones calls “the iron core” of journalism in his book, Losing the News. Jones’s analysis reveals that this core of serious content constitutes about 15% of newspaper content, so let’s say it accounts for 15% of newsroom costs, as well. If we had the unhappy task of replacing all serious newspaper journalism with what nonprofit skeptics refer to derisively as “handouts,” we’d be staring at a $660 million annual problem. No doubt that’s real money, but consider this: according to Alan’s numbers, it’s about what people give to environmental causes in a year. In handouts, that is.

Model

But the $660 million number still overstates the size of the issue. No two nonprofit journalism organizations have exactly the same business model, but almost all of us are doing our best to practice what I call “revenue promiscuity.” At The Tribune, in addition to philanthropic support from wealthy individuals and foundations, we’re also chasing corporate sponsors for our events and for our web site. We’ll bring in about 15% of our expenses in subscriptions to Texas Weekly, a newsletter business we own and are working to expand into a string of highly valued niche titles. Our intermediate-term goal is a $3 million annual budget, split roughly equally between membership, corporate support, and specialty pubs. We’re a long way from that, but are making progress — and note that we’re not assuming any foundation support at all.

If organizations like ours can find non-handout sources for two thirds of our budget, Alan’s $88 billion problem becomes more like a couple hundred million. That’s considerably less than ballet companies raise in the U.S. every year. But the real point is this: not only will philanthropy alone not save journalism, it can’t likely support even the majority of our modest efforts. We need to run our businesses like businesses, even if our goal is public service rather than profitability.

Motive

Alan closes his post with these valedictory remarks to us fruit loops:

While there is a pressing need to save the press, a major shift in the philanthropic paradigm seems unlikely, especially in an era in which most folks — with the notable exception of a fortunate few — seem to be tightening their belts.

So, let’s stop dreaming about a visit from the Non-Profit News Bunny and get serious about discovering some realistic possibilities.

It’s a common refrain. I hear it from my friend Jeff Jarvis all the time (I have this mental image of Jeff in the classroom of his “new models for news” course, crying “THINK HARDER, DAMMIT!” to a group of j-school students with their eyes tightly clinched). But like lots of common refrains, I’m tired of it. Here’s why.

First of all, it’s not an either/or proposition. Fantasy Land could easily quadruple in population without meaningfully diluting the talent pool trying to figure out ways to make money in the news business. And although I admire his since of urgency, I should remind Alan to look at one of his own slides — the one that shows newspapers losing media spend share every single solitary year since 1959. Although the combination of the Great Recession and the digital revolution has caused the line on Alan’s chart to auger in recently, this is not exactly a new problem.

Second, the “think harder, dammit” refrain assumes that market solutions are inherently superior to non-market solutions in every situation, even though the existence of public goods (think clean air, national defense) is discussed in the early going of a basic economics course. My mentor in business was fond of saying, “get the big picture right.” It seems to me that the big picture at hand is that when atoms become bits, content consumers win and content producers get hammered into cost-cutting smithereens. If some of that content happens to be vital to the functioning of our society, I simply think it’s prudent to look around for other means of funding it.

Finally, Alan’s admonition for all of us wingnuts to get back to work reflects a view of capitalism which is totally opposite my experience as an investor. I can say with great confidence that markets are more efficient than not, that there is more than enough investment capital looking for profitable places to go, and that nobody had to yell “think harder” at Larry Page and Sergei Brin. I can say with even greater confidence that the world is a better place because investment capital tends to flow where it garners the highest risk-adjusted returns. This just in: the business of serious journalism news ain’t in the top 100, probably never was, and certainly won’t be again. Commercial efforts will persist because they just will. But expecting investors to continue to fund for-profit, Capital J journalism just ‘cuz: doesn’t that sound a lot like charity? And for the love of Zeus, please don’t talk to me about “patient capital” and “lower return expectations for noble causes.” It’s all just another form of philanthropy, but with the added confusion about whether service to God or Mammon is the order of any given day.

I’m about two years into my foray into non-profit journalism, and I’m more firm than ever in this conviction: Public media, privately funded, will be a bigger part of the media landscape in ten years than it is today. This will require the inhabitants of Fantasy Land to do a good deal of consciousness raising in the general public for membership support, and among foundations and major donors to give us the runway we need to establish sustainable business models.

We can use all the help we can get. Alan, we’ll leave the light on for you. And let me know if you see that Bunny!

POSTED     March 31, 2010, 1:28 p.m.
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