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June 15, 2016, 9:26 a.m.
Business Models
LINK: www.knightfoundation.org  ➚   |   Posted by: Shan Wang   |   June 15, 2016

If there’s one lesson to take from a new Knight Foundation report on the viability of the Philadelphia Media Network local journalism model, however familiar, it’s that there’s no panacea for ailing local journalism. (Disclosure: Knight is a supporter of Nieman Lab.)

One convoluted model was born in Philadelphia early this year. Local newspaper owner and philanthropist H.F. “Gerry” Lenfest donated the organizations within the Philadelphia Media Network — the Inquirer, the Daily News and Philly.com — along with another $20 million to a newly created nonprofit called the Institute for Journalism in New Media, which operates under the Philadelphia Foundation as part of its Special Assets Fund. (Phew, that was long. You can read more about how the math adds up — or doesn’t — in this Ken Doctor piece).

“For newspapers looking to make a bold move from for-profit to nonprofit, the approach in Philadelphia and other approaches highlighted in this report are not necessarily the right path or the only path,” Tim Griggs cautioned in his profile of the new arrangement in Philly, for which he interviewed around 30 key players involved in the Institute’s formation, as well as other industry professionals. (Griggs is currently a digital media consultant, and was publisher and COO of the Texas Tribune until this February.) He goes on to quote a tax attorney he interviewed, who’s worked on many media-related cases: “There is no single, one-size-fits-all approach to tax-exempt organizations and transactions involving ‘regular news’ newspapers.”

As many have noted, the reorganization doesn’t excuse the news outlets from at least making more money than it spends. Those optimistic about the arrangement feel that it buys some time, while still holding outlets accountable for their finances.

“One of the most meaningful components is that they’ve stayed with a for-profit taxable model,” said Feather Houstoun, senior adviser for journalism and public media for the Wyncote Foundation. “That creates a sense of obligation, a separateness of the paper and the enterprise from the nonprofit owner such that they still have to make it work.” The ability to take foundation dollars and other philanthropic support “can be distracting from the imperative to make journalism sustain itself.”

Others aren’t optimistic.

“Media companies are going to survive — or not survive — based on the quality of information they provide and the people making the decisions about how it’s provided and who provides it,” Howard Gensler, a Daily News columnist and president of the Newspaper Guild of Greater Philadelphia, said. “If we don’t figure out a way to right the ship and we don’t stop hemorrhaging money…then I don’t see it making much of a difference, to be honest.”

The report also tries to untangle the goals of the new “Institute,” which still aren’t totally clear, though “it’s safe to assume it will include digital audience growth and engagement, and specific product development in social and mobile.” People involved with the Institute agree that it will ultimately need much more than Lenfest’s $20 million investment. It also still needs a digitally minded executive director.

If a $20 million endowment is widely seen as substantial but not enough, what will it take? Is the $100 million target sufficient? Is it realistic to get there? And where will the institute turn for support?

For starters, enter David Haas. In April, he added $1 million to Lenfest’s endowment as a personal gift, plus a pledge of an additional $500,000 a year through 2020. Separately, his foundation, Wyncote, has committed to investing $500,000 a year through 2020. Together, that will be a $5 million boost to the endowment.

“I believe very strongly in this,” Haas said. “We don’t know exactly how the evolution will go, but it’s so important for the city. It ought to have enough fuel in the tank to be able to focus on strategy.”

The PMN/Institute/Philadelphia Foundation arrangement is one of many variations of the nonprofit ownership model, including ownership by a school, trust, or foundation. But:

Perhaps the most obvious nonprofit ownership model would be the one that hasn’t yet happened for a daily metro paper: direct conversion from for-profit to nonprofit….A newspaper wanting to convert from for-profit to nonprofit also must show that the “manner in which the distribution is accomplished is distinguishable from ordinary commercial publishing practices.” This raises an obvious question: In a digital era, and with legacy news organizations struggling to stay afloat, let alone make a profit, what is considered “commercial”?

The full report — titled “Could It Be Sunny in Philadelphia?” — is available here.

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