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Aug. 27, 2009, 8 a.m.

A for-profit argument for a nonprofit model

There’s a great new post at Free Press’s Save The News project. It’s from Cindy House, formerly of the now-deceased Rocky Mountain News and now of the Rocky Mountain Independent. In it, she talks about the Independent’s business model and why the founders chose the for-profit path.

House’s post is worth reading because the three-pronged model she describes is truly innovative. The first two elements we know a lot about: advertising and memberships. The third is something not normally associated with newsrooms: The Independent plans to develop a consulting business that will offer “Web design, search engine optimization and editing/writing services to other businesses.”

Although House doesn’t use the word “subsidize” in connection with journalism, that’s exactly what she’s talking about. As she says, the owners hope the consulting business will “bring in much-needed capital.” She adds: “We keep our expenses low so that whatever revenues come in go right back into content development.”

This, ladies and gentlemen, is precisely the argument for the nonprofit model.

To review: Socially responsible journalism has been revealed as a public good because it cannot (or at least has not yet) found an online niche where it can be fully supported. The nonprofit model addresses that problem by opening the door to philanthropic development, as well as for-profit subsidiaries, including consultancies. The nonprofit mission is crystal clear: Whatever surplus may be generated goes right back into newsgathering.

Now back to the Independent. If I read House’s post correctly, that’s exactly what the owners hope to do. I deeply admire the courage it took for these laid-off journalists to take control of their futures (not to mention the effort they are making in the public interest). But as a for-profit, the Independent someday is going to have to start paying taxes on its profits. And what if the consulting business is wildly successful, throwing off enough cash that some of the owners suggest that the board declare a dividend? Isn’t that what for-profit owners are supposed to do? Yes, the owners agree now that profits go back into the newsroom. But at a for-profit, that might not always be the case.

There’s more ammunition in House’s post for the nonprofit model. The idea of memberships, of course, is one that public radio stations have built development plans around for decades. House confesses that managing the business model to protect editorial integrity won’t be easy. She writes:

[A]s journalists, this is tough for us to wrap our heads around. Traditional newspapers erect a “wall” between the editorial and advertising/business departments to prevent conflicts of interest. As we build up our consulting business, we will have to reshape this wall, perhaps by spinning off a segment that’s separate from the core news magazine.

Nonprofits have developed some fairly sophisticated governance procedures to manage these kinds of church-and-state divisions. They’re not perfect, but again, they are designed to serve the mission, not the bottom line.

POSTED     Aug. 27, 2009, 8 a.m.
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