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Jan. 21, 2016, 10:56 a.m.

Newsonomics: The hard realities of Philly’s Hail Mary nonprofit reorganization

The numbers don’t add up to growth. Sprinkling some some nonprofit pixie dust won’t save the newspaper industry; only new ideas can do that.

Say it ain’t so. Tell me that last week’s ownership legerdemain in Philadelphia wasn’t actually accompanied by huzzahs of “saving journalism.” That smart people didn’t proclaim the Philly ownership shuffle “one of the most exciting and viable models for journalism in the country right now.” That Inquirer editor Bill Marimow, who’s spent a distinguished career in fact-based enterprise, didn’t say the move would “guarantee the perpetuation of values and traditions of the Inquirer, the Daily News, and for generations to come.”

Lost in the good civic aroma of affirmed community values is the fact that Philly newspapers owner Gerry Lenfest’s “gift” of his company to a new nonprofit organization marks the fifth ownership for the papers in fewer than 10 years. In a newspaper landscape that’s assumed all the gravitas of a real estate flipping show on HGTV, Philly holds one record: Six owners in a decade.

You can go back to 2006 when Knight Ridder CEO Tony Ridder dispatched the Pulitzer-laden Philadelphia Inquirer and its sister Daily News as part of his $4.5 billion sale of the company to McClatchy. Since then, the papers have hung in the wind, like ping-pong balls in a lottery blower. Maybe it’s a city thing: Those half-dozen newspaper transactions are rivaled in number only by the Philly-based Rocky movies. Both the movies and the newspaper sales share an unending fascination with claiming triumph over adversity and, in the newspapers’ case, over hard fact.

So what can we make of this latest shift? The biggest question is this: How does this new plan really change the dismal present of newspapering in Philly? Just last fall, another 46 newsroom positions were cut, with the digital operation cut from 30 to 17 staffers. The Daily News, long the spunky little sister representing so much of less-affluent Philadelphia, got a virtual death sentence. Those offer a tough backdrop for the first big business announcement in daily newspapering in 2016.

Doing the math

Let’s pull apart what we know about the legal reorganization.

In short, the Philadelphia Media Network, the Lenfest-owned holding company, gifted the two papers and, the papers’ website (yes, I know the whole separate-entity-website notion seems so 1999, but that’s a different story) to the newly organized Institute for Journalism in New Media (IJNM), itself operating under The Philadelphia Foundation. Further, Lenfest has given an initial donation of $20 million towards building an endowment for that new institute.

What’s IJNM? It’s a Philly-centric nonprofit composed of a handful of journalism stalwarts, including Temple University’s School of Media and Communication dean David Boardman, Columbia Journalism School dean Steve Coll, and seven other estimable leaders of both academic and foundation interests — plus Lenfest.

In Lenfest’s words, INJM will “find new ways to meet readers where they choose to read in an increasingly online future. The institute will share its findings to help other news organizations survive and improve.” Though INJM will own the papers, it will have nothing to do with their day-to-day operation. INJM won’t plot out a new future for the struggling papers; instead, it will work around the edges.

While the new nonprofit owns the paper, the still-for-profit Philadelphia Media Network will continue to operate as it has, though converted into a “public benefit corporation,” minimizing its sole need to focus on profit. (The surrounding marketplace has already done a pretty good job on that score.)

On an operational basis, it’s pretty much business as usual.

PMN will continue to manage the papers, make business and journalistic decisions, and aim to increase profit. Publisher Terry Egger told me last week that the paper was profitable in 2015 and hopes to “more profitable” in 2016, given the big budget cuts of last year.

So the paper’s profits will now support the new institute and Philly newsgathering?

“What happens is entirely up to the PMN board. If they have more than is needed beyond normal operations,” they can provide it. Given the straits of the industry, I suggested having money beyond normal operations might not be realistic. “Someday,” laughed Lenfest softly.

So it’s in the discretion of the PMN’s managers of what to do with the profits. That may be unsettling to the would-be donors that Lenfest hopes to encourage to come out of the woodwork, matching in major or minor ways, his announced $20 million donation to IJNM.

Which brings us to the question of how much money INJM will have to spend on Philly journalism projects. With PMN profits meager, the only money we know about is the endowment Lenfest’s initial $20 million gift sets up. As an endowment, paying out six percent (Lenfest’s estimate), that will produce $1.2 million in annual spendable money, while leaving the endowment principal more or less intact.

That appears to be the only certain new money to fund Philly journalism here. Yes, other Philadelphians could add to the pot, and the PMN management could decide to allocate profits to IJNM, but let’s not forget the context here. PMN’s profits have got to be tiny – and only maintained by ceaseless cost cutting. Ironically, contributing more profits to the institute might only be accomplished by cutting more newspaper, and newsroom, jobs. That’s been the only way most dailies have remained profitable given the cratering of print ad revenue — cutting the hearts, muscles, and brains (yes, along with a some atrophied parts) out of their newsrooms. Long story short: We can’t expect PMN profits to support more Philly journalism. The failure of the current business model, in fact, is what leads to what looks like a Hail Mary move to reverse the fortunes of a failing business.

So if we can only count on $1.2 million in new money, how does that stack up? Well, we’d have to figure that the company cut $3 million, more or less, in recently cutting those 46 positions. So, it seems, the new Lenfest gift could make up the equivalent of about a third of the newsroom resource lost — and that’s just what was lost in the last cut. The cuts, as at most dailies, have cascaded for almost a decade now.

Today, newsroom employment in Philly tops out at 250. In its multiple Pulitzer mid-’90s heyday, the Inquirer alone could count more than 600 journalists. Even as recently as 2007, it could claim more than 400.

Newsroom math can be a funny business.

In a Monday column on, David Boardman, now an institute board member and not long ago the highly regarded, change-oriented editor of The Seattle Times, summed up the optimism he sees in the deal. He also contrasted Lenfest’s approach with the fate of the Las Vegas Review-Journal, the paper that fell into the grasp of casino magnate Sheldon Adelson. I, too, have raised lots of alarm bells about that transaction, and the journalistic stink around it. Yet, it is now Adelson, or his family, or his family money’s funding an expansion of the Review-Journal. (“Questions linger for Gatehouse and Adelson as he plumps up Review-Journal budget”) Look on 13 job listings in Las Vegas, including a managing editor position that had been whacked by the old regime. In the state of Pennsylvania, media job openings posted number 54, and none are at the Inquirer or Daily News. There’s good and evil, and then there are jobs.

Let’s be clear. Gerry Lenfest himself says the $20 million first endowment gift is only a beginning, and we can laud him for a generous start. Still, it could take an almost tripling of that endowment to bring the reporting resources lost just last fall. In short, the math doesn’t suggest this is a route to “saving” Philly journalism.

What, then, do we understand about the future existence of these two entities, the Institute and Philadelphia Media Network?

How does the plan “guarantee continuation”? I asked. “Should we [PMN] fail, the Institute goes on and is still about the mission and the journalism,” says Egger, who was named to his post in August. What, though, exactly continues? That’s one mystery created by this new form.

The model itself

If a nonprofit owning a for-profit seems odd, maybe it shouldn’t. I recall the innovative ownership structure that public radio impresario Bill Kling figured out in Minnesota 30 years ago, allowing nonprofit Minnesota Public Radio to manage for-profit businesses which, in turn, threw off money to fund MPR.

In the reporting on the Philly restructuring, some have cited the example of Nelson Poynter purposing his free-flowing St. Petersburg Times profits to fund an institute to advance journalism in perpetuity. Is this Philly model some variation of the Poynter/St. Petersburg Times/Tampa Times nonprofit/profit model? Yes, and no, but it’s not really worth parsing that point too deeply. That model worked well for a long time, but it’s not working now itself, as the paucity of newspaper profits have drained both the Times itself and the once-flourishing Poynter Institute.

Further, there’s the question of how necessary or useful the restructuring will be in drawing journalism-supporting grants. Lenfest made the point that foundations like Ford have been supporting journalism projects at papers like the L.A. Times and The Boston Globe, and that turning the Philly ownership into a 501(c)3 nonprofit would facilitate receiving more of such grants. Given that such grants had gone to profit-making companies, I asked if he had verified that greater likelihood in talking with foundations. He said he hadn’t.

Then there are individual donors, who, too, are sought as Institute benefactors. In a discussion last week on Air Talk, the L.A.-based daily talk show on KPCC, host Larry Mantle asked openly how generous individuals may be inclined to be if they think their donations would defray ongoing operations. Mantle himself has done many a press-oriented program in his city suffering its own bouts of doubts about newspaper ownership and the long-term survival of its main daily.

That’s a fundamental question. I asked publisher Terry Egger about that point last week. “It allows us to have a new revenue stream that helps us with our cost base,” he acknowledged. “”It doesn’t get us off the hook to try to run profitable businesses, but it may help us find partners to stay in business.” I have no doubt that Egger and PMN will comply with the law, but Mantle’s point isn’t a small one. While some foundations may be willing to fund sequestered journalism projects, outside normal budgets, major individual donors — a key to building this Philly endowment — may have second thoughts.

What’s the solution? What’s the problem?

Scratch away the restructuring, and those owning the Philadelphia papers are plainly saying that they don’t have a big vision or plan for the future. That’s a problem. That vision isn’t likely to come from an institute or even lessons learned from any number of well-deployed journalism projects, both of which would be good things.

Sprinkling some some nonprofit pixie dust won’t save the newspaper industry. Only new ideas can do that. I have no doubt that the new institute will invest whatever funds it has in some good, small programs or notions. The institute’s board of journalist/academics brings the highest credibility to the task, and the foundation wants to do the right thing. Let’s remember, though, that hundreds of millions in foundation funding, led by funders such as the Knight Foundation, has failed to slow the inexorable decline of American daily journalism.

Who can’t help be impressed by what seems to be the authentic straightforward generosity of Gerry Lenfest? He’s 85 and has announced he and his wife are giving their fortune away. Further, he’s acknowledging that he doesn’t have the answers of how to reinvent the local news business in the U.S.’s sixth-largest metro area.

Lenfest put it this way in his announcement: “A key role of the new institute is to find new ways to meet readers where they choose to read in an increasingly online future. The institute will share its findings to help other news organizations survive and improve.” The words here matter, and seem, out of another time: The institute’s role is “to develop journalism in new media.” New to whom? PMN still looks at millennials like an exotic species: “We worked with two young adjunct professors and their students to us about how millennials read the news. They want a different format. They want to follow a reporter.”

It’s not 1999 anymore. Digital news consumption is exploding, with lots of innovative models of product development and distribution in the field. The readers are already out there. Spoiler alert: The future is already here, and it’s called the Internet. There are now thousands of people — though mainly working outside of newspapers, companies that have so discouraged the inside innovators with red tape, blue-penciled budgets, and white flags of surrender – who have mastered the digital arts of innovative products, viral distribution, and, yes, emerging business models that produce new streams of income. There just aren’t enough of them working in places like Philadelphia’s daily papers.

Photo of the Rocky statue by Damon Green used under a Creative Commons license.

POSTED     Jan. 21, 2016, 10:56 a.m.
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