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May 9, 2019, 11:43 a.m.
Business Models

The Salt Lake Tribune wants to go nonprofit in a new and unproven way, and now the IRS will have its say

If the Tribune can pull it off, it could point the way forward for other metro newspapers with civic-minded owners.

Nonprofit status has become a common business model for many news organizations just starting out. That magic “501(c)(3)” on an About page doesn’t solve all a publisher’s problems by any means — but it opens up new avenues of funding, communicates intent to audiences, and orients the organization toward a common cause.

Now that appeal is starting to draw more established news organizations, too.

The 148-year-old Salt Lake Tribune announced Tuesday that it is attempting to transform itself into a nonprofit news organization — a move no other major newspaper has made and which may draw IRS scrutiny.

There are a number of other newspapers that benefit from a nonprofit-like status by virtue of being for-profits owned by nonprofits. But they’re not nonprofits themselves, as the Tribune’s owners are proposing. In Florida, the Tampa Bay Times has been owned by the Poynter Institute since 1978; owner Nelson Poynter donated a controlling share of the paper to the nonprofit at his death. (“I’ve never met my great-grandchildren, and I might not like them,” he told his lawyer.) And more recently, The Philadelphia Inquirer and Daily News ended a long and bumpy spree of ownership changes — seven different owners since 2006! — by being donated to what became the Lenfest Institute for Journalism; the newspapers themselves are now for-profit public benefit corporations.

Elsewhere, in Canada, Montreal’s 135-year-old French-language daily La Presse itself became a nonprofit last summer. And The Guardian, newly profitable, has long been owned by the Scott Trust.

Paul Huntsman, the Tribune’s publisher (brother to the former presidential candidate/current ambassador to Russia and part of the power-player Huntsman family) explained the move to readers Wednesday:

We are in the beginning stages of transitioning The Salt Lake Tribune to a 501(c)(3) nonprofit organization. We will be the first legacy newspaper in the United States to take this bold move. To be clear, there are no immediate changes to our current business model or to subscriptions while we await approval from the IRS.

I have always seen The Salt Lake Tribune as Utah’s institution, much like our libraries, hospitals and the arts and cultural organizations that enrich our lives and reflect our shared civic goals. I will continue to serve as publisher, and Jennifer Napier-Pearce will continue in her role as editor.

These are challenging times for our nation, our state, and journalism. Utahns have relied on The Tribune to make sense of the world around us, to create a common conversation that crosses geography and party lines, and to participate effectively in a democratic society. By transitioning to a nonprofit business model we are ensuring that Utahns will continue to have the impactful, empowering journalism they need in perpetuity.

Huntsman could’ve washed his hands of all of this — or gone for the carotid artery by sucking up advertising dollars like the chain Huntsman’s family bought the newspaper from in 2016, Digital First Media. The Tribune’s had a topsy-turvy ride: In the first two years of Huntsman’s ownership, ad revenues suffered a 40 percent decline and weekday print circulation nosedived from 85,000 in 2014 to 31,000 last year — much bigger declines than even the bad broader trendlines for newspapers. Exactly a year ago, as La Presse was announcing its nonprofit pivot, the Salt Lake Tribune was laying off 34 of its 90 employees.

The Tribune is in the increasingly uncommon position of being in a two-newspaper city; it shares the market with the Deseret News. (Which is itself an unusual paper, both in its comparative digital savvy and in being owned by the Church of Jesus Christ of Latter-Day Saints. That ownership has made the status of the Tribune of particular interest to non-Mormons in Utah.)

Two other elements worthy of mention: First, the Tribune and the Deseret News are currently engaged in a joint-operating agreement, of the sort that used to be popular in American two-newspaper cities, which defines the business relationship and profit shares between the two dailies. That arrangement strongly favors the Deseret News currently, and it is set to expire next year — when a rumored shift to online-only publishing could occur.

Second, Paul Huntsman’s brother Jon — the ambassador who is also a former governor of Utah — is reportedly considering moving back to Utah to run for his old office again next year.

It should be noted that the Tribune has only said it is having conversations with the IRS about this shift to nonprofit status — there’s no guarantee that such a change will actually ever be approved. In fact, the sort of for-profit-but-owned-by-a-nonprofit compromise structures you see with other outlets have been intentionally designed as compromises that the IRS could accept.

Converting an existing newspaper into a nonprofit would run into some pretty significant roadblocks, as we reported back in 2015 when the Philadelphia papers were at the start of their transition:

“They aren’t supposed to be operating in a way that would effectively be competitive with other commercial models,” said Jeffrey Hermes, deputy director of the Media Law Resource Center and former director of the now-defunct Digital Media Law Project at Harvard’s Berkman Center for Internet & Society. “So the bottom line is you probably need to shift the economic base of your organization if you’re trying to get it ready for 501(c)(3) status.”

(It would be ironic if the Tribune’s status as a competitor to the Deseret News — itself a for-profit owned by a nonprofit church — limited its ability to become a nonprofit. Extra irony: The Nieman Lab staffer who wrote that piece, Joseph Lichterman, now works for the Lenfest Institute.)

The Tribune also might run into issues about its coverage decisions. It’s easy to justify watchdog coverage of the Utah legislature as having a nonprofit-worthy purpose. But what about covering Utah Jazz games? Restaurant reviews? The IRS is cautious about simply taking a for-profit entity and flipping a switch that lets it stop paying taxes. (See page 24 here — “Successors to Other Organizations.”)

There’s obviously nothing wrong with a newspaper mixing news with college basketball, music festivals, reality TV shows, butterflies, and camping tips. But a nonprofit news organization starting from scratch that proposed that wide an editorial domain would likely get lots of questions about how they qualify as “charitable activities.”

The only exempt purposes laid out in 501(c)(3) code are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” Most news organizations seeking nonprofit status apply under the “educational” standard. As we reported in 2015:

“General interest news or popular stories as opposed to important newsworthy stories typically don’t qualify,” Hermes said. “Entertainment news, sports news — that type of thing ordinarily wouldn’t be considered educational.”

The difficulty in transitioning a newspaper to nonprofit status is such that in 2009, during the depths of the financial crisis, Senator Ben Cardin of Maryland proposed the “Newspaper Revitalization Act,” which would have made a specific exception in the IRS code for “qualified newspaper corporation” that published “local, national, and international news stories of interest to the general public.” (At the time, there was talk that The Baltimore Sun, in Cardin’s Maryland, might want to take that route out of Tribune.) The bill was referred to committee and never got a floor vote.

For a number of years this decade, dozens of 501(c)(3) applications from nonprofit news organizations stalled inside the IRS process, sometimes taking two years or more to be approved or rejected. Since then, wait times have shortened, but they can still often be a year or more. And no major newspaper has attempted the sort of transition the Tribune is trying.

In other words, wanting the Tribune to become a nonprofit does not equal the Tribune actually becoming a nonprofit — even if, as Huntsman said in a staff meeting, they expect IRS approval “by the first quarter of next year at the latest.”

Huntsman may be getting out of the newspaper business, but the nonprofit model doesn’t offer any guarantees either. Sure, the trust-backed Guardian is now successfully reliant on members’ contributions — but that’s 650,000 members. Ten years in, The Texas Tribune now has 4,400 donors among its 1.9 million monthly website visitors (with a goal of 10,000 members by 2025), though it’s come up with a concoction of creative funding that works really well. And it also started with a $4 million investment collected by venture capitalist John Thornton, who is now trying to convince other philanthropists and community foundations through the American Journalism Project to back local media as one would the arts, exactly as Huntsman plans to. The City, a fledgling local news site for New York City, just began with an $8.5 million pot gathered from Thornton, other philanthropists, New York foundations, national foundations, and more.

On the legacy side, brand strength can help for-profit outlets leverage nonprofit deductions without going fully nonprofit themselves. The Seattle Times has raised millions of philanthropic dollars through a relationship with the Seattle Foundation acting as its vessel for grants from many local foundations. Heck, even The New York Times with its 4 million+ subscribers made plans for a philanthropic arm focused on drumming up foundation money for its journalism in 2017.

Huntsman and the Tribune crew are drawing up plans for a similar machine. The Tribune’s Tony Semerad reported that Huntsman wants “not only to turn the paper into a 501(c)(3) supported by charitable donations, but also to create a new nonprofit foundation with the broader mission of financing independent journalism in Utah, with The Tribune as a major recipient…’Not only is this the only decision for The Tribune,’ Huntsman said, in light of declining revenues from advertising and subscriptions, ‘but morally it is the right thing to do as well.'” He and Fraser Nelson, the paper’s new vice president of business innovation, are trying to raise an endowment that will yield enough interest to cover the newsroom’s operating costs.

More and more local philanthropists are eyeing local media as a grantee — provided, of course, the local media is blessed enough to operate in an area where philanthropy even exists, a question of equitability the nonprofit news sector still has to address. (A trio of local foundations just announced a partnership to fund solutions journalism on rural issues in the Mountain West, including Utah, for at least one year.) Individual smaller donors, ones who might be swayed by an end-of-year donation campaign, are getting worked on, too; while only 14 percent of Americans say they’ve paid for local news in the past year, that end-of-year campaign brought in 50,000 first-time donors in 2018.

The Salt Lake Tribune could use as many as it can get.

Photo of a Salt Lake Tribune newspaper box by Edgar Zuniga, Jr. used under a Creative Commons license.

POSTED     May 9, 2019, 11:43 a.m.
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