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Aug. 22, 2019, 9:44 a.m.
Business Models

Three years into nonprofit ownership, The Philadelphia Inquirer is still trying to chart its future

Buyouts, rebranding, good journalism, and a vision still in progress: The Philadelphia Inquirer has had quite a summer. The metro newspaper business is still tough, even without a hedge fund or private equity pulling the strings.

The Philadelphia Inquirer is trying to both build and be the local newsroom of the future — at the same time.

The Inquirer was once arguably the nation’s premier metro daily, with a 700-strong newsroom, bureaus around the world, and a run of 17 Pulitzer Prizes in 18 years. But it suffered through a miserable stretch between 2006 and 2016, with five different owners (and two bankruptcy auctions). When that last owner, Gerry Lenfest, decided three years ago to donate the paper into nonprofit ownership — what would become the Lenfest Institute for Journalism — it sparked a lot of hope and excitement in a depressed industry.

The Lenfest Institute’s investments in diversity efforts, product development and experimentation, Table Stakes digital transition coaching, Facebook-funded local news accelerators, and more have helped the Inquirer (and other local newsrooms) strengthen themselves from within. But unresolved financial issues, a new round of buyouts, less-than-stellar staff morale, and a leadership vision some consider hazy on specifics remind the Inquirer that it’s not safe yet.

The news in the newspaper business lately is all about hedge funds and private equity treating civic institutions as cows to be milked until dry. They cut to the bone and then beyond. But the Inquirer is evidence that even with the profit motive removed — even with a civic-minded ownership structure aimed specifically at preserving local journalism — it’s still no easy task. Conversations with journalists at The Philadelphia Inquirer — both on and off the record, with leadership and rank and file — show some of that early optimism has worn off.

The boundaries of nonprofit ownership

In 2016, the Inquirer joined the Tampa Bay Times (owned by the Poynter Institute) as the only major metro newspapers owned by a nonprofit. It brought a new twist, too, a public benefit corporation model. The nonprofit Lenfest Institute is the sole owner of the for-profit Inquirer. (Until this summer, the news company was known as the Philadelphia Media Network, but the 190-year-old Inquirer subsumed the Philadelphia Daily News and brands in June. The 94-year-old tabloid Daily News is now “an edition of The Philadelphia Inquirer,” though it still has a print edition.)

“Nothing is more important than preserving the journalism that has been delivered by these storied news organizations,” Gerry Lenfest said three years ago. The Lenfest Institute today has a $50 million endowment and a target to deploy those funds at 5 to 6 percent each year.

But under IRS rules, nonprofit ownership does not give the organization carte blanche to fund a money-losing, for-profit operation. So Lenfest can’t just see how far in the red the Inquirer is every year and pay out the difference from its endowment. The IRS also often doesn’t look kindly on a nonprofit that seems to only support one specific business. So Lenfest spreads its giving to a number of Philadelphia-area news outlets and addresses many of its efforts at local newspapers and outlets nationwide.

“The Inquirer is the Institute’s most important priority, because it’s a vitally important journalism institution in the city of Philadelphia, and because it’s a live lab or test kitchen for innovation in local news around the country,” Lenfest Institute executive director Jim Friedlich told me. But it can’t be its only priority.

Inquirer management has made it clear nonprofit ownership hasn’t magically fixed the paper’s ails. This summer, the company approached the union with not-great news: It needed 30 guild employees to take buyouts to avoid layoffs.

In the midst of that process, Inquirer leadership sent out a staff memo warning that they were at risk of facing an “empty future” in five years if no changes were made, as Inquirer executive editor Stan Wischnowski described it to me.

“We have fewer than five years to make fundamental changes in our business, our products, our operations, and our culture. Importantly, many urgent decisions must be made now to secure our future as a company. At stake is our ability to produce quality journalism that makes a difference in our city and region,” Wischnowski and chief strategy and innovation officer Michael Zimbalist wrote in the June 20 memo to employees, entitled “Unlocking A New Era of Inquirer Journalism.” The memo highlights leadership’s priorities of new audiences, workplace culture, and individual metrics, with the goal of $95 million in digital revenue in the next five years.

“We’ve got a revenue target that is not a whole lot different than today’s annual revenue target, but it is totally reversed in terms of our print versus digital revenue target. It’s basically flipping over,” Wischnowski said. “By 2024, we’ve put that spot on the wall in the same way The New York Times did with 2020.”

(One thing nonprofit ownership does provide: the opportunity for longer-term planning. Those years of shuffling between owners — the last before Lenfest took control after local squabble was a hedge fund — made it hard to plan. A new owner with a new strategy might be right around the corner.)

Two years ago, at the outset of the Inquirer’s digital subscription gameplan, Wischnowski outlined his goal of eventually matching The Boston Globe in digital subscriptions. The Globe, which began focusing on digital subscriptions several years earlier, now has more than 112,000 digital subs, making it the first local paper to have more digital subscribers than print. But the Inquirer today has only about 32,000 digital-only subscriptions; another 110,000 print subscribers are “digitally active.” It has a ways to go.

What Lenfest can do

Under IRS rules, the Inquirer cannot receive general operating funds from the Lenfest Institute. (Friedlich: “We can provide grants for major projects and what we like to call step-function change in the transformation of the Inquirer or other for-profits, but we can’t subsidize or offset a projected operating loss or operating gap for them.”) Lenfest makes grants to the Inquirer and others, with a total of $6 million committed through the end of 2019, based on three strategic priorities:

  • High-impact journalism, like the Inquirer’s Pulitzer-finalist Toxic City series about local environmental toxins (Lenfest paid for drone photography, audience engagement, 500 environmental tests on asbestos samples, and more as part of the reporting), the Inquirer’s use of Hearken for Curious Philly, the 10-member Spotlight PA statehouse collaborative investigative team, and the Inquirer’s doubled investigative reporting team;
  • Tools and technology, particularly a $400,000 investment to get the Inquirer’s publishing backend onto Arc two years ago and to continue to use it as a local newsroom sample for Arc developers, as well as forthcoming hires to build up an in-house product and engineering team;
  • Diverse and growing audiences, such as a fellowship program to bring in more reporters of color on a $650,000 grant (one has since been hired full-time for the Spotlight PA initiative), cultural competency training, and funding market-wide collaborations with Resolve Philadelphia for issues like poverty.

“Separate from our own funds, the Institute has become the largest fundraising arm of any newspaper in America (with The Seattle Times as second),” Friedlich said.

That’s different from a local gazillionaire personally writing checks to cover losses, as we see at the Salt Lake Tribune, the Los Angeles Times and other papers in this category. And the Inquirer is still technically for-profit, so when there was a $5 million shortfall this year due to decreasing print advertising revenue, leadership decided those 30 employees had to go.

Inside the newsroom

About 25 percent of metropolitan newspapers experienced layoffs in 2018, and the Inquirer is no stranger to them: It saw cuts in 2006, 2008, 2012, and 2015. Employees received revenue-sharing checks at the end of 2016 — and then 2017 brought another set of buyouts, although the employees who took them were largely replaced with younger, more digitally oriented employees. Then this summer came the news of those 30 buyouts.

“The process was much more forced than the one in 2017,” guild president Diane Mastrull, a business reporter and weekend editor at the Inquirer, said. While noting “we’re all very grateful for the Lenfest Institute and hoping that they truly will come up with the answers this industry needs,” she also pointed out that union members have not received a raise in ten years. “We’re continually told that the Institute cannot pay our operating expenses. That might be so, but it still stings to know that the entity that owns us is enriching a lot of people, just not the employees at the Inquirer.”

She was referring to a Lenfest 2017 990 form that showed a number of payments to outside consultants, which was highlighted in Philadelphia Magazine article last month. That form showed more than $260,000 going to Brian Tierney, the controversial former Inquirer publisher, along with several other six-figure payments to contractors who helped get Lenfest up and running. In total, contractors received about $1.4 million.

Friedlich offered context for those expenses: Tierney’s marketing agency was hired by Gerry Lenfest to assist with the launch of the institute (including building its website and its early marketing and fundraising) and orchestrate two events related to its early announcements. The other contractors were reimbursed for travel and have since been brought in-house. (Among them is past Nieman Lab contributor Burt Herman, who is now Lenfest’s director of innovation projects.) “All of that work was one-time, startup in nature,” he said. “You won’t see those payments or work with [Tierney’s company] on 990s for 2018 or 2019.” He added, “These [contractor] expenses in no way detract from our ability to support the Inquirer or other worthy local journalism.”

Still, many newsroom employees weren’t happy to see that sort of money flowing out under nonprofit ownership — especially to Tierney. “The messaging went from ‘Everything is fine, we’re financially stable, we’re being innovative’ to ‘We’re $5 million short and need to do buyouts,'” one newsroom member told me on the condition of anonymity, speaking of Inquirer leadership.

Several other staffers told me morale now is no better than it was before Lenfest took over, or perhaps even worse. One described the company as “flailing.” To be fair, morale in the newspaper industry is pretty rotten all over — a decade-plus of steady, brutal decline will do that to you — and it’s not clear that feelings are worse at the Inquirer than elsewhere. And other newsrooms with “good” ownership face their own problems too: John Henry’s Boston Globe saw a walkout amid protracted union negotiations this month, and the new newsroom union at L.A. Times asked readers to write to the Times’ management in support of a fair contract. But a nonprofit public charity for an owner certainly hasn’t proven to be a cure-all.

Or as that memo to staff put it: “Being owned by a not-for-profit entity makes us unique among our industry peers, but it does not make us immune from the challenges facing the local newspapers across the country.”

Steps forward

Building the local newsroom of the future involves getting the staff on board — and giving them a plan. Twenty executives and editors at the Inquirer (including Wischnowski, diversity and inclusion VP Michael Days, managing editor of audience and innovation Kim Fox, and others) spent hours outside out of the newsroom brainstorming the organization’s next vision and targets. Staffers had undertaken a similar strategic-planning project just two years earlier. But “2019 is a different creature,” Wischnowski said. “Instead of sitting and watching the market forces become a bigger threat to our journalism, we felt it was time again to recalibrate and forge on much more aggressively into our future.”

The end result was that eight-page memo that set out goals and general guidelines. The steps to get there are still works in progress, with a dozen workstreams made up of about 70 people total developing a deeper strategy document.

While it makes sense that the leadership needed to cocoon to figure out its next steps, Inquirer staff told me they felt the conversations were too exclusionary — of the rest of the newsroom and of the community the Inquirer serves.

“We can’t talk about engaging the audience and listening to the community — that is, serving the public — if we’re not going to be willing to talk to people about what we should be covering and how,” Inquirer reporter Jonathan Lai told me. “For all the talk of diversifying our audience, we’re still representing a very narrow band of viewpoints and experiences in the creation of new beats and decision-making about the path forward. This is a deep, systemic problem beyond one beat restructuring or one newsroom. If we recognize that, this moment is a real opportunity to meet our public mission.”

Michael Days has been part of the Inquirer orbit for the past several decades as an editor at the Inquirer and longtime journalist at the Daily News. Since his promotion to VP of diversity and inclusion in 2018, Days has largely focused on Lenfest-funded cultural competency training and internal efforts — developing employee resource groups for people of color, women, and staffers looking to volunteer together, for instance, with a group for LBGTQ folks to come soon.

Days said he plans to do more work with the community external to the Inquirer. He pointed to the Made in Philly project featuring “young changemakers” in lesser-covered neighborhoods and columnist Helen Ubiñas’ pop-up newsroom. “Our industry has got to make ourselves essential. One way to do that is to get a sense of what people want and what’s important to them, and there’s more of that to come.”

“This is a city that has lots of rich people in it. Our belief is that our company has not done a very good job of trumpeting that we need the city’s help,” union president Mastrull said. That belief contributed to dozens of members of the newsroom walking out in June during the buyout negotiation period, she said, “to make sure this issue got some attention outside the walls of 801 Market.”

The Inquirer avoided layoffs in the end. But the quest for future revenue streams is ongoing. Following the June memo, Wischnowski said, a dozen teams involving “participants from all over the company” are in place to improve digital offerings, build out events as a revenue source, and rethink the print system and other legacy costs. (The Inquirer’s pension fund is also at risk of insolvency in the next few years, Mastrull said, since the company stopped making payments several years ago.)

Assistant managing editor for digital Jessica Parks is involved in the product and audience development teams, working with people from marketing, editorial, and product. “We have each department give an overview of what they do, who their key people are, what are their biggest hurdles: Real talk about what they think of dealing with these other areas of the newsroom,” she said. “As part of that, we discovered we were using the exact same terminology in completely different ways,” between the advertising department and the product team, for example. “The workstreams should help us get on the same page and know if your job is ad sales, our job as a company is digital subscriptions.”

“Of all the media organizations confronting these imposing challenges, few companies are poised to create a blueprint to sustain local journalism like The Inquirer. But we must unify in responding to this great challenge, and that’s the intent of creating this urgent yet strategic call to action,” the memo read.

“For a long time we were too stable, borderline complacent with the way we did things and assuming we knew the way to do things,” Parks said. “Everybody has very strong feelings here about Philadelphia, but [also gets energized by] the thought that what we’re doing in Philadelphia could have a ripple effect to save local news in the country.”

Group photo of The Inquirer team after its June 1 rebranding by Alejandro Alvarez.

POSTED     Aug. 22, 2019, 9:44 a.m.
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