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Feb. 20, 2020, 1:15 p.m.

Newsonomics: In Memphis’ unexpected news war, The Daily Memphian’s model demands attention

It’s generated controversy over its fundraising, its paywall, and its staffing. But it’s also about as close as a major American city has gotten to a digital news site that can go toe-to-toe with the local daily newspaper.

At first blush, it looks a bit like an old-fashioned newspaper war. (For our younger readers: Long ago, some cities had two or more strong newspapers that fought each other for scoops, talent, readers, and advertisers. Really.)

In Memphis, two newsrooms — each with about three dozen journalists — slug it out, day after day. They both know it’s possible, maybe even likely, that only one will be still standing in a few years.

What’s happening in Tennessee’s second-largest city, given our times of media high anxiety, also takes on the tone of a morality play, a quizzical dot on the landscape of ghost newspapers and deserted communities. Is Memphis an outlier, or is it a sign of what’s to come in the 2020s?

Quietly, The Daily Memphian — an ambitious local news site launched in 2018 — has shaken up the local news landscape in Tennessee’s second largest city.

“I really think that the presence of The Daily Memphian has been a good thing for the market, and it’s been a good thing for our journalists,” says Mark Russell, the executive editor of the incumbent daily newspaper, the Gannett-owned Commercial Appeal. “I think readers are benefiting from it every single day.”

The “newspaper” war even comes some good trash talk. “I think that competing with The DM has been wonderful for Memphis, wonderful for our journalists and theirs,” Russell continues. But…

Eric Barnes, Andy Cates, and even some of their columnists have said things in the media and said things publicly that have just been, I’ll call them — call it what it is, outright lies. Because they’re describing The Commercial Appeal and our commitment to Memphis and whether we’re controlled by Nashville. And they know it’s a false narrative. And they keep repeating it. They’ve let up a little bit lately, as I’ve called them on it. But I think for almost a full year, that’s all they talked about, how the CA was ‘not committed to Memphis.'”

The Daily Memphian’s very name shows who it aims to compete with. It’s digital only, meaning of course that it publishes news around the clock. The “Daily” part? It calls out to a group of once-loyal print newspaper readers who might be willing to try out a new alternative.

The Commercial Appeal, founded in 1841, went through a decade of cuts that opened the door — and the community’s wallets — for The Daily Memphian. “We launched our online news source as a direct response to the cuts and consolidation that Gannett imposed on our local paper,” says Barnes, the Memphian’s CEO.

Across the United States, there are local newspapers in various rates of decline — some being stripped quickly for parts by hedge fund owners, some fighting fiercely against the tide through smart business strategy and commitment to their communities.

And across the United States, there are hundreds of local news news sites working to find their own niche in the news ecosystem being born.

But it’s still rare to see old and new compete at something that approximates a level playing field. The local daily, no matter how shrunken, nearly always still has a significantly larger newsroom than the biggest local digital startup. That’s one big reason the battle in Memphis is worth watching closely: If current trends continue, it’s a preview of the sort of competition we might see in lots of other American cities in the coming years.

Eric Barnes, 51, is a former president of the Tennessee Press Association who has been on both sides of the newsroom/business wall during his career. He had a hand in launching community papers in Nashville and Knoxville, led weekly papers, and ran the Nashville Ledger business-and-politics paper for 15 years before the Memphian launched.

“Before that, we did city guides and city directories and business directories and coffee table books,” he says. “Our company was based here in Memphis, but we worked around a couple hundred markets around the country. Then I was at a small business magazine up in New York and a reporter in Connecticut. I also host a show here locally on our PBS station, which I’ve done for nine years.”

While the Memphian serves a metro-sized audience, Barnes applies lessons from his experience with smaller community papers. “Being in the Press Association and getting to know a lot of community-level publishers, small-town publishers, was extremely helpful. The way in which they got hit, everybody in the industries got hit. But they often were slower to go to the web because they didn’t have the money, so they didn’t give away as much. I mean, they kept their print alive. They stayed closer to their communities. I think there are a lot of lessons.”

One lesson: “We are a paywall-driven, subscription-based news source,” says Barnes, who believes reader revenue is the absolute key to getting to break-even.

The Daily Memphian has assembled 11,600 subscribers in the 18 months since its launch in September 2018. Those subscribers initially paid $7 a month, a price now increasing. (It’s currently $10.99/month or $99/year.)

That will add up to more than $1 million in annual revenue, and it’s matched by roughly the same amount in advertising. On one hand, $2 million is a lot of revenue. On the other, the Memphian’s current budget is about $5 million.

That’s the story of this one-of-a-kind play in U.S. replacement journalism: It’s about scale. Scale of ambition. Scale of newsroom. And scale of revenue, the elusive elixir of digital news.

A controversial funding runway

The Daily Memphian has so far raised $8.2 million — $6.7 million of that before launch, the rest since. The goal is to get to break-even or better by 2023. “We’re on track,” Barnes says. “I’ve said publicly before that our goal is to get 20,000 to 25,000 people signed up by Year 5 at a [monthly] rate of around $10.”

“I get what The New York Times, Washington Post, and Wall Street Journal are doing,” says Cates, who led the Memphian’s fundraising campaign and chairs its board of directors. “We believe we are a model for how the Fourth Estate can flourish in middle America. We’re in Siberia. We don’t have national funding, Google or Facebook.”

The CEO of RVC Outdoor Destinations, Cates is a prominent civic booster who gets credit for helping bring the NBA’s Grizzlies to Memphis from Vancouver in 2001. Just as people think that metros need sports teams, they need far older civic institutions — newspapers or the digital equivalent. “For a community to be healthy, it must have a healthy newspaper,” Cates told me. “We tried to buy the CA, and thank god we failed.”

That said, The Memphian’s unorthodox and opaque fundraising strategy has been controversial among many both in the bubbling new news landscape and in Memphis. Transparency in funding has become a mantra in the nonprofit news movement, and there the Memphian is lacking.

“Give or take, the original $6.7 million was all raised anonymously, which caused some consternation with journalists and INN [Institute for Nonprofit News],” says Barnes. “I get all that. Even though I carry the CEO title, I have spent most of my life as a journalist one way or another. Locally, there were a lot of questions: Are they going to have bias? Are they going to carry an agenda?”

(At launch, Cates told Poynter that “he hopes that the [anonymity] will avoid the appearance that local high-rollers are treated with deference in Memphian stories.” Keeping the high-rollers anonymous doesn’t typically help with conflict-of-interest worries.)

Barnes says the money was all local and from “many different funders — it wasn’t one funder.” Now, he says, “I don’t ever get asked a question locally” about funders. He says he’s “felt or experienced absolutely zero donor pressure on the newsroom. The board — which is fully public — has high-level, strategic expectations of the operation, including the newsroom. But they’ve not in any way dictated stories that should — or, and this is arguably more important, should not — be written.”

Proudly paywalled

That’s not the only point of some controversy around the Memphian and money. Its paywall, powered by Piano, limits non-subscribers to three stories per month. That’s down from five at launch.

“In the middle of the summer, we started tagging roughly one story a day as subscriber-only, so you have to subscribe to read that,” says Barnes. “That’s done well for us in terms of converting and reinforcing the people that we’re a paid site.” Reducing from five to three stories a month didn’t bring “a huge impact negatively or positively. We’re not quite sure where we go from there. I mean, the business part of me would love to say it was one free or two free, but it’s a balancing act.”

Barnes says the organization plans to test Piano’s new “intelligent paywall” tech going forward. He cites both the Google News Initiative Audience Lab and the Facebook Local Subscription Accelerator as helpful. “They bring doable advice and guiding, best-practice principles. And to both their credit, they are not pushing Google or Facebook to drive traffic or subscriptions.”

Not many local news startups use paywalls — especially nonprofit ones. But for The Memphian, it’s fundamental to its strategy, even as others advocate open access as a civic good.

“We’ve gotten some pushback from some of the other nonprofit news organizations whose mission is free and open content that should be available to everyone. I love that. I mean, I’m an NPR fan. I’m a fan of local PBS, but we just looked at it and said: We don’t want to constantly fundraise. We don’t want to be a drain on the Memphis community, the philanthropic community.”

To counterbalance the paywall, the Memphian is free when accessed in schools and libraries. Those “with limited means” can apply for financial assistance. Some of the Memphian’s journalism also leaks beyond the paywall via local TV and radio partners. “Memphis has a big poverty problem, and we want to figure out how people who can’t afford it can get it,” Barnes says.

But he’s happy to defend charging. “Let’s value the news, let’s charge a fair rate for it. Let’s say our content is worthwhile and try to undo the, what, 15-year disastrous experiment of giving away local and national news for free. People have paid for news for decades, if not ever long. So why wouldn’t we find ways to have people who can afford to pay for it?” Eventually, subscribers are projected to provide about two-thirds of the Memphian’s revenue, with sponsorship and advertising making up the rest.

Are those ad sales motivated by the Memphian’s mission? “Less than 10 percent has been people saying, ‘Hey, we just want to support you to support you.’ We try not to sell that way,” Barnes says. An advertiser’s monthly spend is often in the $500 to $1,000 range. “It’s not terribly expensive to dominate one of our sections or to dominate our business coverage. They have a very strong presence on our email editions or our business coverage or sports coverage.”

So who is in the audience that those advertisers want to reach? The site’s readers do skew a bit older; “it’s traditional newspaper readers who are desperate for a local source, a locally based news publication, paper or not, a news publication,” Barnes says, getting in a few punches at the CA.

The audience also skews toward higher education levels (almost 70 percent have a college degree) and higher income (overindexing at incomes of over $100,000).

That’s in Memphis — the second-poorest large city in America, behind only Detroit. Of the 50 largest U.S. cities, Memphis ranks No. 47 in the share of its residents with at least a bachelor’s degree. And among large U.S. cities, only Detroit and Baltimore have a higher African-American share of its population.

In none of those measures is The Daily Memphian particularly representative of its city, say some critics. At launch, it faced criticism from people like Wendi C. Thomas, a former Nieman Fellow and founder of the local news site MLK50, for having a staff that’s 80 percent white in a city that’s 63 percent black. (The Memphis metro area overall is roughly 50/50 white/black.) They point to a leadership that is overwhelmingly white, and the staff diversity count of 21 percent people of color, 40 percent female. Of its four regular columnists, all are men and three are white.

The Memphian, for its part, is stands by its own record of diversity and of reaching out more widely in its first two years of existence. Its board is majority female and 33 percent African-American. Its new audience development and digital directors are both women; the new head of advertising is African-American; the new executive editor is Latino. “Since launch we’ve gotten more — not less — diverse,” says Barnes.

Beyond that, Barnes says the Memphian has made major inroads in engagement on the news product itself with its diverse communities. “We have two dedicated reporters to north and south Memphis, historically black and under-covered areas. We have a commitment to diverse stories across all reporters and beats. And we have none of the constant crime blotter coverage with the parade of mug shots and shallow, fearful coverage — coverage that has done major damage to black communities nationally. But we do cover policing, criminal justice, justice reform, the local DA, juvenile justice center, a series on the impact of childhood trauma on the brain, and more.”

In the criticism and on the ground, we can see the contentiousness of journalism change. Some may say that it’s one thing to see on-the-surface power imbalances in a decades-old institution that is struggling to adjust to new realities, it’s another to see it in an organization that’s born fresh and new in 2018.

But these are knotty questions. How much should ambitious startups be faulted for finding the early reader revenue from the often-expected sources of more affluent consumers? Further, an important question. How soon should their overall staff makeup resemble their communities covered?

It’s true that Memphis is one of the least digitally connected cities in America. As of 2018, 48 percent of residents have no broadband connection at home — the second highest rate of large U.S. cities, again behind only Detroit.  But of course, we know that, with very few exceptions, digital-only news startups are the only ones to have a chance to find new success in the 2020s. Beyond all the other challenges of reseeding the news deserts, can we rightly expect news startups themselves to deal with broadband neglect? It’s also instructive that the Memphian has already taken early and substantial initiatives, with more planned, to get free access to communities and individuals that can afford to pay for it.

So some paint this picture: anonymous wealthy funders; leadership that doesn’t look much like its community; a digital outlet in a city with limited connectivity; a hard paywall in one of the country’s poorest cities. They say new startups, eventually replacing traditional daily newspapers, are unlikely to be oriented toward a mass audience as what came before.

But it’s far too early to draw that conclusion. The Daily Memphian may be a Rorschach test in what is such a contentious start-up news movement. Critics inside Memphis, and out, can point to numbers they don’t like. The Memphian itself can rightly claim to be doing something that I haven’t seen getting done anywhere else in the country: a high-quality, at-scale, news replacement with a real business model bent on making its way forward with earned revenue.

Much as discussion about its particulars is warranted, and gets the context it deserves, we cannot lose track of that hugely important fact.

The “newspaper” war

While not much has been reported nationally on this competition, big themes emerge for all who care about future of local news in North America and beyond.

First and foremost, The Daily Memphian aims to be a replacement news company — the primary supplier of local news and information for its area.

Metro Memphis has a population of about 1.35 million, a sprawling area that spreads into Arkansas and Mississippi. Roughly half of that population resides in Memphis proper. Unlike the vast majority of hard-working news entrepreneurs planting seedlings in growing news deserts, the Memphian’s model is built on achieving a scale that can try to match the city.

It now pays a newsroom of 34 — the same number of journalists, more or less, remaining at Gannett’s incumbent Commercial Appeal. Another 12 business-side staffers join them. In addition, the Memphian pays more than a dozen regular freelance contributors.

As of December, the newsroom is led day-to-day by Ronnie Ramos, who left a job as executive editor of Gannett’s Indianapolis Star for the Memphian. That move in and of itself tells us lots about the changing momentum in Memphis.

There’s plenty of newspaper DNA in the rest of the Memphian’s staff. (It covers sports, runs restaurant reviews, even runs obituaries — a mix of content much closer to a print daily’s than what you might find at a lot of local nonprofit news sites.) It hired “10 to 15” of its staffers from the Commercial Appeal. And that hiring changed the CA a lot as well.

“We had to go out and get new players for almost every major position,” says CA executive editor Mark Russell. “And we did that and we got better.” The newspaper’s staff is now younger, more digitally savvy, and more diverse — 33 percent people of color now versus 19 percent before the Memphian began hiring people away. (Russell is black; Barnes and Cates are white.)

Memphis’ story is a lot like that of metros from coast to coast. The circulation losses of The Commercial Appeal tell quite a story, underscoring not just a loss of readers but the widening market vacuum that The Daily Memphian is rushing into.

For the third quarter of 2019, The Commercial Appeal reported a Sunday paid circulation of 52,000 and a daily circulation of 29,000. Just three years earlier, those numbers stood at 103,300 Sunday and 67,000 daily. That’s basically half of its paid base of readers gone in three years.

On digital subscriptions, the CA’s numbers have moved in the right direction. It counts 10,063 in that category now, up from 4,045 subscribers three years ago.

The major circulation declines result from changing reader habits, to be sure, but also from Gannett’s cuts to the newsroom and its pricing-over-volume circulation strategy.

By some remembrances, the Commercial Appeal counted about 200 journalists in its newsroom 20 years ago. That’s more than five times the 37 in today’s.

The Daily Memphian’s founders say its birth grew out of the regionalization of the daily press, but the Commercial Appeal disputes the degree of that regionalization. In 2015, Gannett bought the Knoxville and Memphis dailies as part of its Journal Media Group acquisition. Gannett now owns six dailies in the state, with Nashville the largest. Over time, the Tennessee Network developed, a trend we’ve seen all over the country as regional clusters of newspapers looked for headcount reduction and efficiencies.

“You could regionalize backend design — that’s one thing, fine,” Barnes says. “Centralize your accounting. Okay, that’s fine. But you can move [only] so much decision making out of the local markets before it is [no longer] really the Memphis Commercial Appeal.”

Especially since Memphis and Nashville don’t really get along. (For evidence, see this map of NFL fan bases, which shows Memphis’ Shelby County actually has more fans who root for the Dallas Cowboys than for the Tennessee Titans over in Nashville.)

“Everywhere I’ve ever lived, Tennessee, New York, Connecticut, Washington, Oregon, Alaska — I mean, Eastern Washington hates Western Washington, right? I mean, upstate New York and downstate New York are totally different,” Barnes says. “The idea that you can do these sort of regionalized papers…I’ve never lived in a place where that would work.”

Russell’s retort: “It’s a cheap, easy comparison to make when you don’t want to talk about journalism. Let’s talk about journalism. Let’s not talk about this Nashville vs. Memphis thing. It’s kind of a familiar trope though to people here because people in Memphis and people in Nashville don’t like each other.”

Russell wrote his own column in November to respond to the “centralization” charges, “setting the record straight.”

“What I say about that is that the people in Nashville have their hands full making decisions in Nashville,” he says. “And if you think about that logically for a minute, if you’ve worked in a news organization, you know it is hard to control your own organization in your own city, much less one that’s three hours away that you don’t have familiarity with the people, the places, or the issues of the context. So that’s ludicrous on its face that someone in Nashville making decisions here.

“It’s a short trip to the editors, including me, who are in the market, who know this market, who are working hard every day to produce a good report online and in print…Tell me who in Nashville is staying up late like me, reading content and up early reading content. Tell me who in Nashville is out in the community meeting with community leaders and neighborhood leaders every day. No one. They’re not here. They’re in Nashville doing the same thing I’m doing here. And that’s the way it should be.”

Its delightful to hear a bit of trash-talking by head-to-head news competitors. Reminds me of my days in the Twin Cities 20 years ago, when our Saint Paul Pioneer Press took on the larger Star Tribune.

Even with the head-to-head competition, Russell remains evenhanded in his view of the Memphian. “I talk to readers every single day,” he says. “And what I hear from readers is that they see the Memphis being stronger than it’s ever been. And that’s primarily because we now have a competing publication, and they see that the Commercial Appeal has improved since we lost those staffers. They see it every single day. And they see the DM being a really viable, strong news store.

“So you’ve got two heavyweights going at it on important issues. Readers have found the benefits of that: We’re going to have far better coverage of primary topics like government, the environment, demographics, investigative coverage. They’re going to get better coverage overall, and they have been getting it.”

The future

How long will this head-to-head competition last?

One logical question to start with: How soon could the paid readership numbers of the Commercial Appeal and Daily Memphian converge? A legacy business still transitioning from print to digital — and now owned by a megachain with lots of new debt to pay off — is competing with a debt-free, digital-only, deep-pocketed operation bent on growth.

This is no apples-to-apples comparison; there are many moving pieces and radically different cost structures. Then again, there won’t be many more apples-to-apples comparisons in local news going forward. This isn’t the New York Post vs. the Daily News, the Chicago Tribune vs. the Sun-Times, or even the more recent Times-Picayune vs. the New Orleans Advocate — recognizable battles between distinct competitors, but also between fundamentally similar businesses. But digital subscriptions — how many people in your community can you convince to hand over their credit card for digital access to your owrk — can be a common point of comparison.

How much are Memphis news readers reading one or the other or both?

“I don’t know,” the Memphian’s Barnes says. “I know anecdotally that people tell me that they have dropped the CA. I know other people continue to do both, and they do have some good journalists over there. I mean, they have many good journalists over there. I still read them — if not every day, I read them a couple of times a week. I think that’s true of a lot of people.”

(Again with the trash talk.)

One way or the other, given the tight economics of the local news business itself, no one is under any illusion that Memphis’ contrarian news war will last for a long time. “I’m not sure it can,” the CA’s Russell says. “It’s hard to imagine any community our size supporting two full-blown, news organizations. Even when full-blown doesn’t mean what it meant back 10 years ago…it’s hard to imagine that, it really is.”

The Daily Memphian is, like many of its startup brethren, a nonprofit. But it’s a nonprofit with an for-profit attitude, acting as a business-oriented enterprise.

“We are structured as a nonprofit under Memphis Fourth Estate Inc., but we are intensely focused on building a financially sustainable model that relies not on constant fundraising, but on earned revenue through our paywall subscriptions and sponsorships,” says Barnes.

What are his reader revenue takeaways so far? “We launched on September 17, 2018. Our original projection was 4,500 paid for the first year. We hit 4,500 somewhere in October. I mean, it was under full four weeks.” By year’s end, it was close to 6,000; by its first anniversary, it was at 10,000. Churn is relatively low, at about 6 percent annually. Today the Memphian has settled into a monthly net gain of about 300 subscribers. (The site now gets about 1.5 million monthly pageviews.)

The Memphian continues to test both annual and monthly offers, but generally avoided the “$1 for 6 months!!” deep discounting some other sites have used to draw in new subscribers.

The Memphian has clearly tapped into a substantial early paying audience — a cohort of the civically connected who were more than ready for the Memphian. The big question: What do the next cohorts look like? How big will they be, and will they represent a broader slice of Memphis’ population than its well-heeled early audience?

As The Memphian eyes doubling its subscriber base, Barnes knows the strategy will likely get more nuanced. “It’s a pretty high-income, high-educated audience, so, the [price] is not an issue for them. As we get from 11,000 to 22,000, we have to be more price sensitive, I think, with people. It’ll be tricky over the next few years.”

The Daily Memphian is providing a new value proposition to its readers. But in that offer we can see how in-progress the digital experience remains — especially perhaps for older readers. Take the site’s email newsletters. “We push a ton of email,” he says. “It works really well. We get really good open rates. But what we realized with many, many readers — particularly those who are older — they really don’t understand the difference between the email and the website. So they don’t get what’s in what. They’ll tell us, ‘Well, I’m a subscriber. I get your email edition.'”

Those emails are free to all, not part of a paid subscription. “They don’t go to the homepage, they don’t go to the navigation — they just use that email. Which is in some ways great, but creates a massive amount of confusion.”

In its first year of publishing, the Memphian published almost 7,000 stories, ran thousands of staff-shot photos, added nearly 10 weekly podcast series, and held Daily Memphian events almost every week.

It’s all those stories — buttressed by irrational fervor, best-practice business models, and more — that have always made local journalism work, and will someday again.

“It wasn’t local journalism that failed, it was the business behind local journalism,” Barnes says. “It’s a simple fact that gets lost…That’s been a driving issue for us: There is a lot of traditional local stuff that didn’t need to be thrown out the window. It was just that the business model got so wonky, broken. That was really where the problem was.”

Photo of the Hernando de Soto Bridge crossing the Mississippi River from Memphis into Arkansas by Thomas Hawk used under a Creative Commons license.

POSTED     Feb. 20, 2020, 1:15 p.m.
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