Publication Date October 5, 2019
An emerging class of news businesses is modeling a promising path to sustainability — one drawn from the community itself. Their solution: pursuing nonprofit status rather than the strictly for-profit corporate form, embarking on greater engagement with philanthropic models that reimagine how local news is funded.
Local news organizations play a fundamental role in educating and informing citizens about what is happening in their communities. Although historically this role has been fulfilled by a for-profit corporation, it is well-aligned with IRS guidelines for tax-exempt nonprofit organizations.
From public radio stations to the newly formed American Journalism Project, non-profit local journalism is in a period of rapid expansion across the United States. The success of the nonprofit local news startup The Texas Tribune — now in its 10th year of operation — has inspired the creation of the American Journalism Project, a $50 million venture philanthropy fund to invest in nonprofit local news startups. In a different approach, ProPublica (a nonprofit focused exclusively on investigative reporting) launched the ProPublica Local Reporting Network in 2018. The purpose of the network is to bring ProPublica’s investigative resources (funded by philanthropy) to strengthen and amplify local reporting, many of which are for-profit newsrooms.
Other nonprofit news initiatives have emerged (including Report for America and theTable Stakes Project), but the fact remains that the overwhelming majority of local reporting in the United States is done by journalists employed by for-profit entities. Most of those entities have been experiencing profound business challenges over the last few years, and in this environment the appeal of tapping philanthropic support is growing. Much as hospitals and universities stand as robust, nonprofit community pillars, many local newspapers across the United States might begin to move in this direction. Bold leadership is needed to chart the way toward a new era of civic news media.
This report offers some fundamental ground rules for decision-makers and provides a foundational explanation of relevant tax policy and implications. It also directly considers four possible models through case studies:
- The Salt Lake City Tribune, which is converting from a profit-seeking entity into a tax-exempt organization.
- The Tampa Bay Times, which has kept the news organization as a taxable for-profit, but transferred the ownership to a nonprofit organization.
- The hybrid model of The Philadelphia Inquirer, where a nonprofit owns the news company, diminishing immediate financial pressures, alongside a separate endowment designed to encourage innovation.
- The Seattle Times, which has taken a compelling but less dramatic approach by partnering with an existing community foundation.
While these models all involve relatively large local news entities, there are examples of smaller local newspapers as well as national chains taking similar steps. Owners who explore these pathways will be helping to chart evolving territory with the IRS, which has shown favorable signs toward new kinds of proposals.
A crucial consideration across all the case studies is the ongoing importance of sustainable revenue streams. In many of the structures outlined below, the pressure for profitability is diminished. But a business plan is still essential in part because the size and scale of most local newspapers is large and complex, and also because of IRS rules do not allow nonprofit ownership to exist for the sole purpose of helping subsidize a money-losing, for-profit operation. Regardless of the structure, a local news company is still obligated to find long-term sustainable revenue streams.
Another important issue revolves around the ethics of reporting and transparency around funding. The for-profit news industry has a long history of separating advertising and commercial interests from the newsroom, maintaining strict ethical guidelines to prevent advertisers from influencing coverage. Indeed, these “bright lines” are an essential part of maintaining public trust in the news media. Depending on the model, new guidelines may be necessary to continue to provide a separation of funders from news coverage. One way this is solved (as covered in the Seattle Times model) is to structure philanthropic support around broad local reporting topics, or “beats.”
This report presents a provisional playbook for owners, shareholders and decision-makers that considers both the conversion of an existing for-profit news organization into a nonprofit organization and a variety of hybrid possibilities for engaging with philanthropy. Ultimately, newspaper owners stand at an important crossroads in the history of their communities and in news media history, with strong possibilities now emerging for owners to take visionary steps forward.