Dialing for dollars
As nonprofit journalists look at different ways to pay for newsgathering, the IRS is also taking a closer look
training high school journalists wasn’t the first order of business for Joe Bergantino when he launched the New England Center for Investigative Reporting at Boston University. But as it became clear that he had to learn to think like a small businessman, Bergantino began to see the wisdom of incorporating younger students into his plan. The students would be attracted not just by the center’s investigative reporting know-how, but also by the prestige of spending two weeks at a summer workshop backed by a major university with a well-known journalism program. It also would look good on a college application.
Joe Bergantino, Co-director of the
Little did Bergantino know that his summer program would turn out to be a way to help pay for investigative journalism. In 2009, the high school program netted only $14,000, but after some retooling and outreach to local, national, and international students, the center took in $110,000 this past summer and could possibly earn as much as $200,000 next year. “We’ve just begun to tap into a huge market out there that makes sense in terms of where we’ve located,” Bergantino told journalists at the Online News Association’s annual conference in Boston in September.
Just as for-profit media are trying to figure out a business model that works in the digital age, so are nonprofits. Hundreds of them have jumped into the news business, looking for ways to bankroll the types of reporting that have been scaled back or abandoned by struggling commercial operations. No one business model is likely to dominate, so letting a thousand flowers bloom is the order of the day.
All of this activity has attracted the attention of the Internal Revenue Service. Several new groups seeking nonprofit status say their applications have been held up for more than a year, suggesting the IRS is trying to figure out if some nonprofit news activities are looking too much like for-profit operations. Steven Waldman, the lead author of a recent report that surveyed the state of local news for the Federal Communications Commission, says he is worried that the IRS may end up stifling nonprofit news operations.
“At some level, they don’t want you to look like a commercial enterprise in any way,” he says. “The IRS is basically saying you can be nonprofit as long as you promise not to have a sustainable business model.”
The nonprofit way forward
Nonprofit news outlets range from “one-man band” operations to regional and national outlets, many of them created in the past five years. Some strive for objectivity in their reporting, while many have a clear editorial slant. The John S. and James L. Knight Foundation, the country’s major journalism funder, has awarded grants to more than 200 “experiments.”
Some of the more successful news nonprofits are ones that were initially established by wealthy benefactors, such as the national investigative reporting outlet ProPublica, funded by financiers Herb and Marion Sandler, and the Texas Tribune, started by Austin venture capitalist John Thornton. The Tribune covers Lone Star State politics and public affairs. Although these founders with deep pockets initially prompted questions about the nonprofit’s editorial independence, those concerns diminished as the news operations worked to diversify their sources of funding and editors and reporters worked to produce content that was free of bias from on high.
ProPublica, in particular, has taken great pains to build a firewall between its newsroom and the Sandlers. In 2008, the couple pledged up to $10 million a year for at least three years to the operation, the largest single commitment to a nonprofit news organization to date. The Sandlers do not see stories before they are published and don’t have any input into stories, according to general manager Richard Tofel. Sites such as ProPublica and the Texas Tribune were among the least ideological among news nonprofits surveyed recently by the Pew Research Center’s Project for Excellence in Journalism.
More problematic for Pew were sites that continued to rely on the largesse of one major benefactor or group that nudges them in the direction of “partisan news or even political activism.” Pew characterizes as “liberal” the American Independent News Network, which operates what it calls an “independent online news network.” Its funders include the Open Society Foundations, run by investor George Soros.?Similarly, a conservative group of 12? “watchdog” investigative? news sites is supported by the Franklin Center for Government and Public Integrity which, in turn, was established partially by the Sam Adams Alliance, a libertarian group.
Who do nonprofit journalists turn to for cash? Not every start-up can count on a single wealthy funder. Foundations have become the first stop for a simple reason: “That’s where the money is,” says Lewis Friedland, director of the University of Wisconsin-Madison’s Center for Communication and Democracy, who co-wrote the report on nonprofit funding. Ambitious organizations that want to get beyond their first year of operation are going to have to pursue foundation grants, he says.
The Knight Foundation parceled out 276 grants worth nearly $142 million in 2009. Other prominent foundations such as the Bill & Melinda Gates Foundation, the John D. and Catherine T. MacArthur Foundation, and the Ford Foundation are also stepping in to fund organizations that are filling gaps in in-depth news and public affairs coverage.
Many newer nonprofits are looking to older nonprofit media for financial inspiration. The New Haven Independent, described as one of the field’s “long-livers” at the online journalism conference, looked to National Public Radio for inspiration when it launched a nonprofit news site for neighborhoods in Connecticut’s second-largest city six years ago. “When we say [National Public Radio] model, we mean a mixture of foundation grants, sponsorship supports, and [reader donations],” says Melissa Bailey, the publication’s managing editor. “It treated us very well compared to sites that depend on ad revenue.”
Both the Knight Foundation and a local group, the Community Foundation for Greater New Haven, helped fund the New Haven Independent. The local foundation, now the site’s major funder, helped get the site running with a two-year $21,000 grant. About half of the publication’s current $575,000 operating budget comes from foundation grants, with about one quarter each from donations and affluent individuals. (Knight has also helped fund CommonWealth magazine.)
Currently, the Independent seeks “sustainers” who give $10 or $18 per month and “angels” who contribute between $250 and $1,000 each year. “Obviously, [foundations] don’t like to support you forever,” says Bailey. “The trick is coming up with new sources of funding and always change how you are going to have your next annual budget supported.”
Heavy reliance on foundation grants, which are usually limited to between one and three years, is risky. Most grantors view awards as the seed money to give an organization the time to develop the independent revenue streams that are integral to long-term financial success and not as an ongoing source of operating dollars. Friedland found that a while a nonprofit may never completely eliminate the need for foundation dollars, the organization should strive to keep foundation support below 25 percent.
A novel approach to the foundation “ask” comes from William Schubart, a founder of the Vermont Journalism Trust, which merged with the in-depth state news site, VTDigger.org, last year. Instead of trying to solicit $25,000 to $50,000, he told the journalism conference audience, look for smaller grants of $10,000 to $15,000 from a foundation with a narrower mission such as child welfare or energy conservation. Then build a case to persuade the foundation that if it likes the published content (and understands that it has no say in the editorial process), it should consider funding the publication in perpetuity.
“[Schubart] is not making it such a big ask that foundations would shrink from the amount,” says Jan Schaffer, executive director of the J-Lab, the Institute for Interactive Journalism at American University. “If anything, he’s leaving room for them to increase their amount every year if they decide it can be good value in providing some type of social impact.”
Richard Tofel, ProPublica general manager
Nonprofits journalists cannot be shy about chasing after wealthy donors. Tofel, ProPublica’s general manager, says the Sandlers have indicated that as long as the outlet can maintain its performance (and the organization has already won two Pulitzer Prizes) they are willing to be significant funders of ProPublica for an indefinite period of time. “We always believed that philanthropy was going to be the bulk of our revenue,” says Tofel.
ProPublica seeks both large gifts and smaller donations. More than 1,300 donors contributed to the operation in 2010, up from a little more than 100 two years ago. Apart from the Sandlers, ProPublica brought in $3.8 million in donations, nearly 40 percent of the funds the organization raised in 2010. This year, the organization wants to raise $5 million from non-Sandler sources, a goal ProPublica “will likely hit,” according to Tofel. “We want to get to the point where the Sandlers are a considerably smaller part of our funding,” he says.
ProPublica aims to build “a new cultural institution” that draws on major gifts and smaller donations just as art museums, theatre companies, or universities do. “All those [organizations] have earned revenue components, but do not exist without substantial components of philanthropy,” says Tofel, who spends about one-quarter of his time working on the development front.
Moving away from foundations and into other revenue streams is not easy, as MinnPost editor Joel Kramer discovered. Kramer and his wife Laurie and three other families contributed $850,000 to start the online site in 2007. The site provides news and analysis of Minnesota public affairs and relies on a mix of national and state foundation funding, corporate sponsorship, advertising, and member dollars. It recorded a first-ever surplus of $17, 594 in 2010, with advertising and sponsorship revenues rising 42 percent from $217,734 in 2009 to $309,508 in 2010.
MinnPost wanted to be independent of foundation funding by 2012. It is not working out that way for two reasons: The organization decided to increase its 2011 budget from $1.2 million to $1.5 million in order to hire staff to concentrate on generating revenues. Readers also wanted more, and to meet that demand MinnPost hired additional writers. Currently, there are four staff writers and up to 10 principal contract writers. “It’s extremely challenging to figure out how to even break even,” Kramer says.
Under a four-year plan adopted last year, Kramer projects that by 2014, the organization will spend a little more than $2 million, with about 10 percent, or roughly $200,000, coming from foundations. “If you can get it down to 10 percent, it means you are relatively safe from being put at risk if you can’t get it,” says Kramer. “The worst that happens is you have to be 10 percent smaller.”
The IRS steps in
The drive for sustainability is difficult under the best of circumstances. But the IRS is making that job even more complicated. In October, Kevin Davis, the executive director of the Investigative News Network, a consortium representing the interests of 60 nonprofit news outlets, testified at a Federal Communications Commission hearing in Phoenix that delays in the IRS review process for new organizations seeking 501(c)(3) nonprofit status had ground to a halt, “suppressing new start-up journalism nonprofits and endangering our movement.”
The IRS has shown an interest in nonprofit news organizations that have applied for 501(c)(3) status, the section of the US tax code that journalism entities have traditionally used to qualify for nonprofit status as a charity that serves a socially recognized purpose. As such, a news organization does not have to pay federal corporate income tax since they provide educational benefits through reporting and analysis.
The Investigative News Network’s application has been in limbo for more than a year, along with at least two others: SF Public Press, a San Francisco news site, and The Lens, an investigative news outlet in New Orleans. In the past, most applications for nonprofit status took no longer than six months, according to Davis.
Complicating matters further is that some for-profit media organizations are seeking to convert to nonprofit status. In a conversation after the hearing, Davis says that one theory for the delay is that applications from organizations such as the Investigative News Network have been bundled with those seeking conversions, and the IRS “is looking to create some policy around that.” An IRS spokesman could not confirm whether the new nonprofit applications are being co-mingled with for-profit-to-nonprofit conversions.
Davis surmises that the IRS is also concerned about other issues, including potential revenue-generating collaborations with for-profit media. The IRS has had a number of questions about the network’s revenue-sharing and distribution deal with Thomson Reuters, a for-profit news agency, and he fears that the IRS could reject the network’s application based on that deal. Davis says that the network does not yet know how much revenue, if any, the collaboration will produce.
So far the IRS is focusing on new nonprofit applications, according to Davis. Organizations that already have nonprofit status have not been subjected to the same scrutiny. He worries that the network may fail to land grants it has applied for if it does not receive nonprofit status soon. The agency’s actions might hamper nonprofit news organizations’ ability to diversify revenues and limit the foundation and philanthropic funding that they could accept. If the IRS rulings move in this direction, they would have a “chilling effect on our ability to become sustainable businesses,” Davis says.
An IRS spokesman says that the agency is “working on the nonprofit applications centrally [in Washington, DC] to give them consistent treatment.” They are not on hold, the spokesman added.
Waldman, in the FCC report, recommended changes to the tax code that would make it easier for nonprofit news operations to become more financially stable. Davis told FCC officials that federal tax rules need to be clarified and simplified. Any tax code changes must be passed by Congress.
Puttin’ on the Ritz
The St. Louis Beacon gets noticed and raises money with local talks and festivals.
With the news media in transition, what happens offline is as important as what happens online, argues Nicole Hollway, general manager of the St. Louis Beacon. Last year, the online regional nonprofit news organization reeled in 20 percent of its revenues from events such as the Beacon Festival, a week-long spring celebration of arts, music, and cultural events that are free or inexpensive.
Another event, a New Year’s Day 2011 gala performance of Gilbert and Sullivan’s H.M.S Pinafore featured local music luminaries and $500 and $750 tickets for a champagne reception, the concert, and dinner. The gala sold out. At the dinner, Hollway sat with a group of people who did not know the Beacon’s web address, stlbeacon.org. She was surprised there was little correlation between people who read the Beacon and those made a donation to benefit the publication. People attended the gala because the event benefited an organization that they viewed as a “community asset,” Hollway told the Boston online conference.
Hollway explains small staff shouldn’t deter outlets that want to make a name for themselves in their communities. “If you find something that naturally ties into the topics that you cover or type of journalism that you do… that’s going to be more manageable,” she says.
Events are a “significant part” of the Texas Tribune’s revenue stream, according to editor Mark Miller. Earlier this year, the publication put on its first-ever, weekend-long Texas Tribune Festival. The hugely successful ideas forum featured more than 100 speakers on state energy and the environment, public and higher education, race and immigration, health and human services issues.
The Tribune, expects to gross about $500,000 from the festival and basically “paid for nothing” to set up the event, says Miller, who spoke to online journalists at the Boston conference along with Holloway and Bergantino about new revenue streams. The University of Texas at Austin donated space and 27 mostly corporate sponsors helped foot the bill or provide other support. Tickets were $125 and Tribune “members” and students were eligible for discounts. The lesson he learned was simple. “Know your market,” said Miller. “What works in Texas may not work in Boston or New York.”
Indeed. A free ProPublica-The New School forum on narrative journalism earlier this year attracted about 500 people in New York. Another series of talks, including one that featuring two of the outlet’s the Pulitzer Prize winning reporters, is also open to the public at no charge. “In New York, I’m not sure there’s a money-making opportunity [for events],” says Tofel, the ProPublica general manager. “The field is so crowded…the numbers of things you can do every night for nothing boggle the mind.”
Back to school
Some journalists who have established news nonprofits, especially in fields such as investigative reporting, have found safe harbor at universities. Finding a partner at a school of journalism or communication improves a nonprofit’s chances of survival. Universities can serve as fiscal agents, relieving journalists of the job of setting up a separate nonprofit. The institution can also absorb administrative costs like utilities, tech support, and office space.
A university affiliation is a “plus in terms of credibility,” says editor-in-chief David Westphal of the California HealthCare Foundation Center for Health Care Reporting. The center, housed at University of Southern California’s Annenberg School for Communication and Journalism, provides reporting on state health issues, such as implementation of the federal health reform law in small and isolated California counties. Seven journalists work for the center, which partners with other news organizations in the Golden State.
Single-issue news outlets have the potential to have good funding prospects, if they can attract ongoing support from a special interest foundation that is new to the media world. Westphal sees health care as a topic area where there is both money?and plenty of interest. The outlet obtained a three-year, $3.3 million grant from California HealthCare Foundation two years ago. He is “hopeful” that the center can obtain another multi-year gift. “One question is whether [the philanthropists] in the foundation will hang in there longer than two, three, or four years and then maybe become long-term funders of the news,” Westphal says.High school programs aren’t the only kinds of training going on at the New England Center for Investigative Reporting, which is also the country’s first university-based nonprofit investigative news collaborative. The Boston University center offers an investigative reporting certificate program for international journalists. Students receive instruction in in-depth reporting, computer-assisted reporting, interviewing, and other professional skills. The center also offers professional development for journalists in the New England region. The training programs, along with content sales, comprise about half of the center’s $500,000 budget for 2011. “I want to grow the earned income revenue piece as much as possible because that makes me more confident in our long-term sustainability,” says Bergantino.
Paying for nonprofit journalism is still very much in a discovery phase. What is certain is that journalists who go the nonprofit route must create a craving for stories and information that readers cannot satisfy anywhere else. “The most important thing in the business of journalism today is distinctiveness,” says ProPublica’s Tofel. “People who are creating distinctive content are garnering audiences and with audiences can come impact and the ability to attract resources.”