A newsstand displays the logos of The Philadelphia Inquirer outside of City Hall

A newsstand displays the logos of The Philadelphia Inquirer outside of City Hall

The rise of nonprofit local news is one of the most hopeful trends amidst an otherwise dreary landscape. Hundreds of nonprofit local news sites have arisen in just the past decade.

And major efforts are underway to grow this sector further. A gathering of journalism funders and practitioners at Sunnylands, the former Annenberg estate in Rancho Mirage, California, urged more philanthropic support for local news. Another summit, called It’s Our Democracy (led by former Bush administration Domestic Policy Advisor John Bridgeland and former Gen. Stanley McChrystal), concluded that strengthening local news is as important as more-discussed “democracy” threats like the deterioration of election systems and polarization. One working group during that conference proposed $500 million in new philanthropy. These are incredibly positive developments.

But even though I’ve spent the last decade hawking the need for a much bigger nonprofit local news sector, I have to be honest: Creating new nonprofit startups is not by itself going to solve this crisis. It would be catastrophic if we write off all “legacy” news organizations or imply that dollar signs blind all commercial newsrooms to the needs of communities.

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First, let’s think realistically about the current landscape. There are about 300 nonprofit local newsrooms — and 7,000 local commercial newspapers, websites, TV stations, and radio news shows. Unless we want 95 percent of American communities to become news deserts, we need to help some existing publications better serve their communities as we also build up the nonprofit sector. 

Many newspapers still do outstanding work, against daunting odds. Most of the Pulitzer Prizes for “public service” are still won by commercial entities. At Report for America, we have placed about half of the 547 corps members that have served over the past five years into (carefully selected) commercial newsrooms and found that most were just as committed to public service journalism as the nonprofits. Those reporters did extraordinary work uncovering bad water quality, discrimination in public schools, and a variety of other failings. Most of the superb Black and Hispanic newspapers are for-profits, too; their proprietors have believed that being for profit is the best way to ensure true independence.

Nonprofits do not have a monopoly on public-service spirit.

The problem is not “capitalism” or “legacy media” per se but rather what too much commercial media has become, especially at the local level.  Let’s break down the issues.

First, we have an ownership problem. About half of the daily newspaper “circulation” is owned by a hedge fund or private equity firm. A recent study found that newspapers acquired by private equity firms were more likely to cut the number of reporters and the amount of local coverage. “The composition of news shifts away from local governance, the number of reporters and editors falls, and participation in local elections declines,” concluded authors Michael Ewens, Arpit Gupta, and Sabrina T. Howell. The study found that the number of reporters fell from 6.36 to 3.77 at newspapers that were acquired by a private equity firm (compared to a more modest drop at other papers). They also found that the number of articles about local government at newspapers acquired by private equity firms fell from 5,788 to 2,433 after an acquisition, also a far sharper drop than for other ownership groups.

A related problem is that many of today’s chains were created through mega-mergers financed by taking on massive amounts of debt. Whatever spare change they have — including from successful efforts to grow digital subscriptions — must too often go to pay off the debt rather than investing in community journalism or digital transformation. As Gannett, which is really Gannett-Gatehouse, stated in a recent SEC filing, “we are required to dedicate a substantial portion of cash flow from operations to fund interest payments.” Before factoring in debt payments, the McClatchy chain had been running cash flow positive before Covid-19 hit.

Newspaper consolidation did not by itself cause the underlying problems of the local news model. The internet fundamentally undercut the revenue model for local news. But mergers — especially debt-fueled acquisitions and the role of financial firms — have made it infinitely harder for local news organizations to climb out of the hole. 

This is why family-owned newspapers like the Boston Globe, Anchorage Daily News, and the Minneapolis Star Tribune are able to invest far more heavily in local reporting than most of the chain-owned papers. If you look at the three main local reporting categories of the Pulitzer Prizes (public service, local, and investigative), a striking pattern emerges in the last decade. Even though the majority of papers are owned by chains, 67 percent of the winners or finalists were either family-owned newspapers (45 percent) or nonprofit (23 percent).

There are many exceptions, of course. Much incredible work is still being done by reporters, photographers, and editors at chain newspapers. But generally, at this moment, the types of ownership most likely to serve communities are family-owned for-profits and nonprofits, and the least likely are chains that either have large amounts of debt or are owned by a financial firm.

What strategy could encourage a healthier “legacy media” on the local level?

Better Ownership Structures

First, we must encourage the right types of ownership. Antitrust regulators should consider stopping mergers between large newspaper chains — especially by financial firms and especially when engineered with massive amounts of debt — if there’s evidence that it will lead to less coverage of communities. (Here’s a specific proposal that Rebuild Local News made to the Federal Trade Commission and the U.S. Department of Justice.)

To be clear, it hasn’t always been the case that local ownership would be better than chain ownership. For decades, some of the best journalism in America was done by papers owned by chains, which often used the profits reaped from having monopoly status in their communities to invest in serious journalism. But now chain ownership mostly comes along with a need to provide burdensome levels of return on investment for debtholders, investors, or shareholders. While family-owned businesses can be satisfied with a few percent return and the satisfaction of serving the community, chains (especially the debt-laden ones) can only achieve the 20 percent-plus in returns by engaging in penny-wise-pound-foolish cost-cutting.

We need a “replanting” strategy that encourages local ownership or control. That means offering tax credits, grants, or cheap financing for community institutions to buy newspapers from big chains. The acquirer could be a local nonprofit, a public radio station like WBEZ, which bought the Chicago Sun-Times or a local business.

We could even offer tax incentives to the sellers to lubricate the deal. Perhaps owners get an enhanced charitable deduction, forgiveness on capital gains or accelerate write-offs of losses if they sell or donate the paper into a community institution. Similar incentives could encourage conversion of for-profits into nonprofits like what happened with the Salt Lake Tribune or the acquisition of a for-profit by a nonprofit (See: The Philadelphia Inquirer). Plant-closing laws should be amended to require that communities be notified if a newspaper is shutting down so residents have time to organize a local bid.

In short, we need to encourage more local news to be locally owned or controlled. Despite their problems, these legacy newspapers often have something quite valuable — a brand built over decades, if not centuries — and can turn it around if they’re allowed to reinvest in digital transition and good journalism. (Here’s Rebuild Local’s first whack at a Replanting Strategy. Suggestions very much welcome!)

A New Type of Capital

Because of the underlying weakness in the business models, there is little private-sector financing available for local news — other than the private equity model that causes so many problems. We need investment funding for local news enterprises that “merely” want to break even, serve their communities and save democracy. “Patient capital” must consider the civic return on investment, whether a news organization can be both sustainable and provide enormous value to the community. This could help some of the 4,100 independent commercial weeklies transition into more sustainable and robust formats, and assist some of the promising new for-profit, digital first startups.

Perhaps foundations or philanthropists could create a Local News Bank to provide low interest loans, no-interest loans, and loans-to-grants for organizations (public benefit corporations, nonprofits, coops) that can become sustainable — even if not wildly profitable — while providing important services to the community. Sometimes the lenders would get their money back; sometimes they wouldn’t. In the case of the latter, the loan would in effect become a grant. In other words, from a financial perspective, this would be worse-than-usual for a commercial investor but better-than-usual for a grantmaking foundation.

To be clear, I’m not arguing that if only financial institutions were smarter, local news could again be wildly profitable. I don’t believe that. Rather, we need to view the local news sector as one where the goal is sustainability and serving the public good.

Government Support with the Right Incentives

Public policies should also create incentives for the right types of commercial behavior.  One reason I like the Local Journalism Sustainability Act is that it doesn’t just shower businesses with subsidies willy nilly; it provides wise incentives. For instance, a refundable payroll tax credit would only go to news organizations for the hiring or retaining of local reporters. If they lay off reporters, they get less; if they add journalists, they get more.

The bill could be refined even further to incentivize new hires.

The bill also provides a tax credit that would help consumers subscribe or donate to local newsrooms, reinforcing the self-sufficiency strategies adopted by most newspapers. Those consumers still must spend some of their own money, so the newsroom won’t benefit unless they convince residents they’re providing useful information

Another example: federal law provides benefits to banks that lend to local businesses that help serve low- and moderate-income communities. Federal banking regulators should clarify that a small newspaper that serves that community is also performing an important civic function, and banks should be encouraged to lend to or advertise with them.

Meanwhile, as state governments start to look at ways of helping local news, some are erring on the side of helping local news organizations that are owned locally. For instance, a bill just proposed in Connecticut would offer tax credits that advertise to local papers if they’re owned or controlled within the state. That is worth considering. The National Trust for Local News helped a chain of weeklies avoid being sold to a hedge fund in Colorado.

What about local TV, still the most common source of local news? In addition to the payroll tax credit, there may be ways that the Federal Communications Commission could encourage behavior that better helps local news. For instance, the FCC could offer TV stations the ability to fulfill their “public interest” obligations by donating to funds for local journalism. Or when the agency considers applications for mergers between two big TV station groups, they could consider whether further consolidation will help or hurt local reporting. Or, when they auction off broadcast spectrum, they could put some of it aside to help local news.

The biggest policy riddle is whether to embrace ideas that help the “good” players but that also finance hedge-fund-owned companies. On one hand, who doesn’t want to target benefits toward the ones most likely to serve communities? On the other hand, the entire tide needs to rise for both new players and legacy players to survive.

One example of a policy that could help the whole field and be worthwhile: The U.S. Justice Department just brought an antitrust case against Google arguing that, by controlling so much of advertising technology, the tech giant is able to thwart competition and provide publishers less than they otherwise would. Weakening that dominance could help make media business models healthier for all players.

Encourage For-Profit/Nonprofit Hybrids

Philanthropy can support some mission-driven for-profits and/or the nonprofit organizations that partner with them. Report for America has provided reporters to about 150 for-profit newsrooms around the country. But these commercial newsrooms only get super-talented-and-highly-subsidized Report for America journalists if they have identified a compelling public service beat (examples: formerly incarcerated people in Detroit, mental health and addiction in western New York, and poverty in West Virginia).

The injection of nonprofit money — and spirit — into commercial newsrooms changes their DNA, making them more likely to serve their communities and develop new revenue streams. Some states like New Mexico and California are now experimenting with funding fellowship programs via journalism schools, placing journalists into local newsrooms.

Some of these hybrids may better serve readers than pure nonprofits. How is that possible? Nonprofits, conscious of stewarding philanthropic money toward the most important topics, tend to emphasize labor-intensive accountability reporting — civically worthy but not necessarily well read. Since they disregard the more traffic-generating content that commercial enterprises gravitate toward like sports, obituaries, human interest features, and crime stories, they may be less likely to perform a community-building function that the full-service newspapers of yore performed. Commercial publishers have the opposite problem: They can do crowd-pleasing content but neglect costly accountability reporting. Hybrid models combine the best of both styles and would, by providing a better bundle of stories, help efforts to promote digital subscriptions.

Obviously, none of these strategies will work unless the leaders of commercial newsrooms continue to innovate: more digital subscriptions, a successful local advertising business, philanthropy, and other efforts to both enhance revenue and better connect to their communities. The problem is, they can do all those things and still fail if they’re under the burden of high debt loads and extractive management policies. We need to give them a shot at success.

I don’t want to spend a lot of energy arguing whether financial firms are excessively greedy. They are who they are. But that doesn’t mean that we need to accept their way as the only way. Some for-profit news organizations do well — building sustainable business models while providing deep reporting for the readers. In other cases, the best move is to convert to nonprofit status.

Local news is, or ought to be, a public service profession. We need to help both commercial and nonprofit newsrooms to fulfill that mission.

Steve Waldman is the chair of the Rebuild Local News Coalition, a nonpartisan group advancing public policy solutions, and co-founder of Report for America, a national service program that places journalists in local newsrooms.

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