Sleeping Around: The Nonprofit Edge

A for-profit news startup in San Diego helps make the nonprofit case when survival is the goal.

Here’s one version of a joke I often hear. This one came from the editor of a new nonprofit news effort: “Yes, it’s strange being in the nonprofit world, but I ran a site before this that might as well have been nonprofit.”

Zing!

There’s also this adaptation: “You’re a nonprofit? I guess that’s not strange. Aren’t most newspapers nonprofit now?”

Snap!

It’s funny, I suspect, because not a lot of people really know what it means to be a nonprofit or they do but it’s still fun to read it as “no profit.” It becomes a distinction that just means your organization doesn’t — or can’t — make much money and you’ve decided to be legally OK with that.

It’s a joke, yes, but it’s also a misunderstanding that frames the entire discussion about where nonprofits fit in the future of journalism.

Here was how Jack Shafer, the curmudgeonly but brilliant media columnist for Slate began what is so far the reigning and still undefeated supreme take down of nonprofit news efforts:

“The nonprofit news business–if that isn’t a contradiction in terms–is spreading like a midsummer algae bloom.”

Translation: It’s suspect whether a nonprofit can be a business.

But it can be an algae bloom.

San Diego sees its share of midsummer algae blooms. It has also been lucky to host part of the bloom of this nonprofit news business. Our organization, voiceofsandiego.org, has been thrust into the national conversation about the future of civic media. And that we’re mentioned as leaders in this nonprofit algae bloom is an honor.

I’d like to think that our efforts also played a small part in inspiring a bunch of different people to launch online news efforts here in San Diego. There were the students at Lincoln High School. And there was a lawyer, active in the Republican Party, who wanted to give it a go as well.

But the biggest and boldest entry so far into the San Diego digital media scene — the San Diego News Network, or SDNN, also became its biggest flame out so far. It was a for-profit.

To me, SDNN’s experience as a news venture is illustrative of the limits (currently) of trying to solve a news problem with a for-profit. It was a news experiment, running parallel to our own. I decided to explore San Diego’s experience with both two experiments — one a for-profit and one a nonprofit — to help explain why so many people who are worried about good media in their communities are choosing the nonprofit route when they decide to do something about it.

It is not because nonprofits don’t need money. And it is not, in fact, because nonprofits are more holy or pure than for profits. In fact, it has to do with promiscuity.

Revenue Promiscuity vs. Monogamy

Let’s do a quick review: A for-profit organization is owned by an individual or shareholders and its purpose, its mission, is to deliver dividends and value to them.

A nonprofit, on the other hand, has no shareholders, no owners. Instead, it has a mission. Bringing in money is a big factor in whether the organization fulfills that mission.

Both nonprofits and for-profits need money.

Not long ago, my friend and mentor, John Thornton wrote this post. Thornton, a venture capitalist and brilliant dude, is the founder and chairman of the board of The Texas Tribune, which itself is a kind of brother to voiceofsandiego.org.

In the post, Thornton coined the term “revenue promiscuity” to communicate the root business model The Texas Tribune and voiceofsandiego.org share.

“Revenue promiscuity” has its problems as a slogan, as you can imagine. No, it does not mean our organizations will sleep with every type of revenue. We have our standards, thank you very much. But it does mean we have no interest in going steady with just one. We’re young and free!

Revenue promiscuity means that we have a mission — to do public service journalism — and we’re cultivating an ever-growing collection of ways to pay for it. Most of us are obsessively pursuing all kinds of revenue sources, from syndicating content, to donations from the masses, to major contributions and grants, to corporate sponsors and advertising.

Revenue promiscuity is the product of a survival instinct. When you want to survive, you do things differently than if you want to make money for shareholders.

For instance, a for-profit start-up and its funders do not usually have much patience.

Entrepreneurs come up with a plan. They find investors. They give it a go. Maybe they stumble a bit so they find more investors and on and on and then, one of two things happen: 1) the idea works, revenue comes in and they send the kids to private school. Or 2) they fail for the last time, and unable to find more investors, decide to bury the idea. All of it can happen very fast.

The calculus of a for-profit’s success is very simple. Is it making money? Or does it show promise of making money? If both of those come up as a no, the enterprise folds.

A for-profit enterprise cannot ask donors for money. Well, let’s be clear, it can, as the Miami Herald did. But it’s kind of awkward, right? How do you make that sell? “Give us money! Our shareholders need their dividend!”

And you can’t take in foundation grants. Well, yes, you can, but again that creates awkwardness. The Knight Foundation (a generous supporter of many of us that make up the nonprofit news world) has been crafting a way to handle this for more than a year.

So right away, if you’re starting a news operation, you’re tying your hands eliminating chances at survival. It’d be like being stranded on a desert island but refusing to eat coconuts.

For-profit efforts definitely generate more initial investment. But it comes with impatience and expectations of a return.

And it leaves for-profit news endeavors with only one source of revenue: advertising. OK, yes, there is a second source of revenue. You can charge people to access your content. But only a handful of news sites in the world have dared do this so I’m going to pretend it’s not yet real.

The journalism professor Jay Rosen, from NYU, has compiled a menu of all the “sources of subsidy” a news entrepreneur could choose. And I eagerly await the results of for-profit experiments with some of the more creative ones. But SDNN promised to remake San Diego’s media landscape with an old one: advertising.

SDNN: A Media Bull Bursts Onto the Scene

In March 2009, SDNN, came online.

It was a self-proclaimed bull bursting into San Diego’s media china shop and it was grunting nothing less than threats about what it was going to do. The company’s leaders made it clear to investors and interested reporters that they believed that the legacy newspaper, The San Diego Union-Tribune, was dying along with its still very popular website, SignOnSanDiego.com.

They planned to dance on its grave.

But just this summer, abruptly, and barely a year after its launch, SDNN.com stopped posting stories and laid off its staff. Several sources have reported that the entity raised and spent more than $3 million in little more than a year. (For scale, VOSD’s 2010 budget this year is $1.1 million).

To me, SDNN’s experience as a news venture is illustrative of the limits (currently) of trying to solve a news problem with a for-profit. It was exactly the for-profit’s limitations, not freedoms, that I believe left it with no chance to survive after three or four stabs at a business model.

Before I go on, I did try to reach Barbara Bry for comment on this post. She had a lot of titles at SDNN.com but basically she and her husband — Neil Senturia — were in charge of it. They had been the initial investors and partners in the venture, which was the brainchild of Ron James, who had run the Union-Tribune’s website.

James left only days after the site launched.

(Full disclosure: Bry was also the first editor and CEO of voiceofsandiego.org and got me my job there, as a writer. I like and respect her a lot. She’d remained a financial supporter of VOSD after she left. Even days after SDNN.com launched, she sent in a $150 donation using an SDNN.com check. “Best wishes from the team at SDNN,” read an accompanying note.)

Bry said, in an e-mail, she would love to talk about SDNN.com and her experiences … in a couple of months. She said that “lots in flux right now.”

Ron James’ idea was a good one and it was simple. Across San Diego, dozens of community newspapers, radio stations and other entities were producing content but didn’t have a prominent presence online. Why not launch a good website, put the content from those smaller sources online, ask them to help you promote the new network, have a small, cheap staff to cultivate it and, finally, add some original elements? Then, sell advertising and share the profits with the entire group.

It’d be a win for everyone. SDNN.com, of course, would win by presenting a diversity of content that rivaled any other source in town. It would ostensibly then attract the traffic to sell serious advertising.

The partners would get more exposure for their work and would benefit financially from putting it online without having to sell the online ads and host the content themselves. And they would all benefit from the combined power of a synchronized marketing campaign done largely for free based on the companies reach in their communities.

In fact, they’d all benefit from this network lighting up on the day of the launch — a synchronized fireworks show that would forever redefine San Diego’s media landscape.

It fell kind of short. The website wasn’t quite as attractive as many of us thought it would be. The network didn’t really light up. It just sort of started.

And the founder, the guy whose idea it was, James, was done with it. Only a few days in and he was out. He said he was asked to leave but wouldn’t go into details about it. Senturia and Bry settled with him and took the operation over themselves.

If you think about it, at the heart of James’ idea was a total reliance on banner advertisements. His idea, in fact, was basically that there was a quicker, cheaper way to build a web property popular enough to attract major advertising revenue. Quicker and cheaper, that is, than, you know, having a major newspaper, with all of its costs.

In the end, though, it all came down to advertising. Banner advertising. In other words, the entire effort would be successful if businesses decided to give the new website money, in exchange for getting an image and link on the site.

This has defined the core effort of most of the for-profit online news ventures.

It’s not revenue promiscuity. It’s revenue monogamy. And it’s loyalty to a source of revenue that is still not making anyone rich.

Even at SDNN, though, it wasn’t long before there was marital strife.

With Ron James out, Senturia deferred to his roots as a technology entrepreneur. He and Bry began telling bloggers that SDNN.com, in fact, was not a news company. It was news company AND a technology company. SDNN.com had customized WordPress to create its website and now it was marketing itself as a provider of this technology to others.

Soon, entrepreneurs making noise about starting a local news site could expect a call from Senturia.

No doubt this was a folly. And an exploration of the issues around content management systems deserves its own post — or year-long series of posts. The fact is that managing a content management system and providing your customers the service they would need sounds to me like a dreadful and costly undertaking and its challenges must have become clear immediately. But I do understand Senturia’s angst to break bonds with his banner-advertising spouse.

One source of revenue will not pay the bills of a small news operation.

But selling this technology (never mind supporting it with customer service and keeping it updated) would take time to develop as a revenue source (it never did). So, the core emphasis was still on trying to get more people to the site and therefore more advertising. Almost as soon as James had walked out the door, Senturia and Bry began de-emphasizing his central thesis: that the network’s partners would provide most of its content and therefore do it cheaper than a hired staff would. Within a few months, the effort was clearly underway to find an even more efficient route to increase traffic for less money.

With sites all across the country finding ways to aggregate others’ content, for a while at least, SDNN.com tried to do much of its own work or cull it from dozens of contributors. It had a decided entertainment and booster fetish, and some of the posts, like the write ups of American Idol contestant Adam Lambert, made it through the search engine worm hole and landed in whatever stream it is that crashes your servers and makes you giddy.

When the Lambert stories caught fire, you could almost sense how it changed the organization. It was as though they’d been scratching everywhere and finally found the part that itched. They zeroed in on that particular recipe for stories: one part entertainment news, one part San Diego angle and another part culled from national reports. And out flew a flock of stories: San Diego’s take on Miss California, Tiger Woods, and the death of Michael Jackson.

Many of them placed well in search engines too. The site’s traffic soared (though the majority of it came from outside Southern California) and that brought the bombast to a new level.

Here was Senturia in Forbes magazine:

“We secretly think that if we hang around long enough we’ll be the paper of record in San Diego,” he says. With the larger Union-Tribune’s Web site in his sights, “We will relentlessly peck away at them,” he promises.

By May 2010, SDNN.com decided to launch a print newspaper. It told advertisers it was now reaching 400,000 online readers (it cited statistics from Quantcast.com, but that line graph never peaked that high). Its strategy had gone full circle: From wanting to leverage its good relationship with community papers to directly competing with them.

This was just a change of medium. Money would come from advertising and advertising only.

But 400,000 is a lot of readers. How many more could a small operation just finishing its first year hope to get? If advertising is the goal and getting traffic means you get advertising, why didn’t it work?

It didn’t work because traffic didn’t do the trick. Advertising didn’t do the trick. It’s just not enough money. Revenue monogamy let them down.

No doubt there would be those who conclude, legitimately, that this is not an indictment of advertising or of focusing on web traffic as a business model. They would blame SDNN.com’s focus, its quality, its management or its unchecked ambitions. One of those people, of course, is Ron James, whose had to watch helplessly as his idea evolved and died as it did.

It may not have run the way he and others would’ve dreamed. But its experience does damage the notion that through traffic you get advertising and through advertising alone you can fund even a small news operation.

And this is exactly why so many people concerned about the media in their communities are choosing to set up new entities as nonprofits. A nonprofit is not dependent on any one source of revenue. Not only that, but a nonprofit actually has the benefit of being able to merge its business model with its mission.

In other words, look at voiceofsandiego.org’s mission statement:

To consistently deliver ground-breaking investigative journalism for the San Diego region. To increase civic participation by giving residents the knowledge and in-depth analysis necessary to become advocates for good government and social progress.

Presumably, if we pursue this mission well, we will endear ourselves to San Diegans. They will see us as a service they value and they’ll decide to pay us for providing it. What’s more, unlike a for-profit fee for access, we don’t set the rates. Readers can choose to pay what they believe it’s worth to them according to their means. That could be $5 or it could be $5,000. For-profits don’t have that latitude.

They’re married to advertising.

But also, if we perform our mission well, presumably we’ll also engage a community — one that is attracted to the quality of the effort. And that will be attractive to sponsors who want to be associated with the community and the mission.

We may not always be the best distributors of the content we produce. We may not be able to engage certain communities with it. But other media companies might be. They purchase some of our content or services through syndication deals that bring more revenue to the organization.

This is revenue promiscuity. Get a good mission. Pursue it well and see how many different ways you can fund it. Through diversity you survive and thrive.

We have had some success and we continue to grow, but we have a long way to go to reach our potential. We don’t have all the answers but we’re working hard to figure it out and reach ultimate sustainability.

What is sustainability? We believe sustainability is actually defined by developing such a diversity of revenue sources that no matter what happens to one of them or a group of them, your organization can survive. It’s like a well diversified investment portfolio: set up to grow but absorb losses without catastrophe in bad times.

Again, diversity, not dependence on one source. Yes, we can get advertising just like everyone else. But it’s only one of many things. In fact, if we had to rely only on advertising, we’d probably be out of business. You see, being monogamous is just deadly.

At our core, our ability to appeal to the entire community to support our effort and mission is itself our most valuable asset. And it is one that a shareholder owned — a for-profit — entity does not have available.

One of the most frustrating things for me to watch is the decline of well-respected newspapers, many of which are still well read and liked in their communities. Obviously, I’m not alone here. But what bothers me is that they don’t ask for money.

Here these journalists are writing piece after piece about why what they do is so valuable. And yet, as the ship is sinking, their leaders just let it drown. It’s almost as if pride prevents them from raising money for a service of which they spend hours extolling the public benefits.

But it’s not pride. It’s revenue monogamy.

I do not doubt that for-profit entrepreneurs will soon come up with ways other than advertising to pay for good bloggers, researchers, investigators and moderators of community debate. But even the most interesting innovators in the for-profit arena seem to be directing their efforts at making advertising easier to get or more valuable.
Some flirt with the idea of charging fees to read or engage. Perhaps that will work and I eagerly await the results of that experiment.

But for now, we are stuck watching for-profit revenue monogamists deteriorate.

It was somewhat surreal when The San Diego Union-Tribune reported the story that SDNN, the entity planning to overthrow it, was dying. Actually, the first story was about SDNN putting itself up for sale. It had laid off some staff and was letting it be known that its “properties” were on the market.

Senturia told staff that he hoped any eventual buyer would keep them employed.

This was their version of an SOS — a plea to the market to rescue them so they might survive.

You can bet that when a nonprofit news operation starts to go down, it will send an SOS out to the entire community it serves. And the community will be given a chance to decide whether it should survive.

For something as important as news, this is a choice the community deserves to have.