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Endowing Newspapers: What Are We Saving, Anyway?

There’s a debate under way in the newspaper/journalism corner of the blogosphere and Twittersphere, spurred by an op-ed commentary in the New York Times earlier this week. The piece, by Yale’s chief investment officer, David Swensen, and his colleague Michael Schmidt, a Yale financial analyst, starts with a questionable idea — that newspapers should be endowed as nonprofits in order to save them — and goes south from there. The column begins:

“The basis of our governments being the opinion of the people, the very first object should be to keep that right,” Thomas Jefferson wrote in January 1787. “And were it left to me to decide whether we should have a government without newspapers or newspapers without a government, I should not hesitate to prefer the latter.”

Today, we are dangerously close to having a government without newspapers. American newspapers shoulder the burden of considerable indebtedness with little cash on hand, as their profit margins have diminished or disappeared. Readers turn increasingly to the Internet for information — even though the Internet has the potential to be, in the words of the chief executive of Google, Eric Schmidt, “a cesspool” of false information. If Jefferson was right that a well-informed citizenry is the foundation of our democracy, then newspapers must be saved.

There’s so much wrong with this essay that one scarcely knows where to start. In one critique, Alison Fine grasps a key reason the proposal lacks weight: Its “fundamental premise that only newspapers can hold government accountable” is absurd on its face.

The piece drew plenty of other attention from journalists and industry watchers including an interesting question from the Nieman Journalism Lab’s Zachary M. Seward, who wondered how much it would cost “to sustain every American newspaper in perpetuity as non-profit organizations” — and, after consulting with Alan Mutter came up with a guesstimate of $114 billion. Cough.

This is to save only the editorial staff, mind you. Journalists have an unfortunate habit of forgetting that other people also work in their organizations; and the logic here is that what we want to preserve is the jobs of the journalists who report the news — never mind that the people who still buy newspapers don’t do so entirely because of what fills the news columns, but also to see the ads and non-news features.

Seward reasonably points out that we’d be foolish to endow the newspaper industry as it currently exists. When I look at most local newspapers these days I see skeletons: businesses that have been systematically looted over the years, to send money to far-off corporate headquarters to pay fat executive salaries and boost stock prices. Preserve them? Why would we want to do that?

We’re unquestionably losing something important as the newspaper business model implodes. As a shareholder in three of those companies I’m unhappy about it, but I’m also not going to suggest that I blindly invested. Over the years I’ve made much, much more on my newspaper shares than I would lose now even if all of them (not a chance) were to fail tomorrow.

But we’re already seeing some models for the future emerge. One, just one, is nonprofit.

The idea that philanthropists should get into the community information business is not new, nor bad. It’s come up a number of times, most recently with the Knight Foundation’s funding support, along with community foundations, of local initiatives. (See also David Westphal’s recent Online Journalism Review piece on this larger topic.)

And not-for-profit media is hardly new. PBS, NPR and many other organizations don’t aim to make profits. But nonprofits are enterprises, too. They require business models as much as any for-profit enterprise.

Nonprofits generally exist, meanwhile, to ameliorate failures in the for-profit marketplace. Markets do fail, and they do so frequently. (I’m not talking here about the financial meltdown we’re experiencing, which is all about society’s failures in a much wider way.) Bill Gates’ worthy philanthropic efforts to rid the planet of diseases that aren’t profitable for the medical industry speaks specifically to this issue, as do countless other such enterprises.

The market failure most notable in the newspaper business of the past half-century was felt not by the journalists but by the buyers and sellers of products and services in communities. This was due to newspapers’ monopoly status, leading them to extract outrageously high profits from advertisers who essentially had no alternatives. Ask anyone who used the classifieds before eBay and craigslist and other better, cheaper competition came along — they’ll tell you what a failed marketplace looks like.

That era was good for the editorial staffs, which enjoyed long-term, stable employment and, in many cases, some distance from advertiser influence over the contents of the news pages. However excellent the journalists were, however — and many were truly superb — this was not a climate that bred risk-taking and innovation beyond imagining how to be better reporters. Improving the journalism was a great thing; but becoming conservative in other ways was not.

We’re seeing an explosion of innovation now. Some of it is coming from inside news organizations. But the majority is, from my perspective, coming from outside, from people inventing or adapting business models as well as journalism and information techniques. (Jonathan Weber at the wonderful New West Network is one of the people I’m counting on to help figure this out; do not fail to read his brilliant response to the NYT op-ed, probably the best of all the commentary on this issues.)

Do we need funding sources for these new and adaptive projects? You bet. Some has already been committed or is in the pipeline now. It’s not enough, but it’s a start.

I’ll wager, with little fear of losing, that a great deal of the community information we’ll get in a few years will come from for-profit sources. But that will still leave vast territories for two other models: volunteers and nonprofits. Sometimes these will overlap.

The most essential role for nonprofits is almost certainly going to be in addressing the new market failure. This is the category I call “eat your spinach journalism,” the reporting that we all agree we need but which requires money and time to do. Certain kinds of investigations and watchdog reporting, including such basics as keeping an eye on what the City Council and local/state agencies are up to, may not support for-profit ventures, and we’ll desperately need other sources of funding for those.

That the New York Times used its valuable op-ed space to showcase such shallow thinking by the Yale financial guys is depressing. At least their essay sparked some conversation. But please, let’s move onto realistic possibilities.

6 Comments on “Endowing Newspapers: What Are We Saving, Anyway?”

  1. #1 Dave LaFontaine
    on Jan 30th, 2009 at 3:37 pm

    While the concept of a bailout for newspapers (and allegedly for good journalism) seems attractive at first blush, I fear that in practice, the billions in bailout funds would suffer the same fate as the billions bestowed upon the banking industry.

    That is, they would be swiftly pocketed in the form of “well-earned bonuses,” and only a few crumbs would make it down to the level where the money would actually do any good. While I’m not in the “burn baby, burn” camp the way many other digital triumphalists have been (and there’s at least a faint whiff of that hereabouts), I think that dumping fat stacks on media conglomerates will not solve the underlying problems of the crumbling of business models.

    Now then – a Manhattan Project (of sorts) to build solid business models to support quality journalism? That would = the hoary “teaching a man to fish” paradigm.

    I know faith in The Invisible Hand is in short supply these days (and where it can be found, it’s usually being in the stocks in the town square, being pelted by posters on Angryjournalist.com), but the fact is that there is a demand for something to perform the function of information dissemination that newspapers do/have done. If the Drug Wars have taught us anything, it is that where there is a demand, and money is attached to that demand, there will correspondingly be a supply.

  2. #2 Jon Garfunkel
    on Jan 30th, 2009 at 4:19 pm

    re: “That the New York Times used its valuable op-ed space to showcase such shallow thinking by the Yale financial guys is depressing. At least their essay sparked some conversation. But please, let’s move onto realistic possibilities.”

    Amen to that.

    Re: the “cesspool” comment, that’s a classic, as in, did Schmidt realize that would be the soundbite from the whole talk? Paul Boutin of Valleywag chopped it down last October:

    “Wait, what happened to the magic Google algorithm that reverse-engineers our reputations? Does it now rank pages by brand, too?”

  3. #3 Dan Gilmore on Endowing Newspapers: What Are We Saving, Anyway? at Klintron’s Brain
    on Jan 30th, 2009 at 4:51 pm

    [...] Full Story: Center for Citizen Media [...]

  4. #4 Bailout Cash for Newspapers? A Cure That Would Only Worsen the Underlying Disease… | Sips from the Firehose
    on Jan 30th, 2009 at 6:11 pm

    [...] I posted this as a comment here, already, but it bears repeating. While the concept of a bailout for newspapers (and allegedly for good journalism) seems attractive at first blush, I fear that in practice, the billions in bailout funds would suffer the same fate as the billions bestowed upon the banking industry. [...]

  5. #5 Notes from a Teacher - Monday squibs
    on Feb 2nd, 2009 at 10:40 am

    [...] Endowing Newspapers: What Are We Saving, Anyway? Of all of the reaction to the idea of endowing newspapers to drive their survival, I think I like Dan Gillmor’s the best. Related: Misunderstanding nonprofit news, an inside look at what being non-profit means. [...]

  6. #6 Andrew Marshall
    on Feb 2nd, 2009 at 2:52 pm

    The idea of a non-profit in the sense of, say, Human Rights Watch might not be a realistic possibility. But there are other forms of entity besides that and the joint-stock publicly traded company. The Guardian was run by a Trust for a long time. The form of ownership and the argument about business model, however, aren’t the same problem, and answering one doesn’t resolve the other.