Nonprofit model comes with challenges

Bailouts for failing industries are as hot a political topic as any, so it's fitting in a way that the US Senate has scheduled hearings on the death of newspapers for early next month.

Bailouts for failing industries are as hot a political topic as any, so it's fitting in a way that the US Senate has scheduled hearings on the death of newspapers for early next month.

However, even if proposed legislation from one majority member of the body that would allow newspapers to operate as 501(c)(3) nonprofit organizations were to pass, it would be far from a cure-all for the industry.

The model of a nonprofit news organization does provide several attractive components, according to Paul Steiger, editor-in-chief of nonprofit investigative journalism group ProPublica and former managing editor of The Wall Street Journal. These include tax-free contributions, obstacles to unwanted takeovers, and reduced tax liabilities.

Yet, there is a sizable downside. First, Steiger notes that the nonprofit model can limit an outlet's potential expansion. He adds that it does not guarantee financial stability, especially during a recession.

Joel Kramer, CEO and editor of nonprofit news outlet, which relies on donations and ads, says it has sold out its banner advertising for the week of April 19, but that the ad climate is still difficult.

“Nothing's easy right now,” he notes. “The economy is very weak and online advertising is very challenging, but we're making it.” serves its readers as more of a source for magazine-like content than a daily news source, says Kramer. He adds that the site faces tough decisions, such as whether or not to place its content behind a paywall as a way to sustain itself.

Meanwhile, ProPublica's budget, set by its oversight board from its start, operates at about $10 million per year.

Sen. Benjamin Cardin (D-MD) recently proposed the Newspaper Revitalization Act, enabling newspapers to operate as nonprofits for educational purposes, with tax-exempt status. Cardin staffers have said in media reports that the bill's intention is to protect local and community news organizations, rather than large media conglomerates.

“This may not be the optimal choice for some major newspapers or corporate media chains, but it should be an option for many newspapers struggling to stay afloat,” he told Reuters last month.

Nonprofit status is also a better fit for news organizations whose strengths lie in providing investigative reports, as opposed to those that relay the news of the day to consumers, says Billee Howard, EVP and MD of the global strategic media practice at Weber Shandwick.

“[The point of a nonprofit newsroom is] news being driven to enact change and protect the community,” she says, adding that the expense of staffers conducting investigations, while producing less daily news, is commonly being cut at many other news organizations.

Rodney Ferguson, MD and principal at Lipman Hearne, agrees that investigative journalism and foreign reporting could work well in a nonprofit model, but concedes that the process of making that transition is difficult.

“How do you [smoothly] take an enterprise like a newspaper from a publicly traded, privately held in-vestment to a nonprofit?” he asks.

No matter their calling, nonprofit newsrooms would face many of the same challenges as for-profit entities, such as a need to produce high-quality and credible content, says Scott Lewis, CEO of the news nonprofit

“[The nonprofit model] is not that exotic. Public radio stations have been doing it for quite some time,” he says. “We know that while there are a lot of different Web sites, people would gravitate toward one that would use professionalism and earns credibility.”

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