Patronage may be the business model for news

I’m soliciting prompts for discussion. This piece is a part of that series.

Hunter Walk asks, in two prompts:

What's one business model you wish consumers would get more comfortable with because it would be a net-positive for media/news/society? And similarly, what's one business model you wish media/news organization would spend more time figuring out because it would be net-positive for society?

Should America have more BBC-like funded news media? Is capitalism, democracy and stability in media just fundamentally incompatible for the US?

I’ve conflated these into one piece because I think these are interrelated questions that need to be considered together. How can news organizations find sustainability while keeping the voting public well-informed and retaining their editorial independence?

Let’s begin with the BBC, which is often held up as a model for both newsroom operations and revenue.

The BBC, of course, has traditionally been predominantly broadcast news: a term that will eventually fade from relevance as broadcast television and radio are replaced by the internet over the next decade. It was funded through the UK’s broadcast receiver tax 119 years ago, originally created for radio; as televisions also used broadcast receivers, it was expanded to that equipment when TV came online in 1936. The license fee is essentially a regressive tax which now charges households £159 (roughly $200) a year for the right to use at least one broadcast receiver.

There is no equivalent internet connection tax. Instead, assuming that a household doesn’t own a broadcast receiver, they must continue to pay the license fee if they watch or listen to any kind of live television — for example, on the BBC’s iPlayer service, on YouTube, and so on, regardless of the device they watch it on. This revenue goes to pay for the BBC’s domestic activities in the UK, while its international activities are supported by advertising and traditional licensing through BBC Worldwide, a private corporation set up to drive revenue for the public corporation.

There’s a lesser-known second public broadcaster in the UK: Channel 4 is publicly-owned but makes its revenue through commercial means. It is banned from making its own shows, and must instead re-invest its revenue into distinctive programming as a way to stimulate the creative sector in the UK. Its news program, Channel 4 News, produced by the fully-private news agency ITN, is anecdotally at least as good as the BBC’s: it doggedly broke a number of political scandals in the UK as well as the Cambridge Analytica story. (Overall, the BBC’s coverage is undeniably more expansive, across many broadcast and digital channels.)

Both entities are theoretically independent, but have experienced a fair amount of political interference over the last few years. The BBC has been a political football at the hands of the Conservative Party, which has often felt it has been too critical of its policies. Channel 4 was set to be fully-privatized by that same government, but those plans were abandoned at the beginning of this year.

In the US, the closest analogy is the Corporation for Public Broadasting, a non-profit which receives money from Congress every year and whose board is appointed by the President of the United States. It is legally required to maintain “objectivity and balance”. In turn, the CPB funds stations affiliated with NPR (a national radio non-profit) and PBS (its television equivalent) through both content grants and community service grants. In both cases, the rest of the funding is derived from donations from individuals and private foundations.

The CPB, too, has been a political football. During the most recent war in Iraq, its leadership decided that coverage was too liberal; in response, PBS aired a show headlined by Tucker Carlson for a year. That particular chairman, Kenneth Tomlinson, who had been appointed by George W Bush, was eventually forced to step down after he was found to be directly interfering with programming.

The CPB has limits. There are many non-profit newsrooms in the US that aren’t affiliated with PBS or NPR and don’t broadcast in the traditional sense. These are typically funded through a combination of foundations, gifts from high net worth individuals, and small donations from ordinary people, in reverse order of prominence.

In these cases, one source can’t exist without the others: although foundations or high net worth individuals could hold up a newsroom on their own, that newsroom would then effectively be in their pocket (or at least, they would be perceived to be). By soliciting a range of donations from different sources, non-profits can help ensure their independence both effectively and reputationally. Short of an Act of Congress, the more a newsroom is dependent on a single source of funding, the more it is likely to bend to that source’s will. To future-proof its existence — and secure a reputation for independence — a non-profit newsroom must have diversity in funding.

At the same time, public organizations like the CPB, private foundations, and mandated public-private broadcasters like the BBC are vital to maintaining a thriving news ecosystem. Consider a hypothetical newsroom serving a low-income population in what would otherwise be a news desert. In a community where people are having trouble putting food on the table, there are unlikely to be enough individual donations to a newsroom to keep the lights on. On the other hand, we know that in communities without local newsrooms, voter participation decreases and corruption increases, potentially degrading quality of life in that community even further. Corruption in one area can also lead to corruption in others, creating a larger risk to democracy overall. While this hypothetical community might not present a great profit opportunity and may not be able to financially support a newsroom in its own right, ensuring it has coverage is not unimportant.

Meanwhile, for-profit news is lagging. Buzzfeed just shut down its newsroom; well-funded newcomer The Messenger is shaping up to be the Quibi of news; once-valuable properties like Vice are filing for bankruptcy; cable news networks are beginning to look like they will say or do anything to maintain ratings. One growing trend is for for-profit news sites to either convert into non-profits or adopt non-profit business models like philanthropy. In turn, VC funding for news startups is tanking: the odds of a news startup providing the kinds of financial returns that venture capitalists need to see are vanishingly small. Experiments like the blockchain-based Civil were failures bordering on scams. And the advertising industry, at least in the US, is falling off a cliff.

I don’t think American capitalism itself is incompatible with a functioning news ecosystem. There are thousands of domestic newsrooms that, while not necessarily thriving, are at least sustaining. Revenue and audiences overall are growing. But virtually all of the newsrooms I’m talking about are non-profits. While there are outliers — The New York Times is potentially one — for-profit news has generally fared disastrously. Physical newspapers and magazines continue to die, losing 50% of their revenue over the last two decades. Even where digital outlets are not dependent on ads, paywalls prevent most people from consuming their journalism, eroding their mission to begin with — and for most outlets aren’t even that effective at generating revenue. And micropayments are science fiction at best.

There’s been a boom in non-profit local and niche news startups: around 40% of Institute for Nonprofit News members were founded after 2017, and 60% after 2012. Most of this growth has been in local media, where revenue increased by 25% last year, albeit unevenly (remember my hypothetical news desert above). INN attributes some of this to the American Journalism Project, which seems to have had a positive role in stimulating local newsroom growth since it was founded in 2019. Across the non-profit sector, the median growth in revenue for non-profit news outlets was 25% over 4 years. 40-60% of total revenue was from foundations, 30-40% from individual giving, and the last 10% or so from earned revenue sources like advertising.

This giving-based model isn’t actually limited to non-profits, although many foundations will only award grants to non-profit entities. The Lenfest Institute acts as a non-profit arm for for-profit newspapers in Philadelphia. The Guardian is one example of a for-profit newsroom that has made a success of attracting philanthropy, in part by establishing a companion non-profit to attract tax-advantaged donations (not a million miles away from the model Mozilla uses). Even its for-profit arm is held in a trust whose rules dictate that profits must be re-invested into journalism — and has made a great success out of a subscription patronage model that saw recurring donations increase by 87% in three years.

Given all this, how might we ensure a healthy news ecosystem in America?

I think we need to get comfortable with the idea that non-profits do not exist outside of capitalism. At their heart, they’re another kind of corporate entity, with a different set of rules and restrictions.

We also need to get comfortable with the idea that news will be reported by a patchwork of local and niche newsrooms rather than a single branded entity. I’m sure many people will continue to tune into PBS NewsHour, the NBC Nightly News, and Fox, but these will continue to become the equivalent of the Huffington Post, bringing wider attention to other peoples’ reporting — often with a selective bias that has driven erosion in trust in these national institutions for years. Today, the public trusts individual journalists far more than branded newsrooms — a situation that benefits smaller newsrooms that perhaps don’t have brand recognition yet.

I don’t see a world in the near future where the CPB’s remit is expanded to include independent digital newsrooms across the country, although I do wish that we’d get more comfortable with the idea of federal funding, particularly if we accept the idea that journalism is a requirement for a healthy democracy.

Lacking that, I think the 60%/30%/10% model of foundations, individual giving, and earned revenue has shown itself to be relatively robust. For this to work on a larger scale, consumers will need to get comfortable with the idea of paying for news not because access is scarce but because it’s important. Paying to ensure that reporting happens at all — perhaps not even in the place you live — will need to become more normal.

The journalism industry has experimented with lots of different models. At Matter, an accelerator for media startups where I was west coast Director of Investments, we used to precede every demo day with Clay Shirky’s 2009 quote about the declining newspaper industry that “nothing will work, but everything might”. These days, I would say that some things obviously won’t work (venture capital investment in news, for one), and that we shouldn’t seek one prevailing business model for every kind of newsroom. Industry outlets like The Information can make great money from paywalls, for example; local outlets like Mission Local probably wouldn’t.

Nonetheless, I wish the industry would spend time focusing on making individual patronage donations as easy and seamless as possible. How can that 30% become a diversified 80%? There is no dedicated OpenCollective for news: a place where I can find newsrooms to donate to that will also provide non-profit fiscal sponsorship to newsrooms so that smaller outlets don’t need to spend time and money incorporating.

Patronage has been successful for newsrooms despite the software they use to solicit donations, not because of it. Today, if I want to donate to a newsroom, I need to do it on that newsroom’s site, using whatever tool they’ve decided to adopt. If they want to let me manage my subscription in a meaningful way, they often have to build their own member portal. If they want to transparently allow the public to see exactly who has donated, they have to build that functionality themselves. These are organizations that rarely have full-time developers at all; they shouldn’t have to do any of those things. What is shared infrastructure for making patronage as simple as possible across both non-profit and for-profit newsrooms, both for readers and for the newsrooms themselves?

The news isn’t incompatible with American capitalism. But it may be incompatible with 1980s-era models and outdated delivery mechanisms. Newsrooms will need to continue to collaborate and evolve if they are to survive. And we need them to survive more than ever.