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The Peoria plan for saving local dailies

Could it work here? Some parties are exploring the notion, which creates a hybrid corporation that can receive charitable donations while running as a low-profit, community-owned entity.

With the fate of the Post-Intelligencer seemingly sealed at least as a newspaper, and the Seattle Times teetering on the financial edge, the Seattle City Council will wade into the crisis Wednesday at 2 pm. Nick Licata’s “Culture, Civil Rights, Health and Personnel” Committee plans to spend two hours with a panel of news professionals, exploring possible ways to save Seattle’s disappearing newspapers. (Disclosure here: Crosscut’s publisher, David Brewster, will be one of the panel members.)

Exactly what Licata’s committee can, or will, do to fix things isn’t clear. But the committee will hear one intriguing possibility now under consideration in Peoria, Ill. That Illinois city is wrestling with its own newspaper problems, with the Peoria Journal Star and its owner, Gatehouse Media, on the financial ropes. Peoria Newspaper Guild official Jennifer Towery will describe for Licata’s committee how a community coalition is pushing legislation to turn her city’s struggling privately owned paper into a “low profit” L3C community-owned operation.

That’s a tax term for a new hybrid business model that meets the IRS’s definition of a charity, but operates like a for-profit corporation. Vermont became the first state to authorize L3Cs last year, and Michigan and North Carolina are moving toward their own versions of the model. Vermont’s Secretary of State’s office offers this description: “The basic purpose of the L3C is to signal to foundations and donor-directed funds that entities formed under this provision intend to conduct their activities in a way that would qualify as program-related investments.”

In other words, donating to an L3C would enable private foundations to meet the IRS’s charitable-giving requirements. The Seattle area is awash with this sort of private foundation. An L3C could raise cash from such groups to repair a historic building that can’t generate enough profit from rent to pay for the renovations. Or, says newspaper industry consultant Lee Egerstrom, a newspaper “with stakeholders that include the community that depends on reliable media as well as the paper’s unions” could use its L3C status to tap non-profit donors. When Egerstrom pitched the L3C idea at a Newspaper Guild conference earlier this month in Maryland, union representatives from the Seattle Times Co.’s struggling Blethen Maine papers showed up to listen.

Here in Seattle, Licata seems enthusiastic about the L3C solution. Peoria, he noted in a press release, has put together support for L3C legislation that includes four state legislators, local businesses, and a handful of bank presidents. “Their goal,” Licata says, “is to get their paper back on track."

But L3Cs are not the only non-profit solution being pitched for newspapers these days. Earlier this month, the Seattle Times offered an op-ed article by University of Pennsylvania law professor C. Edwin Baker, touting federal subsidies for newspaper reporters and editors. “A not-so-radical idea for preserving journalism’s society-building role,” the Times not-so-subtly headlined the piece. Others have suggested turning The Times itself into a non-profit, or making it an arm of a non-profit, along the lines of St. Petersburg Times, a profit-making paper that was willed to Florida’s non-profit Poynter Institute three decades ago by the paper’s owner, Nelson Poynter.

Somewhat overlooked in this latest crescendo of non-profit noise is a Columbia Journalism Review article which last March dismissed the Poynter/St. Pete Times model as impractical for other family-owned papers. Handing off the family newspaper to a non-profit is likely to create family friction and can be complicated, especially if some of the paper’s stock is held by outsiders, the article warns. Like, for instance, the Seattle Times, whose minority stake is held by California’s McClatchy Co., a publicly held corporation whose stockholders would almost certainly oppose such a giveaway.

Summing up CJR’s argument against the non-profit option was none other than Seattle’s Frank Blethen, whose family owns the majority of the Seattle Times Co. Blethen waved off Poynter’s experiment with operating the St. Pete Times, calling it “a pleasant campfire tale.” He noted that families like his aren’t likely to give away ownership of papers that can generate comfortable “eight, ten, twelve percent returns.” The key reason you won’t see a St. Pete Times situation again, said Blethen, “is that you have to give up most of the value in the organization, and it’s very rare for a family to do that.”


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Comments:

Posted Tue, Jan 27, 9:08 a.m. Inappropriate

Excellent idea!

My first thought upon reading the anguishing P-I news was to fire off a missive suggesting they dump the for-profit status and convert to a non-profit, 501(c)3. I was unaware of the L3C option. Instead, I sat silent, thinking the idea so radical, so "out there" as to be pure fantasy. Now I'm not so sure. It would be interesting to convert the P-I to an L3C and let the Times remain as is. The P-I, afterall, at its essence, has always been the People's paper, an integral part of our Seattle community and culture. It has a unique history and distinct flavor. The papers are not interchangeable.

Save the P-I!

MaryW

Posted Tue, Jan 27, 9:33 a.m. Inappropriate

So if I understand this correctly, the tax code should be amended to enable a private company nearly a century old to remain fiscally sound, in face of a decade long slump in profitability due to consumers whose tastes have shifted.

Funny but that circumstance also applies to the american automobile industry which is seeking and receiving a bailout.

Is journalism so crucial to the health our democratic society that we can't trust it to succeed or fail on its own merits? Are the intellectual elite too pessimistic to believe that cable news, talk radio and blogs can't be allowed to mature to fill the void of print media.

Besides the Times and PI both have been hand maidens for Vulcan, Microsoft et al. for years. Why should they now be counted on to make donations to continue that treatment.

dwhiting

Posted Tue, Jan 27, 9:49 a.m. Inappropriate

This has the rotten scent of Pravda about it.
I lived in Peoria and witnessed this newspapers abuse first hand.
Here is some additional information and opinions on the Peoria Journal Star situation.

http://a2iq.blogspot.com/2009/01/scent-of-pravda-for-profit-news-morph.html

Posted Tue, Jan 27, 10:52 a.m. Inappropriate

The Press, which in the 18th century was the only form of mass media, is the only private business protected by the U.S. Constitution from intrusion by the government. Founders did not write the First Amendment to protect profits, of which there were few, but to protect commentary, particularly political thought. Early governments aided newspapers with free use of the mail, which was the way early papers circulated, but separation has been generally observed, and rigorously defended by publishers. The idea of a direct governmental subsidy would stand the First Amendment on its head. Some type of nonprofit, however, might be a compromise that would pass constitutional muster and also preserve independent commentary. Newsprint is not likely to become the first media genre to disappear; like others before, it will adapt and adopt. But the present form is endangered, and it is unlikely that Western Washington can afford or will support two Seattle dailies—that handwriting has been on the wall for years. We are probably headed into a mixed-media world made up of a very few strong metro dailies, a healthy collection of small-town papers published less than seven days a week and totally focused on local news, and combinations of Web and broadcast that could very well include nonprofit models (broadcast already has successful models in public radio and television). The P-I has many excellent journalists, capable of transitioning to such a model. The issue is primarily one of finances—who will pay for their work, and can a nonprofit model meet that challenge. The Founders would have liked the idea of a rich mix of independent ideas that such a model could produce, but they didn’t worry about paying the bill.

Posted Tue, Jan 27, 2:03 p.m. Inappropriate

A non-profit or L3C model may keep a newspaper from collapsing, but it's unlikely to stem the tide that has been receding at an ever increasing rate from the traditional advertising-based newspaper business model. A non-profit solution is a rearranging-the-deck-chairs solution, when a re-engineering the news ship solution is required, so that ship can safely navigate amidst the Google and Craig's List icebergs. Good competitive journalism is no longer rewarded in the Google-based ad-ocracy. Nor will it be rewarded in a non-profit newspaper beholden to donating wallets. Such a newspaper business will continue to look like what's left after a receding tidal wave until individual acts of quality journalism are rewarded through micro-payments for article hits, reads and purchases through associated advertising. This means that Google and Craig's List must be attacked aggressively, with a model that doesn't allow theft and dissemination of original content, and that dethrones the pretender advertising king and replaces it with content; i.e., content must become king again.

Google's motto is "Do no evil." Ironically, in the newspaper world Google is the epitome of evil. So, morally speaking, the tongue-in-cheek answer is obviously to ask Google to stop searching news, and to instead donate its profits to a P.I. or Crosscut L3C. The old world and new world would then be in perfect harmony. The lead article for this non-profit utopian newspaper?

Extra! Extra! Hell has frozen over! Search-engine optimization abandoned! Newspaper profits restored by rich folks giving to needy news providers. Altruistic newspaper inspires major gifts. Old school objective journalism wins out over sex, violence, greed and hate mongering.

Stuka

Posted Tue, Jan 27, 5:52 p.m. Inappropriate

The economy is in the crapper, our transportation system is broken, schools aren't teaching, and so the City Council wastes time on trying to prop up failed newspapers? Come on. Where are our priorities. If the print papers die off, there is no reason to believe that local politics will go un-reported. Note Black publications hanging around in the suburbs, and Web possibilities. It is not newspapers or nothing these days. The Seattle market is rich enough that others will soon appear to cash in on the advertisers the monopolist Blethen alienated. And any subsidy made to keep the papers goings means enriching the Blethens with taxpayer money. This grasping family doesn't deserve any charitable consideration because, after all, what one example of charity has Blethen demonstrated during his miserable career.

Posted Fri, Jan 30, 1:22 p.m. Inappropriate

As an editor who experienced the "acquisition " (as they called it) of an independent NW news service by a non-profit, I'm wary.

The said non-profit "reviewed" my editing choices for the important daily NW news. The PR director sent the feedback - why did I pick A and not B - B fits better with our mission. ... Don't use the word X in an headline. It doesn't fit our framing and messaging. Instead use Y. When I editorialized, I was "encouraged" to add specific phrases from the core mission statement of the said non-profit to my copy. Eventually, my belief in objectivity didn't "fit" and we parted ways.

As a journalist who values a free press, and objective reporting and editing, I obviously find this troubling. (My example, however, was admittedly an extreme one.) The non-profit model is a slippery slope. Diversifying funding of news - be it advertising or individual donations - is one way to protect the hard-hitting, good journalism we need as a democracy, of course.

Previously, I worked for an independent political magazine, which had a very different model, even though it struggled financially. It was funded by subscriptions. Obviously, this is becoming outdated. I still think it's worth exploring if folks will pay for long-form, investigative journalism. The Reynolds Journalism Institute at the University of Missouri is currently exploring this idea. I know I'd pay for it. After all, I still subscribe to Harper's and other high-quality publications. I think others are doing so too.

Posted Sat, Mar 7, 8:23 a.m. Inappropriate

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