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Decline in Newspapers Renews Idea of Nonprofits

As sharp revenue reductions put the future of many U.S. newspapers in doubt, one idea gaining attention is the conversion of newspapers into tax-exempt nonprofits supported by large endowments.

Although viewed by many as a long shot at best, such a radical change could be a savior for the industry and its vital role in a democracy.

That's why the endowment model is drawing renewed attention as newspapers impose massive layoffs, scale back home delivery and make other drastic cuts to counter plunging advertising revenue amid a recession that has compounded struggles from the migration of readers to the Internet.

David Swensen, who managed one of the world's largest endowments as chief investment officer at Yale University, said endowments "would enhance newspapers' autonomy while shielding them from the economic forces that are now tearing them down."

"By endowing our most valued sources of news we would free them from the strictures of an obsolete business model and offer them a permanent place in society, like that of America's colleges and universities," he wrote in a recent opinion piece in The New York Times.

But first, the idea must overcome skepticism from the very newspapers that stand to benefit. Critics say endowments also could beholden newspapers to their large donors, and giving newspapers tax-exempt status could restrict them from endorsing candidates and running editorials on pending legislation.

On a more practical level, skeptics question whether the millions and millions of dollars needed to create such endowments could be raised during the worst recession in decades.

Four newspaper companies, including the owners of the Los Angeles Times, Chicago Tribune, The Philadelphia Inquirer and the New Haven Register, sought Chapter 11 bankruptcy protection in recent months, while the Rocky Mountain News published its last edition Friday. Newspapers in Seattle and Tucson, Ariz., are threatened with closure if buyers aren't found, and the San Francisco Chronicle also faces closure or sale if it can't slash expenses.

Newspapers are having to rethink every aspect of their operations, including their for-profit existence, given their inability to generate enough revenue from their Web sites to offset the losses in print.

More nonprofits aimed at boosting investigative journalism are entering the field, including ProPublica and ventures started in the past few weeks at Boston University and the University of Wisconsin.

In 2007, recent casualties of newspaper downsizing in Minnesota formed Minnpost.com with $850,000 donated by four families. The nonprofit also attracted support from more than 900 member donors and various foundations, including the John S. and James L. Knight Foundation headed by the former publisher of The Miami Herald.

Minnpost's mission: to produce the substantive local journalism its creators say has been on the decline because of industry cost-cutting.

But those projects are relatively small, and endowments are rare.

National Public Radio, whose endowment received a major gift of $194 million from Joan B. Kroc in 2004, relies primarily on funding from member stations and corporate sponsors. Income from its endowment will generate just 6 percent of funds this fiscal year.

Creating an endowment to sustain an entire newspaper's operations will be tougher.

While welcoming Swensen's proposal, Alberto Ibarguen, president of the John S. and James L. Knight Foundation and former publisher of the Miami Herald, said obstacles include persuading shareholders to sell and foundations to invest in a shrinking business.

Newspapers, and their bankers, would need to offer a fair price to shareholders or face rejection or lawsuits, said Rick Edmonds, media business analyst at the Poynter Institute, a nonprofit journalism organization funded through profits from the St. Petersburg Times in Florida, which itself is facing the same woes that its corporate counterparts are.

Joel Kramer, editor of Minnpost.com, said that without enough philanthropy money available to endow a significant number of newspapers, a better approach would be to support innovators and startups such as Minnpost.

GlobalPost, a startup aimed at boosting international reporting, initially tried to raise money as a nonprofit, but potential donors wanted a way to quantify the impact of the reporting and grant applications would have been time-consuming, said Charles Sennott, executive editor and co-founder. GlobalPost ultimately chose the for-profit model and raised more than $8 million from individual investors.

Nonetheless, advocates of the endowment model say newspapers have unique assets that play an important role in public service, even if they do little for the bottom line.

Major news organizations spend millions of dollars to provide coverage from dangerous and remote places around the world — resources no blogger or casual journalist can match. But because of cost pressures, many newspapers including The Sun of Baltimore, the Boston Globe and The Philadelphia Inquirer have closed their foreign bureaus.

Newspapers also have been able to devote fewer resources to the type of investigative projects that exposed the Watergate scandal and the Pentagon Papers, which chronicled America's secret involvement in Vietnam.

An endowment might not help preserve a newspaper's printed edition, but could save core, expensive functions such as investigative reporting and foreign correspondents as newspapers transition to the Internet, said Steven Coll, former managing editor of The Washington Post and now president of the New America Foundation think tank.

"I do think one of the big papers is going to do this eventually," Coll said. "Whoever does it first is going to have an advantage."

Edmonds said the other efforts to cut costs and boost revenue might work to some extent, especially after the recession ends, but they don't add up to a stable business model.

Before endowment advocates can succeed, though, they'll have to sway newspaper executives who believe the for-profit model still works.

"I think we're far from having to push the panic button," said Randy Bennett, senior vice president business development at the Newspaper Association of America.

Saying he was not aware of any newspapers pursuing an endowment, Bennett rejected the notion that the business model is no longer profitable and noted that newspapers haven't exhausted initiatives to increase revenue.

Several newspaper executives this month launched a public-relations campaign to counter what they call "gloom-and-doom" reports of the industry's demise.

Bill Keller, executive editor of The New York Times, said in an online exchange with readers recently that the not-for-profit model has serious downsides, including conditions placed by funders. He added that endowments are no insulation against economic hard times.

Consider the St. Petersburg Times, which has no endowment but is owned by a nonprofit group, Poynter. The newspaper has had to trim newsroom staff to about 300, down from 430 at the end of the 1990s. Another Poynter unit, Congressional Quarterly Inc., is up for sale.

Swensen, who declined to comment beyond his column in the Times, estimates a large newspaper such as the Times would need a $5 billion endowment, assuming a 5 percent annual payout from the fund, to support annual costs of $200 million. Smaller papers would need less.

He acknowledges that only a handful of foundations and wealthy individuals have the money required for such endowments.

"Enlightened philanthropists must act now or watch a vital component of American democracy fade into irrelevance," Swensen wrote.

Coll appealed to billionaires Warren Buffett and Bill Gates for help.

"If you'll just put up the first billion," he wrote in an article in The New Yorker, "the rest of us promise to get busy helping to raise the rest."

Buffett gave part of his fortune in 2006 to the Bill and Melinda Gates Foundation, which has no plans to consider endowing major newspapers, a foundation spokeswoman said.

In a statement, the Council on Foundations said that although there is "some appetite from foundations to help ... the vehicle still needs to be determined."

Charles Lewis, who started the nonprofit investigative journalism organization Center for Public Integrity two decades ago, said the future of good journalism could ride on whether "the philanthropic community step up and embrace this civic moment and crisis and try to solve it. This is a failure of the market. The market can no longer support news substantially."