Keeping the Vultures at Bay: Is Philanthropy the Only Hope for Local News Outlets?

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In late September, the Lenfest Institute announced the winners of its local news innovation grants and its first cohort of entrepreneurs-in-residence. The timing couldn't have been more appropriate.

Six days after the institute's announcement, The Nation published a piece by Julie Reynolds on Randall D. Smith, founder and chief of investments at Alden Global Capital, which manages $2 billion worth of assets. Smith has made millions by purchasing and shuttering or downsizing "distressed" local newspapers like the Oakland Tribune, the San Jose Mercury News, and the Denver Post.

Smith, according to Reynolds, has used the proceeds to pay for a Palm Beach real estate buying spree.

It's commonly said that the internet is to blame for the demise of vibrant local newspapers. This is true to a large extent. But Reynolds also fingers another culprit: good old-fashioned capitalist greed. Since 2004, "speculators have bought and sucked dry an estimated 679 hometown newspapers that reached a combined audience of 12.8 million people."

Given all the challenges already facing local journalism, the last thing we need are vulture capitalists looking to make a buck. Which is why the civic-minded philanthropist H. F. Lenfest is so important. 

A Gamble Pays Off

Since winding down his foundation a few years ago, Lenfest has been surprisingly successful in sketching out a viable model of donor-driven journalism.

Last year, Lenfest gifted his Philadelphia Media Network, which included the Philadelphia Inquirer, the Philadelphia Daily News and Philly.com, to his new Lenfest Institute for Journalism, dedicated to the mission of preserving local journalism nationwide. Donations to the institute are made through the Philadelphia Foundation.

As I noted at the time, the move was something of a gamble. Lenfest's donation of $20 million to the institute’s endowment notwithstanding, the challenges facing local outlets, like creating a diversified donor base and generating ad revenue, remain as vexing as ever. 

Over a year later, Lenfest's gamble seems to be paying off. In May, the institute announced it received more than $21 million in new donations while Lenfest pledged an additional $40 million. Donors clearly appreciate the institute's mission of preserving local journalism while leveraging the Philadelphia Inquirer, Philadelphia Daily News, and philly.com as Petri dishes for innovation and experimentation.

Cause for Cautious Optimism

Which brings me back to the institute's recent payout. A total of $1 million will flow to 12 different projects and to five individuals working on local news-focused projects in Philadelphia and beyond. (We took a quick look at those grants last month, when they were first announced.)

One winning project, the Bay Area’s local news site Berkeleyside, aims to test out new ideas on either the business or editorial front. The News Revenue Hub, meanwhile, which helps small outlets develop sustainable membership programs, will focus its efforts on Philadelphia-based organizations.

If the latter's efforts sound a lot like the Knight Foundation's work in preventing certain regions from becoming "news deserts," that's no coincidence. Knight is a big supporter of the Lenfest Institute. Back in February, the two organizations launched the Knight-Lenfest Newsroom Initiative, aimed at helping metro newsrooms bridge the print/digital divide through the sharing of best practices.

Add it all up, and the casual observer can be forgiven for feeling cautiously optimistic about the future of local journalism. Donations are pouring in to the Lenfest Institute's coffers, foundations like Knight remain committed to the cause, collaborative ecosystems in cities like Philadelphia are thriving, and nonprofit outlets continue to churn out compelling and award-winning work.

Misaligned Incentives

Lenfest's Institute adheres to the idea that struggling local newspapers can be resuscitated. Randall Smith, meanwhile, believes they should be purchased, sold and put out to pasture. Nor is Smith alone. In early September, the venerable New York Daily News was purchased by Tronc, which sounds like a villainous futuristic android, but is really a media conglomerate whose majority shareholder is Michael W. Ferro, the business magnate who founded the investment firm Merrick Ventures.

Smith or Ferro would perhaps be sympathetic to Reynold's contention in The Nation that "the shrinking and disappearing of hometown newspapers has done incalculable damage to Americans’ knowledge of the world around them." But as Michael Corleone famously said, "It's not personal. It's strictly business."

And boy, is business good.

According to Reynolds, Smith's personal real-estate deals were commingled with the sales of scores of newsrooms, printing plants, and office buildings that had belonged to small hometown newspapers. "Gutting those newspapers," she said, "helped make spending $57.2 million on 16 Palm Beach mansions a trifling expense for the tycoon."

Are Smith's actions distasteful? A wee bit. They're also quite legal, which speaks to the serious headwinds that donors like Lenfest are now facing. Investment firms aren't incentivized to boost civic discourse through compelling local journalism or keep hometown newspapers on life support. Rather, they're constitutionally required to make a buck, and according to Reynolds, the best way to do so is by siphoning off the assets and profits, and disposing of what little remains.

The toll of this financial assault, in conjunction with the larger and more familiar trends undermining local media, has been staggering. According to the American Society of Newspaper Editors, America’s newsrooms shriveled from 46,700 full-time journalists in 2009 to 32,900 in 2015—a loss of roughly one journalist out of every three.

If Not Donors, Then What?

Fortunately, Reynold's piece isn't all doom and gloom. She writes that in 2014, Glen Taylor, the owner of the Minnesota Timberwolves, purchased the Minneapolis Star-Tribune from the investment firm Avista Capital Partners. Taylor articulated a strategy that didn’t require the paper to reach large profit margins every year in order to be sustainable. Readership is strong and its staff is growing. It's encouraging stuff.

But as a wise man once said, every silver lining has a touch of gray. The Star-Tribune's success within a for-profit framework isn't rooted in unearthing the Rosetta Stone of business models that neutralizes online news or Facebook and Google's digital advertising duopoly. Indeed, even the New York Times, whose financial fortunes have brightened considerably as of late, has recently turned to philanthropy.

Rather, the Star-Tribune case study is built on the hope that a civic-minded patron like Taylor or Jeff Bezos rides to the rescue and purchases a "distressed" paper from a considerably more bottom line-driven vulture capitalist. 

It's a big ask, and it further raises the stakes for philanthropists like Lenfest and funders like Knight. 

In the absence of patrons willing to accept smaller profit margins within a for-profit structure, philanthropy remains the best—and arguably only—bulwark against the feeding frenzy decimating the local journalism space.