Ask for More

Could this Berkeley website have found a new model for sustainable local news?

Photo illustration: the logos for Gothamist, Bklyner, and Berkeleyside.
Photo illustration by Slate. Images by Gothamist, Bklyner, Berkeleyside.

Once again, this year’s Pulitzer Prizes recognized indelible reporting from local news outlets. The Press Democrat won for its coverage of California’s wildfires, while photographer Ryan Kelly of the Daily Progress in Charlottesville, Virginia, took home an award for capturing the fatal violence in that city. Such prizes are a reminder of just how much America stands to lose as local newspapers continue to shut down and smaller digital operations fail to take their place. Kelly, it turns out, left journalism for a marketing job at a brewery the day after he took his award-winning shot, citing anxiety over the precariousness of the news business and bad pay among his reasons for bolting.

Local news is a really, really tough business. Stories of national or international interest can reach millions of people, but local news—even if it takes just as many resources to report and edit—needs to be supported by a much smaller base of readers. Hard-nosed billionaire businessman Joe Ricketts lost well over $100 million on the New York and Chicago neighborhood news site DNAinfo before he abruptly shut it down, while AOL’s Tim Armstrong is rumored to have lost substantially more than $250 million, and possibly close to $1 billion, trying to create a viable network of local sites under the Patch brand.

Those figures alone provide good reason to believe that ad-supported local news sites, whether they’re stand-alone digital operations or extensions of a print newspaper, will always struggle. Journalism is expensive, and neighborhood businesses, no matter how much they believe in local journalism, often get more bang for their buck by advertising on Google or Yelp.

Relying instead on subscriptions doesn’t really work, either. It’s very hard for any true community publication to put up a paywall: A local news source should be a town square, with its information available to all. Besides, in most towns the number of people both willing and able to pay for such news is just too small to make the numbers work.

Membership revenues, too, are tough to scale. Brooklyln news site Bklyner, for instance, is supported by 1,745 people paying $5 per month. That works out to just about $100,000 per year: a slim budget indeed for anybody trying to report on a massive, diverse population.

So, what does work? Recently, there’s been an uptick of interest in the nonprofit route: The Philadelphia Inquirer followed the lead of MinnPost and became a nonprofit in 2016. More recently, Gothamist’s sites covering New York, Los Angeles, and Washington were rescued by a consortium of nonprofit local radio stations after the company was bought and then shut down by Ricketts.

The jury is still out on the nonprofit model, especially now that Gothamist is making it clear that becoming part of New York’s public radio station, WNYC, is not the end of its struggles. In advance of its relaunch, the site has embarked upon a high-profile Kickstarter campaign to raise extra funds.

Those funds are needed for a variety of reasons. WNYC’s resources aren’t bottomless, and Gothamist’s publisher, Jake Dobkin, would like to relaunch at a size closer to where the site was when it closed down, rather than going back to the days when it was a significantly smaller operation. That’s not easy because ad revenues at the site are almost certainly going to be substantially lower as part of WNYC than they were when Gothamist was an independent business. When you get rescued by WNYC, it turns out, you also have to adopt its strict internal controls on acceptable advertisers. Gothamist’s Kickstarter also acts as a proof of concept aimed at its overseers within WNYC. The more backers the site attracts, the more engaged its readers are shown to be, the more internal resources it’s likely to be able to unlock.

Is there another way? Berkeleyside, in California, suggests that there is. Founded in 2009 by a trio of veteran journalists, it assiduously covers the city’s news and has built up a loyal following. Berkeleyside has had three main revenue streams: advertising, membership, and the proceeds from an annual ideas festival called Uncharted.

Now, however, Berkeleyside has added a second source of direct funds to complement its membership model. The site’s readers include a lot of wealthy upper-middle-class employees of big tech companies like Twitter, Google, and Salesforce. So, starting in late 2016, Berkeleyside’s founders started asking those people not to buy its $5 monthly memberships, but rather to buy thousands of dollars of preferred stock in the company.

The “preferred stock” is very, very close to being an outright donation. It doesn’t come with any voting rights, it doesn’t come with any ownership rights, and it doesn’t come with any rights to a coupon or a dividend. There is a 3 percent voluntary dividend attached, but that’s only paid when Berkeleyside is financially healthy and can afford the payment. (Which is to say, it hasn’t happened yet. At this point, the founders take only minimal amounts of money out of the business to pay themselves.) There’s no real secondary market in the securities, partly because all sales need to be approved by the company, and partly because all buyers need to be California residents. The only real prospect of a funder getting their money back would be in the event that Berkeleyside fails, in which case they would become a senior creditor, or if it is somehow acquired. In no event, however, would they ever get more back than their original investment plus simple interest of 3 percent per year.

The change in terminology, from membership to preferred stock, made a huge difference. Berkeleyside has about 1,200 members, who pay it an average of $70 per year. That’s a nice annual revenue of $84,000. By selling securities, the site managed to raise $1,040,000 in just 18 months. That’s over a decade’s worth of current membership revenues.

Berkeley was an obvious place to try out this model because it has a large number of rich residents who can write four-figure checks without taking any hit to their standards of living. Lots of other towns fit that criteria, even if they’re not quite as rich as Berkeley, and the only way to find out where this idea works and where it doesn’t is to try it and see. If I had to hazard a forecast, I’d say that the main criterion for success will turn out not to be the wealth of the town, but rather the depth of roots that the site in question has managed to put down. A brand-new site could never do this; neither could one teetering on the edge of insolvency. But if well-off residents love their local news site and trust that it will be around for many years to come, you’ll be surprised how deep their pockets can turn out to be. (This, of course, could also apply to national outlets. Places like Slate are already asking readers to donate small amounts, but they too could aim higher.)

With its fresh million dollars, Berkeleyside has already hired a second full-time reporter on top of the three founders and redesigned its site to become more mobile-friendly. It’s also hiring a head of membership marketing, charged with boosting recurring revenues. Founder Lance Knobel told me that the site now has money in the bank, so that if and when big events like Black Lives Matter demonstrations take place, it can mobilize both staff and freelancers to cover them in the detail the community demands.

In a world dominated by increasing inequality, the lesson here is that it can be easier to raise money in a smaller number of large chunks than it is to ask for a large number of small donations. Asking for $5,000 is more daunting than asking for $5, but it’s probably not a thousand times more likely to result in the person saying no. Similarly, despite the Kickstarter, Gothamist was saved not by small donations, but by two individual donors writing very large checks to buy the property back from Joe Ricketts.

To put it another way: The rich have always invested in journalism, normally by publishing and owning newspapers and other media outlets. But until recently, for-profit outlets haven’t thought to ask them to provide substantial sums of money in return for little or nothing. Asking that question, it turns out, can be very lucrative.