Does Non-Profit Status Provide Desperate Local News Publishers a Lifeline?
By: Chris Sutcliffe
The challenges facing local news providers are endemic. Newspapers are shuttering or being hollowed out by regional news conglomerates seeking to minimize losses across both the US and the UK.
The concept of ‘news deserts’ has gone from a cautionary tale to a practical reality for many audiences.
None of that is due to a lack of desire to cater to local audiences. Instead, it is a result of wider changes in the advertising ecosystem, with a migration of ad spend to formats that are more efficient at scale. As a result, the revenue models that once sustained local journalism have been eroded, and new models are required to alleviate the issue of news deserts.
One of the models that is increasingly being explored is transitioning newsrooms from profit-seeking enterprises to non-profit charitable status. Newsrooms are exploring that option in both the US and the UK, despite the very different definitions and means of achieving the status of charity, seeking to wean themselves off overreliance on diminishing advertising revenue. Secondary benefits, related to tax or reputation, are also catalyzing more newsrooms to see charitable status as a tangible solution to wider industry woes.
Given the vast differences between the countries in what it means to be a charity newsroom, what are the universal benefits when it comes to serving audiences as a non-profit?
Achieving charitable status
The US has quite a longstanding history of local newsrooms pursuing a non-profit structure. Both the Philadelphia Inquirer and the Salt Lake Tribune have transitioned to that structure over the past decade and were seen as canaries in the coal mines for having done so. Other titles like the Texas Tribune and the Daily Memphian – under its nonprofit parent organization Memphis Fourth Estate – have followed suit.
Andy Cates, president and founding chair of Memphis Fourth Estate, the non-profit that supports the Daily Memphian, told A Media Operator that achieving non-profit status is “relatively easy.” He said, “Local media sources have now a history of approval as long as you know what you’re doing as an example. It does limit you on things… [for example] we don’t endorse political candidates. That’s been a saving grace because if you do that, you just immediately know you’re going to lose subscriptions every election because somebody’s mad at us.”
“But we’re also unapologetic that we run it as a business. And we have the highest percentage of earned revenue than any local nonprofit in the country and maybe in the world. And I’m not exaggerating. So about 75% of our annual budget now is from our paywall, our subscriptions and our advertising.”
Many non-profit newsrooms have used an existing provision in the IRS’s criteria around providing ‘education’ to achieve their aims of becoming a charitable organization. Per Fraser Nelson, former VP of business innovation at the Salt Lake Tribune, says that the pathway to non-profit is well-established enough that the IRS does not quibble over details: “I’ve started a lot of nonprofits, probably half a dozen or so in my life. And usually they write you back, and they’re like, ‘well, what about this? What about that?’ We just got the letter saying, ‘you’re good to go.’ I mean, nobody could believe it.”
By contrast, achieving charitable status as a newsroom in the UK has traditionally been very difficult to achieve. The UK government’s Charity Commission’s criteria for what constitutes charitable activity has historically excluded journalistic activity – though that is changing.
Some news organizations, such as the Bureau of Investigative Journalism, have had a portion of their activity classified as ‘charitable’, but to date a very small number of local outlets have been classified as a charity for their journalism in totality.
George Brock, former managing editor at The Times and a Trustee of the Charitable Journalism Project, advocates and advises for journalistic outlets seeking to become charities. He explained that a sea change in government and legislative bodies’ attitudes to local journalism in the UK are loosening the definition of ‘charitable status’ – after years of hard work from advocates: “I think that the Commission took on board that just simply saying ‘journalism is not a charitable purpose’ wasn’t the right response to the situation.”
However, Brock noted that even if UK newsrooms have more wiggle room to classify as charities, the process is still extremely resource—and cost-intensive—and many local titles simply do not have access to the money and expertise required to do so. The Guildford Dragon is the latest of only two local news sites to be granted charitable status. It has been running for 12 years, primarily based on a relatively small amount of advertising revenue and the goodwill of volunteers.
Its founder Martin Giles stated that the move to charitable status has required a number of changes to the organization and running practices of a UK newsroom to satisfy the Charity Commission. For example, he advocates for an “air gap” between the trustees and the editorial team “because I don’t want to know who our donors are if I can help it”.
Giles is keen to note that the transition to a donor-based model is not simply altering the existing audience strategy, but effectively creating a new behavior: “When you say changing the relationship with donors, it’s actually creating one because we don’t have donors at the moment.”
Differences in audience relationships
Brock pointed out that—as with the Tribune in the US—there are secondary benefits beyond taxes. There is a reputational benefit associated with increased awareness of a newspaper’s status as a charity delivering value to a community: “If they get registered as a charity [they will] get the tax break, but also get the reputational gain that charity status can bring.”
Cates notes that the move to a non-profit, particularly as a local title, has allowed the Daily Memphian newsroom to focus on what its audience is truly interested in, rather than chasing national stories for advertising revenue: “We’re unapologetic about some of the things that [we cover]… the restaurant that just opened, or your favorite coffee shop that is in trouble. But those stories are massive in our town, they bring people together. And it’s a huge part of the fabric of the community so that’s a massive part of what we do that drives not only our mission, but our traffic.”
As a result of that attitude, the Daily Memphian has around 18,000 paid subs, at around $160 a year.
This factors into another major difference between the UK and US: the different donor profiles. The proportion of people willing to pay for news in the US is almost double that in the UK, according to a study from the Reuters Institute, which limits the realistic amount of donations a non-profit newsroom in the UK can reinvest in its coverage. It remains to be seen, as Giles points out, whether being registered as a charity will have a tangible impact on the bottom line of UK newspapers.
In addition, the UK does not have a history of wealthy individuals investing in news outlets as the US does: in its first year of operation, the Salt Lake Tribune had an $800,000 hole that a single donor filled. It is extremely difficult to imagine the same thing occurring in the UK.
Brock explained: “How I wish I could tell you I thought it was shifting here. I’m afraid that I have to be honest and say that I don’t see that it’s shifting. Qatari billionaires do not queue up to buy The Shuttleworth Observer, therefore we have to work with what we’ve got.”
As a result, the success of charitable newsrooms in the UK is largely predicated on smaller donations from individuals or trusts. Given the nascency of charitable journalistic outlets in the UK, the number of people who will choose to do so is something of an unknown factor. The US, by comparison, has historically been far more permissive when it comes to granting nonprofit status to newsrooms—and those that have done so have been rewarded by a similarly permissive donor profile. That has, in turn, allowed them to double down on what matters most to their audience, as seen in the Daily Memphian’s editorial strategy of local coverage.
The question for UK publishers seeking charity status is whether the change in status will be accompanied by – or create – a new audience behavior that similarly rewards a charity-based newsroom.
