April 12, 2022

There’s No Safety With the Nonprofit Label

Over the past couple of years, there has been a lot of conversation about news not working as a for-profit model. We’ve seen many media companies launch saying that their nonprofit approach was the right way forward. I’ve often found myself confused by this.

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Now let’s jump in…

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Axios reported that Fire Look Media, the parent company of The Intercept, would be laying off 20 people. According to the story:

In recent years, the Intercept in particular has tried to lean in to more donations from philanthropic donors and licensing deals, as memberships stagnated in the Biden era.

It also houses a for-profit arm that includes a content studio called Topic Studios and a for-profit streaming service called Topic. The for-profit arm was created as a mechanism to fund The Intercept, which is mostly backed by Omidyar and donations.

The cuts apply to both First Look Entertainment and First Look Institute, according to a source familiar with the plans. Staffers at The Intercept tweeted about layoffs Wednesday.

Essentially, the company gets its money from two broad sources. The first is the donations, many of which come from Pierre Omidyar, founder of eBay, who has been funding First Look since its inception. The other is its revenue-driving units, tied primarily to its streaming operation.

This is an excellent example of a core reality of anything in media: it costs money. I struggle with the nonprofit vs. for-profit debate because it suggests you’re not still running a business. A nonprofit still needs cash flow to ensure that it is running a balanced budget.

Candidly, what worries me about nonprofit media is the overreliance on donations—specifically, grants from rich people—to keep things going. It runs counter to any rational strategy that mandates that media companies be diversified.

It brings me back to one of my earliest pieces when I wrote about Pacific Standard shutting down in August 2019. The New York Times reported about it, and this part jumped out to me:

“We’ve been operating with the understanding that we’re delivering on everything they’ve asked of us and, in fact, overperforming,” Mr. Jackson said, referring to the site’s readership of a few million a month.

Clive Parry, a Sage executive, said in an emailed statement that the magazine might have survived if it had been “self-sustaining.” But Mr. Jackson and his predecessor as editor in chief, Maria Streshinsky, said the magazine’s business model did not include a plan to raise millions in annual revenue. “There was talk about fund-raising, but that wasn’t the way Sara seemed to want to go,” Ms. Streshinsky said, referring to Ms. Miller McCune.

Here’s the problem with this strategy. When you depend on the good grace of someone else, you are taking a gamble. Will the funding continue to come in? Can you ensure that the team you’ve built will continue to operate if that funding disappears?

This is my issue with people talking about news and content without also talking about the business side. All of this costs money. So media businesses—for-profit or nonprofit—need to be diversified. There’s nothing wrong with getting cash from donations; however when the driver is purely donations—and large grants from wealthy institutions to be more specific—it gets risky.

Let’s look at First Look’s financials a little. It released its Form 8879-EO for 2020, and the company reports that it had $26,672,210 in revenue. But if you then look at where the bulk of it came from, you see that the Pierre M. Omidyar Trust contributed $23,066,115. So roughly 87% comes from a single person.

That’s risky. It seems that First Look understands that, though, which is why it created Topic Studios and Topic. The revenue it can generate from these will ideally offset any delta between costs and what Omidyar is willing to contribute.

What would keep me up at night is that if Omidyar decides not to contribute any longer, the entire thing is a bust. Now, First Look might not have a choice. It is hardcore investigative reporting, so there is unlikely to be an advertising model to support it. But it does need to figure out how to reduce the dependence. If it was 87% in 2020, set a goal to get that down to 50% over the next five years.

Ultimately, you have to be profitable irrespective of your label. Otherwise, the nonprofit will die just as hard as many for-profit media companies have.

Paywall on The Guardian’s app

The Guardian has always had a unique approach to its subscription offering. Rather than mandating that users pay, it instead tried to convince them that they should pay but didn’t have to. However, it seems that, in some respects, The Guardian is evolving some of its strategies. According to FT:

While the Guardian will keep its website open to all, the media group will later this month start to require a fee from a sample of regular news app users as it explores the best pricing approach to put the entire app product behind a paywall. 

Enders Analysis estimated reader subscriptions, covering print and online, now account for more than 60 per cent of the Guardian’s total revenues, marketing “the most positive turnaround in English-language news provision.” Half the Guardian’s paying readers are outside the UK.

As the piece says, The Guardian now has 1 million digital subscriptions, with people contributing at least £5 a month. That’s a great place to be, but running a media company like The Guardian is unbelievably expensive. So I’m not surprised that it is trying to find unique ways to force more payments without also getting in the way of its mandate.

The Guardian is owned by the Scott Trust, which has over £1.1 billion in assets with the purpose of ensuring that The Guardian stays free forever. By focusing on the app, The Guardian can still promise to keep its journalism free to anyone that wants it.

I’m just not sure this move will really matter. I don’t have The Guardian’s mobile app usage data, but I have written ad nauseam about why apps are not a great investment for media companies. Now, this isn’t a new investment for The Guardian, which has a couple of apps. But if research shows that so few people use apps, why make this move?

My guess is it has to do with its power users. It can focus its monetization on those that are specifically seeking out the product. Since it will be some sort of a metered paywall, only those that are returning to the app repeatedly will ever see the paywall. And since these are users who have opted to use the app, they are more likely to convert.

I remain very bearish on mobile apps. But if The Guardian has a decent percentage of its audience that is going to the app, maybe I’m wrong.

Nevertheless, this is a good example of a media company that has a ton of financial backing through the Scott Trust still trying to find smart ways to diversify. Even when there’s over £1.1 billion that is backing you, it’s still a good idea to try and be profitable. Diversification matters.

AMO Podcast: Scott Gerber from Community.co

The latest episode of the AMO podcast is out, sponsored by Omeda! Community has become such a buzzword, so in this episode, I speak to Scott Gerber, co-founder and CEO, to better understand why it has become so hot. We talk about what goes into a professional community, how to grow, and the bare minimum team required.

Be sure to give it a listen on your podcast player of choice:

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