Will the nonprofit bubble burst?

The numbers are amazing and point to a clear trend.  While nonprofit news organizations have existed in the U.S. for decades, the last three to five years have seen a real explosion. Last fall, the Investigative Reporting Workshop at American University published  a database of  75 news nonprofits in the United States. Their total funding, the survey found, was  $135 million; together, they had 1,300 full-time employees.

This nonprofit explosion provides a ray of hope to the somewhat parlous  projections about the viability of accountability journalism in the era of downsized newsrooms. The trend is global. News nonprofits are sprouting in  Africa, the Middle East and Latin America.

But can it be sustained?

I was witness to a similar explosion 25 years ago. Soon after the dictator Ferdinand Marcos was ousted in a popular uprising in 1986, the streets of Manila were flooded with dozens of new newspapers that took advantage of the new freedoms to quench the hunger of a public that had been starved of information. Many of those papers died after a few months;  in the next few years, there were even more casualties as the realities of the market set in and the public appetite normalized.

Similar explosions have occurred in places where authoritarian controls were lifted — in Indonesia, over 1,000 new newspaper licenses were issued  soon after Suharto fell in 1998.  The Southeast Asian experience was not unique. In many countries, the democratic transition featured a media free-for-all followed by a period of consolidation and in some places, also increasing control.

The digital transition that brought about the nonprofit boom is different in many respects. But  will we also see here the same pattern of explosion followed by consolidation?

We’re already seeing new sites being shuttered for want of funding: The Capital News Connection went out last year, followed by the Chicago News Cooperative early this year.

We’re also seeing mergers: In 2011, the Huffington Post Investigative Fund was folded into the Washington, DC-based Center for Public Integrity, and in March, the Bay Citizen in San Francisco was merged with the Center for Investigative Reporting, creating the largest investigative news nonprofit in the country with a staff of 70 and a budget of $10.5 million in 2012.

Some weeks ago,  the Investigative News Network (INN), which comprises over 70  watchdog news organizations,  published one of the most clear-eyed assessments of the nonprofit news landscape. (Full disclosure: The Stabile Center for Investigative Journalism, which I head, is a member of INN.)

The situation, it said, is fragile. And unless nonprofits commit to strategies toward long-term sustainability, their future is precarious. It takes time to develop revenue streams for nonprofit news organizations, the study said, so for now,  philanthropic support is “a long-term necessity.”

That, however, is not assured. While nonprofit news organizations are currently the darlings of foundations, funders could shift priorities anytime. Already, we’re seeing increasing competition for a limited pool of funds.

Australian journalist and professor Bill Birnbauer interviewed both funders and investigative news editors and  quotes  this warning from  the Knight Foundation’s John Bracken:

Building your fiscal model on the vagaries of foundations is precarious at best. Foundations have new interests, they move on … it’s not a long-term sustainable thing to expect MacArthur Foundation to write you a cheque every year for perpetuity …

The truth is that the vast majority of these nonprofits are run by journalists with little or no management or entrepreneurial experience. The challenges are particularly acute outside the U.S., where investigative startups must deal not only with the problem of raising revenues but also with threats from the state or from criminal  gangs. It’s hard enough to expose wrongdoing. And yet, in order to survive, the founders of the new watchdog organizations would need within the next few years, before the funders’ gaze shifts elsewhere, to have built and engaged audiences, developed new revenue models, and worked out news products and distribution models.

It’s not going to be easy. While some of these nonprofit watchdogs have succeeded in creating destination news sites with a loyal following, others are not as well placed.  Most give their stories for free to mainstream news organizations, so they don’t earn revenues from distribution. Instead, they trade foregone earnings for the wider audience and buzz they get from being published by big media.

But this puts  them in a bind. Foundations, as Birnbauer reported, want nonprofits to develop an NPR-like model of community funding. This means  getting audiences to contribute to their upkeep. But how can they build  committed audiences if their potential readers and viewers  access their work mainly through other media?

INN’s new primer for nonprofit news organizations points to some viable pathways for nonprofit news managers based on strategies that are already being tried. For example, it suggests ways of mapping audience segments and engaging the most committed among them. It also explores other revenue sources and provides tips on managing partnerships with for-profit media.

Moreover, it recognizes that there is no one-size-fits-all formula for sustainability. It mapped out the opportunities and challenges for four types of nonprofit news organizations: the local or regional startups, the topic specialists, the community-driven news organizations, and the large shops like the Center for Public Integrity and Pro Publica. While the study did not deal with nonprofit centers overseas, the challenges are similar.

“Sustainability,” INN says, “means reducing their reliance on ‘the few’ and moving to the ‘many’ — from a few angel donors or foundations to revenue streams from a variety of products, services and mission-driven activities.”

That seems  obvious, but it is not going to be easy. Many of the startups have barely mastered the art of writing proposals for foundations, now they must learn other ways of raising revenue. But if the sustainability challenge is not met, then the era of nonprofit watchdog news would have been a short-lived one.

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