Newsrooms must die! Long live newsrooms!

Does a social enterprise hold promise for the future of newsrooms in Chicago?

“Yes,” said Terry Mazany, President and Chief Executive Officer of The Chicago Community Trust.

It was hard to hear Mazany over the din of 400 chattering reporters, editors, bloggers, photogs, commentators and independents from all sectors of Chicago’s newsgathering world present at the Chicago Journalism Townhall (CJTH) Sunday, Feb. 22, organized by perpetual do-gooder Ken Davis and his wife Linda.

I am certain Mazany said “Yes” to the L3C idea because I caught him on tape, actually I recorded him in digital. But let’s not get lost in the analog vs. digital, paper vs. web, long-time pro vs. citizen journo, columnist vs. blogger, corner news box vs. click-through discussions that so-much dominated the conversation at the Townhall Sunday. Let’s just say Sunday’s gathering proved there’s reams of tactical knowledge to be exchanged, enough to forge a new cluster or two of media-savvy newsroom start-ups and connect the dots between the points until the Chicago region is a glorious virtuous circle of high-quality news and revenue streams. You can catch up on the sticky details articulated by writers and journalists far more informed and clever than I over at the CJTH blog.

Me? I am excited about the Chicago newsroom of the future, a journalist’s dream come true that could rise from a floor of foundation cash and be sustained by a stream of revenue and profit. My theoretical newsroom, let’s call it The Times Democrat, would be a new kind of company, an L3C, or Low Profit Limited Liability Company.

Mazany added currency to this idea when he said that Information has risen to the level of being a most pressing need for a community in our current democracy. More than ever, a newsroom must be a mission-based place.

Mazany’s comments are useful for anyone thinking big about the newsroom of the future. He said that not only is our democracy at stake, but so is the Chicago region’s competitive advantage in a shifting world. To better understand this viewpoint read Richard Florida on the rise of the Creative Class.

This conversation lifts the perspective up 10,000 feet and takes a shrewd look down. Let’s agree that journalism must live for the future of our democracy. Let’s also agree that the newsroom of The Times Democrat will be an amalgam of the best and most innovative practices we have online and in print, and that it will evolve to be something recognizable as newsgathering measured by a few key virtues. These include a culture of accountability and quality control that includes editors and fact checkers. And in fact, credibility and audience relevance will be the currency that moves the market of readers, or “news consumers,” from news org to news org locally and nationally. In this scenario, it’s likely everyone at the CJTH will get to play at The Times Democrat. Much revered will be those who have learned how to make money from the ads and play of the Web.

But to get there, journalism needs one thing more than anything else to operate well: that thing is money, specifically re-birthing cash. That’s what our L3C newsroom, The Times Democrat, is about.

So, what would the business model of The Times Democrat look like? It would simply be a modified Limited Liability Company that has the primary goal of serving a socially beneficial purpose and as such it could accept foundation money.

Americans for Community Development, a coalition sponsored by our nation’s first L3C – L3C Advisors — says that the L3C is the for-profit with a nonprofit soul. The nonprofit soul of a newspaper arises from the recognition that newspapers are the only business specifically recognized in the U.S. Constitution and that the information they provide is vital to the proper function of a democracy.

The Times Democrat L3C can operate as a business with a social purpose because its structure releases arcane IRS rules related to how foundations like The Chicago Community Trust, the John D. And Catherine T. MacArthur Foundation and the McCormick Foundation — all present at the CJTH Sunday — invest their considerable sums of money.

Red tape be gone! When The Times Democrat presents its business plan [drawn together by the savviest business people, investors, journos and web innovators far and near to Chicago], foundations will find it that much easier to invest because of the L3C.

A foundation like the Chicago Community Trust, having taken first position in the tranched investment, has also taken on most of the risk, making The Times Democrat a safer investment for others. Other investors like pension funds and private equity funds would more quickly follow suite. But you wouldn’t see venture capital firms. The returns aren’t fast enough or large enough, said Steve Miller of Chicago’s Origin Ventures.

The Americans for Economic Development website says this: Because the foundations take the highest risk at little or no return, it essentially turns the venture capital model on its head and gives many social enterprises a low enough cost of capital that they are able to be self sustainable. “Self sustainable,” two of the most beautiful words in existence today. Not filthy rich, but instead, enough.

And if filthy rich simply happens because The Times Democrat is great at meeting its mission, that’s OK, too. It can reinvest some profits to make the newspaper better.

That means the newspaper L3c won’t have to ask its reporters to work for free or its editors to limit their earnings to $30,000 per year. Unfortunately, we heard a lot of this kind of hope-crushing talk at the CJTH Sunday.

Obviously small newsrooms and no pay don’t sit well with Bernard Lunzer, president of The Newspaper Guild, which represents Chicago Sun-Times employees.

“The problem,” Lunzer said, “is academia and a lot of people are saying we will have these new operations of 10-15 people and that will replace what we formerly had as major newsgathering organizations.”

“We will keep pushing the conversation,” Lunzer said.

Lunzer has been visiting the Hill to forward Federal legislation related to the social purpose of newspapers and L3Cs.

Draft legislation called the Program Related Investment Promotion Act of 2008 is being considered by staff in the Senate Finance committee, and is currently looking for sponsors.
Here in Illinois, Bill SB 239 creating the L3C hybrid was introduced to the Illinois legislature Feb. 4 by Sen. Heather Steans (D-Chicago). I’ve not yet had an update on that.

“Our goal is to get our communities through to the other side,” Lunzer said. “We believe the L3C is an important vehicle.”

“The beauty of the L3C is its simplicity;” Lunzer said. “You accept that you will not have high profit but you will have some profit. And at some point [once a newsroom is recovering, it] could move back to a normal LLC.

“For democracy to work, we need transparency in government. We need credible info and that has always started on the news side with print,” Lunzer said.

Can a newsroom like the Sun-Times be reborn?

“For the Sun-Times, what’s got to happen is you have to find a way to separate the product that is the Sun-Times from the debt that was incurred by business owners,” Lunzer said.

That echoes something Mazany said at the CJTH. To be fair, organizer and moderator Ken Davis said it first, rather gruesomely.

“Is there a point at which someone could wait until the Sun-Times (or the Tribune) either dies or can no longer survive, [and then] plucks out the beating heart of the newsroom and makes that a separate company, a new newsroom?” Davis asked.

After some thought The Chicago Communty Trust’s Mazany answered in the affirmative. He rephrased it to me this way later.

“Is there a way of bringing in some intervention for the shuttering of a newspaper and creating some dollars that could go into an endowed fund or to support the transition to new forms of journalism and community information?” Mazany asked. “Yes.”

Could that happen despite the fact that the assets are not desks and chairs and buildings and paperclips, but instead intangible assets like institutional knowledge and people?

“Yes,” Mazany said.

So how can those of us who care help make that rebirth happen?

The Newspaper Guild’s Lunzer has some ideas.

“We need people to try and find real investment in the Sun-Times,” Lunzer said.

“It will take community will and political will but that is what must happen,” he said.

“And we might have to open ourselves up to the idea that government could flow money into newspapers. It may well be that we see a situation where we see some government aid to get through the worse of this.”

Lunzer said that all over the country, newsrooms are emerging in different forms.
Certainly the L3C would allow foundation money to flow in, he said. But it’s just one of many ways including co-ops and ESOPs that The Guild is working with.

Read More: Bernard Lunzer, Bloggers, Chicago Journalism Townhall, Chicago Sun-Times, Chicago Tribune, Chicago-Illinois, Death Of Newspapers, Democracy, Future Of Journalism, Heather Steans, Journalism, Ken Davis, l3c, Low Profit Limited Liability Company, Main Stream Media, Newspaper Industry, Newspapers, Social Enterprise, Terry Mazany, The Chicago Community Trust, The-Newspaper-Guild, Chicago News

How to save newsrooms [papers]

Published in the Huffington Post – Chicago.

By Sally Duros
Chicago’s newspapers could find a lifeline to solvency and a return to social purpose in a new kind of business structure called an L3C, or low-profit limited liability company.

Why is that?

Illinois foundations have $350 billion in assets and they are required to invest 5% of that, or $17 billion, in programs that serve a social purpose each year. If the Chicago Sun-Times and the Chicago Tribune were to be reborn as L3Cs — a structure that encourages foundation investment while allowing a profit –they could tap into some of that $17 billion. With foundation heavyweights on board, other investors seeking a decent, but not excessive, return might contribute to the coffers.

Bill SB 239 creating the L3C hybrid was introduced to the Illinois legislature Feb. 4 by Sen. Heather Steans (D-Chicago). Prospects for the bill are good, supporters say.

The L3C structure was signed into law in Vermont in 2008, and into law in Michigan and the Crow Nation in January. Legislatures in Georgia, Montana, North Carolina and Oregon are also expected to pass L3C legislation this year.

In Washington, D.C., draft legislation called the Program Related Investment Promotion Act of 2008 is being considered by staff in the Senate Finance committee. While many types of businesses–from community yoga centers to affordable housing–could benefit from L3Cs, the successful creation of newspaper L3Cs is largely contingent on passage of the Federal law, which would effectively expand charitable purposes to include newspapers.

The L3C structure plays well in Peoria where the Peoria Newspaper Guild, and a coalition of
Journal Star employees and community leaders have been quietly looking for two years at alternatives including co-ops and employee stock ownership plans (ESOPs) to operate the Peoria Journal Star.

The one idea that really clicked was the L3C.

“We are looking at long-term ownership that puts journalism first,” said Jennifer Towery, President of the Peoria Newspaper Guild and also Neighbors Editor for the Peoria Journal Star. “[The L3C] just resonated. It has so much potential.”

Because it can tap into foundation money, an L3C is sustainable, and because an L3C business must meet a social purpose, it realigns newspapers with their mission of community service.

“It insists that serving the readers is your mission,” she said. “If it doesn’t serve the readers to cut your newsroom staff you can’t do it.”

While good news judgment is essential to accomplishing the social return, the L3C structure has significant sweeteners to generate returns for investors.

“The participation of the foundation, which is seeking high social return but low monetary return serves as a catalyst for high investor return,” said Marc J. Lane, a Chicago-based attorney who authored the Illinois L3C legislation and last year launched Chicago’s chapter of the Social Enterprise Alliance, which believes in investing in businesses that do well by doing good. “You can end up with a blended financial return that is fairly modest but skewed toward the private sector investor.”

“Capital is formed,” Lane said. “Social purpose is achieved.”

The L3C is different from a typical nonprofit because it can earn a return, but the social purpose must trump the financial purpose.

Lane says that he expects the Illinois law will pass with little debate. “I see it sailing through,” he said. But even if it doesn’t, Illinois news gathering organizations could incorporate in Vermont or other states that have legalized L3Cs.

The creator of L3Cs, Robert Lang, CEO of the Mary Elizabeth & Gordon B. Mannweiler Foundation, says the Federal legislation is essential for any of these good news scenarios to play for newspapers.

Lang, an economist and businessman by trade, devised the L3C structure to address the problems he was having while trying to invest family foundation money in a sustainable and effective way.

“Historically, the IRS has not accepted newspapers as nonprofits,” Lang said. “The Federal legislation mentions L3Cs specifically and it lists newspapers specifically.”

The problem newspapers are dealing with today is that investors turned news-gathering into Wall Street product.

“The Peoria paper still makes money,” Lang said. “The problem is it cannot make enough profit for all the games normal for-profits get involved in.”

But in the L3C scenario, newspapers can make “enough” money.

“What we are looking at is the newspaper as a self-sufficient entity,” he said.
“It will not be a high profit entity.”

The idea of the Newspaper L3C is to bring back those journalistic contributions like neighborhood reporting, music reviews and book sections and make them part of the community service. And ads are part of the mix too.

“I think there is a lot of viability to newspapers still,” Lang said.

Could the L3C save Chicago’s newspapers?

“Somewhere you still need a newsgathering organizations,” Lang said. Newspapers still drive much of the news circulating on the web, he added.

“I’m not saying that we can save the Chicago Tribune and make it what it was 10 years ago,” he said. “But at least the money that’s made today can go toward improving the product not paying off leveraged debt.”

Meanwhile back at the Journal Star, which has an owner and is not for sale, Peoria Guild President Towery says, “We are all interested in finding models that others can replicate. It’s not saving the paper, it’s saving journalism. ”

“One of the bright spots is that [newspapers] have lost so much value that it is now feasible for communities to buy their newspapers.”

A sample newspaper L3C

newspapers.jpgI write in the Huffington Post—Chicago February 9 about the potential for newspapers to incorporatebe set up as a new type of corporation business, an L3C, low-profit limited liability company.corporation. This would allow them to meet their community purpose, and qualify for foundation money while providing a return for private investors committed to the social good. Here’s a sample of what a newspaper L3C might look like, according to Robert Lang, who developed the structure.

Sample Newspaper
Project Goal
Purchase and restructure the Community’s Newspaper as a locally based independent newspaper with a focus on community service and news targeted specifically toward the local market. The emphasis includes the recognition that newspapers are the only business specifically recognized in the U.S. Constitution and the information provided is vital to the proper function of a democracy. The newspaper is also an important engine of the economy of the area and is an vital source, through both news and advertising, of information significant to the commerce of the area. Additionally, many of the cultural and nonprofit venues depend on a healthy vibrant newspaper for dissemination of information regarding their services. Lastly, government at all levels needs newspapers for the same dissemination of necessary information.

L3C Advantage –
The operation can be a profitable, self sustaining venture by expanding its role and restoring many services that have been reduced or cut. It will be profitable enough to maintain and purchase equipment as needed and to explore and develop ways to use and integrate new media with the newspaper model. But as an L3C it will not be under pressure to generate unreasonable level of profits or diminish services in order to increase profits or service highly leveraged debt. The L3C structure will permit the paper to direct its effort to providing the kind of community service the subscribers, advertisers and other stakeholders have a right to expect. It can operate as a public service vehicle rather than emphasize the maximization of return on investment model that has become so common in the industry and is ruining newspapers all over America. As an L3C, it will, by law, be charged with placing community service ahead of profit.

Amount of Investment Required -To Be Determined

Possible Members of L3C

Equity or First risk tranche
Foundations through PRIs and tax deductible donations by individuals to Community Foundations turned into PRI investments by Community Foundations. Community Foundations in particular have a stake in the successful operation of a local community newspaper since in many ways it is vital to the basic spirit and health of the community served by the Community Foundation.

Mezzanine tranches
Employees, local businesses such as auto dealers or restaurants, local merchants and banks, supermarkets and other national chain retailers and theater chains all of whom depend on the viability of the paper for delivery of their message to local customers. Local individuals and investors who see the value in a viable local community even if the return on investment is not spectacular. An example might be a large local employer that needs a strong, prosperous, cohesive, vibrant local community in order to enhance their ability to attract the best employees to come to our community to work there. The community often makes a difference as to the level of compensation a large corporation has to pay since prospective hires may demand higher pay if they perceive the need to leave a community for some of the services they will desire or to compensate for a lower quality of life.

Senior tranche
Foundations through Mission Related Investments of endowment, State and local Pension Funds, insurance companies, foreign sovereign wealth funds and other very large scale institutional investors who are looking for very secure long term income paying investments with a return compatible with the risk.

Members not making cash investments -to be determined

Management Structure
A hired professional staff reporting to a management board which may include members of the present management structure.

Structure of investment
Stability of the project for the long run indicates an all equity transaction. It is obvious that certain groups such as the local members of the Newspaper Guild will have a relatively small financial stake in relation to their role in say over the quality of the product. Other investors such as local businesses will put in more dollars for substantially less day to day control. Others such as pension funds will be far more passive investors.

Projected Sales, Expenses, and Gross Profit -tbd

Projected investment and Return per Tranche-tbd

Unique socially beneficial aspects of this project
The newspaper means many different things to many different stakeholders. The key to the success of the newspaperas an L3C will be the drafting of an operating agreement that assures all the stakeholders that the paper will live up to their expectations and yet permits those in charge to be able to make the needed business decisions on a day to day basis without having to clear each and every decision with the various stakeholders. It is going to require new thinking to some extent on all sides. The advertisers, for example, will have to understand that they are investing to be sure of the success of a tool necessary to the marketing of their products. The management will have to understand that the employees are the most valuable asset, while the employees will have to make tough decisions sometimes that are important to the viability of the paper and think like the owners they will be. But once an operating agreement has been crafted a newspaper as a pillar of the community will finally be a reality.