March 26, 2014

The Revenue Picture for American Journalism and How It Is Changing

Personal Wealth, Capital Investments and Philanthropy

Capital, VC & Philanthropy ShareAs advertising has shrunk in recent years and audience revenue has not fully closed the gap, another patchwork of investments has grown considerably–suggesting, perhaps, new models for funding the journalism of the future. Wealthy individuals have purchased or created new journalism outlets with personal funds. Companies initially built as technology firms have used their earnings to bring original reporting into the mix of their offerings. And philanthropy from foundations and in the form of major gifts has grown the nonprofit journalism sector.

For now, the total known investments from these individuals and organizations amounts to a tiny fraction—about 1%—of the total identified financial support for news over the past year. But they have created significant interest and buzz for an industry looking for not only an infusion of cash, but for new ideas as well.  With much of this investment flowing to digital news outlets without their own legacy baggage, new ideas about how to produce and distribute journalism are being given the chance to flourish. That represents a psychological development perhaps more profound than the dollar figures alone would suggest.

A New Kind of Owner

Media companies change hands all the time, but since 2012 a number of notable transactions have surfaced a different type of owner, one that invests in the newsroom out of his or her own pocket.

Some are doing so to revitalize existing brands.

In 2012, greeting card magnate Aaron Kushner and a partner purchased Freedom Communications, parent of The Orange County Register, for an unnamed sum (The Los Angeles Times estimated that the price was between $50 million and $60 million). The new owners proceeded to add 440 staff, including 180 in the newsroom, and expanded pages, though these numbers began to contract after a round of cost-cutting in early 2014.

In August 2013, Amazon CEO Jeff Bezos purchased The Washington Post for $250 million. At this point, the extent of Bezos’ personal investment has been the purchase itself. It remains unclear whether he will use personal dollars to support the newsroom, but Bezos noted that he is there to provide “runway,” or “financial support over a lengthy period in which the management can experiment to find a profitable formula for delivering the news.” Bezos was also part of an investor group that pooled $12 million in funding for Business Insider, the fast-growing tech- and business-oriented digital news organization run by Henry Blodget.16

Other publishers are investing their wealth to build something from scratch.

On the nonprofit side, eBay founder Pierre Omidyar announced in October 2013 one of the biggest investments in noncommercial journalism in recent memory: $250 million toward the launch of First Look Media, of which one division, a nonprofit newsroom, would receive a $50 million in capital to launch operations. In a press release, Omidyar was listed as both funder and publisher. That level of involvement in the organization, combined with the sizable sum, make Omidyar an outlier in the nonprofit journalism realm.

How much in total dollars do the investments on the scale of Bezos, Kushner and Omidyar add to American newsrooms? There is no way to account for all of this activity in the journalism space—and we do not do so here, in the numbers—especially given that much of it involves moving money around privately held companies. Furthermore, the heavily circulated purchase prices of news properties by new owners—add John Henry and Warren Buffet to that list—represent a change in hands, but not always additional investments by the owners in newsroom budgets. Even so, expenditures on journalism by new owners over the past year amount to a dollar figure closer to hundreds of millions rather than in the billions.

Corporate Investment and Venture Capital

There have always been unprofitable news products whose parent companies use other successful holding to subsidize losses. The Washington Post for many years fit into this category, with earnings from the Kaplan education division filling a gap by tens of millions of dollars each year. So it was with The New York Post, where the success of News Corp.’s entertainment division carried it along through years of losses.

Today, technology firms, digital publishers, angel investors and even some legacy media companies are putting more new money into journalism. What is different here is that much of this energy is not being extended in a palliative manner toward legacy news brands, but rather toward relatively younger digital brands and even startups.

Yahoo, under CEO Marissa Mayer’s watch, has turned back to investing in content. In 2013 the search company hired such big names as New York Times tech columnist David Pogue and television personality Katie Couric.

BuzzFeed, a platform built largely around viral content, has also ventured into original news reporting – first hiring Politico’s Ben Smith in 2012, adding scores of news staff, in the fall of 2013 introducing a foreign news division, putting some of its estimated $60 million in revenue and $46 million in venture capital to work (sources at the company would not comment on specific financial details). Most of BuzzFeed’s revenue is coming from native advertising; the site’s in-house ad department developed 600 to 700 social advertising campaigns in 2013.

And Vox Media, a company whose DNA is as much technology as content, became the home to former Washington Post blogger Ezra Klein’s new explanatory journalism project in early 2014. (Vox is also home to other content verticals, including sports site SB Nation and tech site The Verge.) Vox has not disclosed revenue figures, but has said that it is profitable and that revenues have doubled since 2012.  The company raised $40 million in venture capital in 2013, some of which would likely support Klein’s project, which, in an earlier version, was reported to call for $10 million per year in news investment.

More than just technology-oriented companies are investing in digital journalism; large, mature media companies are, too. In 2013, ESPN acquired Nate Silver and his 538 brand from The New York Times; NBC bought a stake in Re/code, the erstwhile AllThingsD that was part of the Dow Jones family; and Fox Entertainment bought a stake in the fast-rising Vice Media, a multiplatform news and entertainment company that targets young people.

There is hardly any public accounting for this kind of revenue.  Representatives and publishers routinely declined to provide comment or did not respond to queries from the Pew Research Center, so it is hard to estimate exactly how much of the total pie these forms of journalism financing account for. But these capital investments may perhaps carry some of the greatest potential for long-term sustainability. These companies are digital natives. They understand technology and succeeded there first, offering other kinds of content before moving into news. In addition, they are free of the costly infrastructure of legacy platforms like print and broadcast television, and can potentially allow for some failure and loss during experimentation. What is not known yet is the style and quality of journalism this revenue will produce.  Yahoo, at least, has been around this block more than once. And to the extent that it succeeds, it is likely to be on the topical or national level. In 2013, one tech company, AOL, learned this as it ended its investment in the Patch network of hundreds of local sites, even as it reaped rewards with strong revenues from The Huffington Post.

Philanthropic Support

Philanthropy has for decades been a contributor to journalism, and it has played a larger role since the economic upheaval in legacy journalism during the recession of 2008 and 2009.

The noncommercial news sector (public radio, digital nonprofits, and others) generates a significant share of unearned revenue from foundation grants.

From 2005 to 2012, according to estimates by J-Lab, 279 foundations contributed to 308 journalism initiatives—both nonprofit and for-profit—in 25 states and the District of Columbia. Of those 279 foundations, fully 58% of the funding came from just 10 foundations—chief among them, the John S. & James L. Knight Foundation, the Sandler Family Supporting Foundation, the Ford Foundation and a few others.

In addition, a survey in late 2012 by the Pew Research Center of 93 nonprofit news organizations in the U.S. found that about three-quarters received foundation funding, which, in most cases accounts for more than half of that outlet’s total revenue.

For-profit examples include the Ford Foundation’s 2012 $1 million grant to The Los Angeles Times to expand its coverage of key beats such as immigration and border issues.  And, more quietly, Google has done so by giving $5 million in grants geared toward journalism innovation through other institutions.

(While not included in the current calculations, Texas-based venture capitalist John Thornton invested $1 million of his personal wealth in 2009 toward the launch of The Texas Tribune, the digital nonprofit that covers Texas politics. Thornton is named as a founder of the news outlet and is on the board.)

Around the same time, Herb and Marion Sandler, through their family foundation, made a multi-year commitment to ProPublica for about $10 million per year.17 Mr. Sandler is listed as the founding chairman of the organization.

In total, roughly $150 million is generated through philanthropy for journalism annually, according to the most recent available data, most of it going to public radio stations, and some to digital nonprofits.  And, this revenue stream continues to grow. In February 2014, Neil Barksy announced the launch of a nonprofit news organization focused on criminal justice that will operate with a $4 million to $5 million budget and employ more than 20 journalists, including Bill Keller, the former executive editor of The New York Times. The operation will be funded by contributions from Barksy, foundations and individuals. And as recently as March, the Jerome L. Greene Foundation announced a $10 million grant to New York Public Radio, most of which is earmarked to develop its digital operation.

  1. This round of funding followed an earlier $5 million investment in Business Insider by Bezos.
  2. The Pew Charitable Trusts, which fund the Pew Research Center, have also contributed to ProPublica.