The New News Economy 

As newspapers struggle, nonprofit news is being touted as the key to the future. Is it?

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But that's not the case with The Bay Citizen. Despite its self-proclaimed commitment to "solutions-based" reporting — that is, according to Rosenthal, journalism that spawns results in some way, whether that's increased awareness, changed behavior, or, ideally, legislation and regulation — The Bay Citizen mostly focuses on relatively small-scale civic issues. Take the landing page from May 15. Of the seven lead stories, three were produced by Bay Citizen staffers, three by California Watch staffers, and one by the wire service Bay City News. The three by Bay Citizen writers were about San Francisco billboards; a mobile app that scans bar patrons' faces; and tightening state oversight on vocational schools. All were important stories, to be sure, and thoroughly reported and well-written — but none were pieces that a beat reporter for the Chron or Bay Area News Group, which publishes the Oakland Tribune, the Contra Costa Times, and the San Jose Mercury News, couldn't have covered. But buying stories from The Bay Citizen is cheaper for newspapers and easier than assigning a staff writer. And with papers struggling to save money in any way possible, it's not hard to imagine the Bay Area News Group, for example, replacing more and more of its content with Bay Citizen stories, thereby coming to look more and more like every other paper in the region.

In other words, it wouldn't take much to tip the precarious balance that nonprofits and for-profits have set up, in order to co-exist. If nonprofit news continues to cover stories that for-profit papers traditionally have, and continues to allow papers to lay off their staff (or not hire new staffers), for-profit newspapers will, fundamentally, come to be devalued. Then there's a spiraling effect: the more newspapers that go out of business, the fewer places nonprofit news organizations will have to run their content. The fewer vessels nonprofits have, the fewer staff they need. And so on.

In short, the new news economy is operating on a tightrope, and doesn't seem to know it.

There's another wild card that could easily throw a wrench into the system: the IRS. Although the agency hasn't issued a specific ruling, it has set up roadblocks in the past two years preventing journalism start-ups from attaining tax-exempt status, and the delays have been paralyzing. SF Public Press, for example, has waited two years to become a 501c3. Executive Director Michael Stoll said that if its application isn't cleared soon, the news organization will probably wither and die. So will many other organizations, said Davis of the Investigative News Network. "I can tell you that this problem with the IRS is having a chilling effect," he said. "The difficulty of getting this very necessary designation means the movement is stifled."

Traditionally, nonprofit journalism would fall within the "educational" category for tax-exempt organizations, since their purpose is to disseminate information for public benefit. As such, current laws prohibit them from weighing in on political campaigns, privileging "mass appeal" content over fact-based news, and using business methodologies that resemble those of a commercial operation. They also have to sustain distribution models that hew to their mission of effecting change.

In the past couple years, a spate of journalistic organizations applied to become nonprofits — enough that high-profile donors like the Knight Foundation would get up to a dozen applications from a single city from start-ups all claiming they were "doing something new." The IRS noticed it, too, and suddenly became wary. After all, it set most of the precedents for nonprofit tax exemptions prior to 1970. (It created a rubric for educational organizations in 1967.) Nonprofit journalistic organizations existed back then, but they certainly weren't as numerous, and they operated in a completely different news environment. Since the onslaught of nonprofit journalism applications could be grounds for a new precedent, the agency has been proceeding with caution. Hermes of the Digital Media Law Project surmised that the news start-ups warranted consideration as a group, rather than on a case-by-case basis — though, that said, the IRS evidently made an exception for the Investigative News Network, which became a bona fide nonprofit in March.

While there's no evidence of ill will on the part of the IRS, the delays have created a huge financial setback for young outlets, many of whom can only sustain themselves by partnering up with an existing nonprofit that can serve as a financial sponsor. SF Public Press formed a relationship with Independent Arts & Media that falls along those lines — it can solicit grants under the auspice of the larger organization, but it has to pay a fee for every donation it receives. "So it's like a 7 percent tax that's slowing down our growth," Stoll explained. He added that it's very difficult to approach foundations without the 501c3 imprimatur. "Fiscally sponsored projects may get a third to a half of what an independent 501c3 gets," Stoll lamented. "No one's said that explicitly, but that's been our experience. So we've lost many thousands of dollars." Not to mention that SF Public Press misses out on Google grants, discounted software from Salesforce and Tech Soup, and reduced-cost insurance.


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