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Topics: Communication-MediaSocial Enterprise-Nonprofit Organizations

Breaking News
Topics: Communication-MediaSocial Enterprise-Nonprofit Organizations
Breaking News
Photo by Simon Simard
The decline of the community newspaper in the United States has been steep and severe. A quarter of American papers have folded in the last 15 years, and industry-wide consolidation has eviscerated the newsrooms of those that are left, leaving them understaffed and overextended. Yet studies have shown that those scrappy, community-based weeklies and monthlies serve a vital role in society, curbing political polarization and boosting civic participation. They also remain an unparalleled check on city and town councils, school board meetings, and Main Street, USA. Elizabeth Hansen Shapiro (PhDOB 2019) has studied the issues facing local papers from multiple angles. Now, as cofounder and CEO of the National Trust for Local News, she has developed a first-of-its-kind model to preserve local news as a public good.
The premise of the National Trust is to offer best practices, in terms of business models and journalism, to support news organizations, and raise the capital to effect large-scale structural change in the industry, says Hansen Shapiro. Currently a senior research fellow at the Tow Center for Digital Journalism at Columbia University, from 2018 to 2020 she was a fellow at the News Sustainability and Business Models Project at the Harvard Kennedy School’s Shorenstein Center on Media, Politics, and Public Policy. Her dissertation research at HBS examined institutional leadership, organizational change, and the process of digital innovation in public radio—all of which afforded her a detailed view of the industry’s challenges and opportunities and helped to inspire the founding of the National Trust.
The nonprofit launched its test case in May 2021, with the purchase of 24 newspapers and websites in Colorado. The sellers, Jerry and Ann Healey, had been looking to retire but also felt a commitment to the communities that their outlets served and hoped to preserve these assets. Like so many owner-publishers around the country, the Healeys found few options: “It’s just very difficult to assemble the financing, and that need for cash at the point of succession is part of what’s driving consolidation across the country,” Hansen Shapiro observes. The National Trust used a leveraged buyout to acquire the titles, which will continue with their mission under a new public benefit corporation that is owned and operated jointly by the nonprofit and its local partner, the Colorado Sun. The acquisition was backed by a mix of national and local impact investors.
“While impact capital has made a huge difference in other social-problem areas, there has been no front door for impact capital in the news industry,” Hansen Shapiro explains. The Colorado acquisition offers a test case that the National Trust will learn from and scale up in other communities across the country. Here, Hansen Shapiro talks with the Bulletin about making local news sustainable, the interplay between investment and impact funds, and what’s at stake in the future of local news.

Illustration by Dana Smith
Throughout your work at HBS and HKS, you’ve studied the changing media landscape from several angles. What are some of the major challenges to sustainability that local newspapers face?
On the business-model front, we’ve seen declining print circulation and declining print advertising revenue. That was the firm foundation upon which local newspapers were built, so that pressure on the traditional sources of revenue has obviously put pressure on the rest of the business—and particularly the newsroom, which is the most expensive part of that business. As those pressures increase, we see a downward spiral that starts with the revenue declining, then the newsroom shrinking, the product getting worse, and the business model collapsing.
At the same time, we’re in the middle of this decades-long shift to digital media, and the digital advertising environment has very different economics. Local news outlets that once relied on monopoly-pricing power on the print side, and to a certain extent on the circulation side, just don’t have that in the digital media space. With a shift in consumer behavior to more digital media, there had to be an entity-level shift in the business model toward more digital-reader revenue and innovative digital advertising because those innovative digital-advertising products can help shore up revenue, and digital display is pennies on the dollar.
This is where the business model challenges intersect with the challenges of professional practice. In the halcyon days of print newspapers, journalists and editors had a fair amount of gate-keeping power. There was a very real deference to editorial expertise. But as newsrooms have collapsed and there’s been a shift to reader revenue, there’s been a real crisis in the profession. Journalists are asking, Whom do we serve? How do we know what people think is important? Any good reader-revenue strategy has to be built around a real understanding of the audience and what motivates people to consume news and information.
Can you explain how the acquisition of the 24 papers in Colorado was structured to keep control in local hands?
We set up the Colorado News Conservancy as a public benefit corporation. We earmarked a majority of shares to be eventually fully locally owned. The Conservancy is designed to be a flexible structure that can bring in these specific Colorado papers but also others that are ready for succession and a new path forward. There’s also an on-ramp for local owners who want to participate in the governance of these critical civic assets. We set this up as a public benefit corporation but we’re not wedded to that model; we are agnostic about nonprofit versus for-profit because, ultimately, community ownership and governance have different dynamics, and this is possible in all different flavors.
Within this public benefit corporation version, there are shares that are allocated for local owners and investors, and there are preferred shares that the trust holds. We have final sign-off on any change in corporate structure, on any entrance of new capital or new investors. We are the final mission check to ensure long-term local ownership and sustainability.
You were there in person as the owners, Ann and Jerry Healey, announced this ownership change to their staff. What was that like?
It was a powerful moment, to be with Ann and Jerry and our local funders and our Colorado Sun partners. We stood up and said, We are the new owners, we are here to support you, and we believe in what you do. We want all of this to continue, and we want to find resources to help you continue to serve your communities in even stronger ways. We felt like it was flipping the script of the traditional, sad scene in so many newsrooms over the last couple of decades, in which the new owners show up with pink slips.
What does the exit strategy look like?
The financing that we were able to assemble for this acquisition is interim financing, which gives us five years to figure that out. Part of the process we’re engaged in now with our partners is to say, What’s the version of local ownership that works for Colorado, and how do we refine this platform so that other papers can come in? Maybe that means bringing in local investors and building a cap pooled fund at the state level so we can make other acquisitions. Maybe that means transitioning to a nonprofit, or spinning up a hybrid that has nonprofit governance over the public benefit corporation.
There are many ways that we can combine the structure and strategy and capital to get to local ownership. But ultimately, this has to work for the people who care about this in Colorado. We’re facilitating that discussion, and we’re the midwives of that exit strategy, but we don’t want to dictate it because, ultimately, these are their community resources.
What have you learned about scaling or replicating this model in other communities?
We’ve been learning in two directions. We’ve seen a wave of interest from individual publishers, folks in 40 states and the District of Columbia who want help figuring this out. We developed an initial screening to understand where the opportunities are from the publisher side. And on the state side, we’ve initiated a series of conversations with state-level funders and stakeholders who have an interest in the long-term health of their local news ecosystems.
With that intelligence, we will be working in the next 18 months in a handful of states where we have a couple of keystone-publisher opportunities and the right mix of funders and stakeholders at the table. We’re coming up with a couple different structures so we can test how different configurations work in different communities. A big takeaway of our work is that every community is different. There are certainly things that are similar about the business model, and some of the business model pressures and best practices at an entity level, but we are an incredibly diverse country.
On the funding side, you’re building both an investment thesis and an impact model. What does each of those look like and what happens in the space between?
Yeah, if we were solely impact focused, we would not necessarily worry about financial fundamentals. If we were just an investment approach, we would worry about investment fundamentals, above all else. We’re definitely trying to thread that needle.
On the investment-thesis side, we’re collecting intelligence around the fundamentals that we think will drive sustainability in each of the communities where we’re working. Some of that is just market analysis: Where are the places that are growing or shrinking? What’s the business health of each community? What’s the social capital across different communities? Where is (and isn’t) there philanthropy? On top of that, we’re layering in an understanding of what to look for—titles and papers, revenue mix, staff strength, audience strength, and brand strengths—to be able to identify promising opportunities.
“And at the intersection between the two—impact and investment—our aspiration is to build a pooled impact investment fund that we can use in all 50 states.”
We’re finding that there are definitely winners. Some titles have really strong fundamentals and are poised for good things. Some titles are underinvested but could do interesting things if they had more resources. And then there are definitely titles that, either because they’ve had a really rough go of it or their local economies are struggling, are just in rough shape. We’re developing an analytic approach and using pattern recognition to determine where titles fall in there.
On the impact side, there’s a lot of research about what happens when local news disappears, and there’s some research on the positive impacts of local news. Some of those things include civic participation, diversity of candidates, and how coverage of local policy issues impacts policy change—or not. We’re trying to figure out what we can measure and what we can look for both in the assessment phase and as we build our portfolios that will help us substantiate those impact outcomes that result from strong community news.
There’s also a whole set of interesting work around the relationship between local news consumption and social cohesion. We’re thinking about how to build some of those social cohesion measures into the communities that we’re investing in so that we can understand the relationship between changes in the product in storytelling and engagement and any changes in people’s connectedness to their communities. On the impact side, we know what the buckets are; the work now is to connect our theories of change and the way that we make investments in portfolio companies with these impact outcomes.
And at the intersection between the two—impact and investment—our aspiration is to build a pooled impact investment fund that we can use in all 50 states. To get there, we are assembling state funds for the places in which we’re working. The goal is to figure out the mix of return and impact. Can we bring in national philanthropy as the bottom of the capital stack to support others coming in on top of that, which might have higher return expectations? How do we assemble that so that we can hit both impact and investment outcomes?
What other shifts in the industry are you watching?
We’re seeing a real growth in philanthropic interest in supporting local media, across small-dollar donors, major giving, and institutional giving. This rise in philanthropy has been a real blessing in some ways, but it’s also introduced a whole new set of challenges to the industry. Philanthropy doesn’t work everywhere, and there is not enough philanthropy to solve for the scale of local news that we need. That’s why we think it’s important to bring in the capital piece.
The other important reason to have capital as a tool in the rebuild-local-news tool belt is that it definitely encourages a business-model discipline that can be difficult to develop otherwise. We’ve gone through a decade of journalist entrepreneurs being able to get—or thinking they can get—philanthropic funding as a runway to get their startup going. As with other business models that are weighted too heavily in one direction or another, it’s sometimes hard for these philanthropically supported newsrooms to really get an understanding of their audience, to really hone their product, to find the product-market fit. Philanthropy doesn’t necessarily know how to drive for those outcomes, either. If you have a smart capital strategy and you have smart, savvy business people at the helm, in an ideal world you would get that kind of product-market-fit thinking from the beginning. That’s what we try to do in our portfolio.
We’re also at a moment where it’s really important to think in a nuanced way about local news. The phrase local news unfortunately ends up being a catchall term for metro daily papers, local television, radio, and community news. Each of these has very different value propositions, different audiences, and different business models. The National Trust is trying to bite off a very particular slice of the ecosystem, which we think is critical in its importance to local, small-D democracy. It has some strong business fundamentals, has mostly been overlooked, is print based, and is very different from the Boston Globe or the Seattle Times or the Washington Post. It would help to think about these different slices of these ecosystems in a more granular way because there are real strengths and opportunities when you start to parse the differences.
What has the experience of this initial launch done for your outlook on local news?
It has reinforced for me the urgency of making sure that there are institutions to support these businesses for the long term. The class of community papers with which we’re working in Colorado serves ethnic, linguistic, racially [diverse] communities. These are critical civic assets. We’re seeing tons of political money being poured into quasi-local news sites—sites that would look to the unsuspecting eye like a local newsroom but are actually pumping out politically motivated material.
It is also incredibly difficult to build a digital brand in this environment, and the platforms with the biggest audiences, like Facebook, are so polluted. So when I hear from publishers in rural Kentucky and far northwestern Alaska who need help, I think we have to worry about preserving these civic assets, these tiny tentacles of community news and democracy. If we lose these resources, it’s going to take us generations to rebuild.
In 2003, reporters at the Denver-based Rocky Mountain News broke a story about fraudulent behavior at Qwest Communications, then one of the largest telecom companies in the country. The Rocky, as it was known by its 420,000 subscribers, covered mainly the Denver area, where Qwest was headquartered. Within a year of the reporting, the story had escalated to federal regulators, and Qwest agreed to pay $250 million to settle a SEC investigation into its accounting practices. Then, in 2009, two months shy of its 150th anniversary, the Rocky folded. It had received four Pulitzers for its coverage, which uncovered hundreds of cases of corruption and misuse of public funds, and countless ways in which public systems in the Denver area had failed to work as intended. New research by Jonas Heese, the Marvin Bower Associate Professor of Business Administration, tackles the question of what happens when there’s no one left to break the story.
Using a dataset of more than 10,000 facilities belonging to more than 1,000 publicly listed companies in the United States—a dataset that represents 80 percent of the Fortune 500—Heese found that corporate misconduct increased by 1.1 percent in towns where the local newspaper had closed up shop. (The magnitude of increase was greatest in communities that lost their one and only paper.) The nature of the violations also became more severe in the wake of the closures, evidenced by the fact that the penalties imposed by regulators rose 15 percent. The findings suggest that companies become more lenient when the penalty is merely a financial one (and a minor one, at that) and there’s none of the reputational risk that a breaking story in the local paper would create.
If that 1.1 percent figure sounds insignificant, Heese cautions that it’s definitely a lower-bound estimate: First, the count includes only the instances that have been documented by a regulator who visited a facility, detected a problem, then imposed a fine—the very tip of the misconduct iceberg. “Also keep in mind that the closure of one newspaper in our sample affects, on average, 40 facilities. If you aggregate the penalty effect across these 40 facilities, that’s a $1.2 million increase in penalties over three years,” he adds. It also doesn’t include private companies, which can also pollute rivers or mistreat their employees without being captured by this data.
For Heese, whose work focuses on the governance mechanisms that are most effective in reducing misconduct, this study raises larger questions: Once a community loses its paper, is there another way to keep a check on its commercial neighbors? In an era when anyone with a mobile phone can tweet their rage about a late flight or bad meal, it’s possible that social media could pick up some of the reputational costs that newspapers provide, he says. But those studies have yet to be done. “It could also simply be that’s not the case, and then it’s important to think about alternative strategies for local newspapers so they can continue to exist,” he observes.
What’s clear is that contacting the media remains a critical first step for many whistleblowers, and the local paper is a dissemination tool to get the attention of a regulator. “Even if the regulators don’t go after the company, the fact that the public learns about potential misconduct can have a very disciplining effect on companies,” Heese says.
“When the Local Newspaper Leaves Town: The Effects of Local Newspaper Closures on Corporate Misconduct,” by Jonas Heese, Gerardo Pérez Cavazos, and Caspar David Peter
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