The Challenges and Opportunities That Remain

Our sense of community and our trust in democracy at all levels suffer when journalism is lost or diminished. In an age of fake news and divisive national politics, the fate of communities across the country, and of grassroots democracy itself, is linked – more than ever – to the vitality of local journalism. Local newspapers have historically been a “tie that binds” people in a community. Through the stories they publish, local newspapers help us “understand how we are related to people we may not know we are related to.” They also educate us, providing us with information to guide important decisions that will affect the quality of our own lives, as well as those of future generations. An entire community – even nonvoters – benefits when voters make informed decisions about local candidates and policies.1

Given the tenuous financial situation confronting local newspapers today, many will not survive. The stakes are high, not just for the communities that have lost newspapers — or are living with the threat of losing a local newspaper – but also for the entire country. It will take a concerted and coordinated effort among numerous interested parties – concerned citizens, community activists, philanthropists, universities, classroom educators, policy makers, journalists and various industry groups – to address the business and journalistic challenges that must still be surmounted if we are to have a robust news ecosystem.

While the business model that sustained local journalism for two centuries has been demolished in less than two decades, many entrepreneurs are experimenting with for-profit and nonprofit ventures in hopes of filling the void when a local newspaper closes or reviving the fortunes of a struggling organization. In cities, hundreds of digital sites, public access channels and regional television stations are trying to reach and engage new audiences on new platforms. In small and mid-sized markets, entrepreneurs with extensive media experience, such as the CEOs of AIM and Adams Publishing, are seizing the opportunity to purchase family-owned newspapers at record low prices and build privately owned regional chains that are different – in cost structure, vision and mission – from their 20th century publicly traded predecessors, such as Gannett and the Tribune Co. Other publishers of independent, family-owned papers in small and mid-sized markets – such as The Pilot in Southern Pines or the Suffolk County weekly papers in Long Island – are choosing to double down on their investment in their own communities, even as they experiment with new business models to accommodate the preferences of readers and advertisers in the digital age.

Recent research has identified five lessons that are relevant to any local news organization hoping to survive and thrive in the digital age. Local news organizations that are successfully adapting:2

  • Invest in their human capital – their journalists and sales departments. Human capital is what sets them apart and makes them relevant to residents and businesses in their community.
  • Tie their strategy and business model to the specific needs of the communities they serve. This means that, instead of one business model that works for most news organizations, as has historically been the case, there will be many.
  • Diversify their sources of revenue, moving away from print advertising. However, in most small and mid-sized markets, the majority of revenue will most likely come from advertisers and sponsors. Since advertisers follow audiences, news organizations need to follow the technology and follow their customers if they are going to follow the money. Therefore, successful news organizations build services and products that will attract dollars from local advertisers and engage local residents on a variety of platforms and venues.
  • Know when to compete, and when to collaborate, on both journalistic and business ventures. Partnerships may ultimately determine the ability of independent and nonprofit organizations to survive, since they are stronger together.
  • Have a strategy in place for transforming at least a third of their business model every five years. Their leaders establish five-year financial goals (for costs, revenue and profitability), and then identify and prioritize initiatives most likely to lead to long-term profitability and sustainability, even if that means lower profit today.

For the most part, local news outlets that have pursued strategies based on the specific needs of their communities have begun to reap the fruits of their investments. The leaders of these news organizations possess both journalistic civic responsibility, as well as the business savvy to discard old business models, even as they are experimenting with and creating new ones.

But there are many forces that remain beyond the control of individual publishers, news directors, editors and founders of local news organizations – especially those in communities that are struggling economically. If we are to thwart the rise of news deserts, interested parties – especially community activists, politicians, universities, philanthropic organizations and government agencies – will need to coordinate and collaborate around these three major initiatives:

Increased public and nonprofit funding for journalistic organizations located in communities at risk of becoming news deserts: Economists call public service journalism a “public good” because the information conveyed through news stories helps guide decision-making at all levels of our society.3

Theoretically, at least, informed citizens and public officials craft better policies that benefit the entire community. In the 20th century, print newspaper advertising, which often accounted for 80 percent or more of revenue, essentially underwrote the journalism in most communities. Now that print advertising has evaporated, we have what economists call a “market failure,” especially in low-income, isolated communities. There is simply not enough digital or print revenue in some rural communities or struggling inner-city neighborhoods and suburbs to pay for public service journalism.

Therefore, some scholars are arguing that instead of being considered a “public good,” journalism should be considered a “merit good,” a product or service that should be provided free of charge by the government, regardless of an individual’s ability to pay. This suggests the need for more federal government funding of public media, such as NPR and PBS, as well as a renewed commitment by those national broadcasting networks to cover communities in danger of becoming news deserts. Such funding, paid for by tax dollars, can also come from both state and local governments. In 2018, the New Jersey state legislature, for example, set aside $5 million for a Civic Information Consortium that would award grants to news organizations that cover neglected communities. Similarly, some of the public access cable channels (PEGs) receive support from their local municipalities that allows them to broadcast or stream governmental meetings.4

Lacking government support, the responsibility for filling the journalistic void when a newspaper dies invariably falls to various philanthropic organizations and community foundations. The small amount of philanthropic funding supporting journalistic endeavors in recent years does not begin to replace the billions of print dollars that have evaporated. Even worse, only 5 percent of the $1.8 billion distributed by 6,500 philanthropic foundations between 2010 and 2015 went to state and local news organizations. As a result, there are very few nonprofit organizations covering the concerns of economically struggling “flyover regions” of the country. Since there is little coordination among the various foundations and philanthropic organizations funding journalistic endeavors, a preponderance goes to nonprofit news organizations located in major metro areas that cover national or international issues.5

Therefore, there is a compelling need for philanthropic foundations, community activists, local government, concerned citizens and potential founders of nonprofit news organizations to work together from the beginning to identify communities most lacking coverage and the funding needed to sustain a start-up news organization in those communities. Additionally, existing nonprofit organizations that are currently receiving the majority of philanthropic funding need to be charged with doing more to collaborate with both for-profit and nonprofit news organizations in the often ignored flyover regions.

Rethinking policies and programs that will reinvigorate the for-profit journalism model. While philanthropic and governmental funding can be effective in targeted situations, long-term the country needs to develop for-profit models, in order to ensure a robust news environment, as well as the social and economic health of the thousands of small and mid-sized communities where they are located. For-profit newspapers have historically played an important role in encouraging local and regional economic development, as the advertisements in their pages have brought consumers and local businesses together. In return, local business paid for the ads that supported the news-gathering operation. Structural changes have altered that symbiotic relationship, and newspapers now find the business odds stacked against them as they attempt to move from a print business model to a digital one.

In even the smallest markets, Facebook and Google now receive as much as 75 percent of all digital advertising dollars.6 This leaves every news organization in a community – legacy and start-up – fighting over the remaining 25 percent, a zero-sum game. Whatever portion a news outlet manages to eke out, it is not enough to sustain local public service journalism over the long term. Media scholars and industry professionals are expressing growing alarm that Facebook’s and Google’s dominance is preventing newspapers from successfully transitioning from print to a profitable digital business model. The News Media Alliance, a national association of 2,000 news outlets, is lobbying for a change to antitrust laws that would allow newspapers to collectively bargain with tech and social media giants for stronger intellectual property protections and a bigger share of revenue. A growing number of scholars are proposing that these digital giants be held to the same standards as news organizations, subject to libel and privacy laws. Rupert Murdoch has proposed that Facebook and Google pay news organizations for the journalism on their platforms.7

In the wake of their slip-ups during the 2016 election – and their slow response acknowledging the problems – both Google and Facebook are also facing increased scrutiny here and abroad from Congress and various regulatory agencies, and calls in some quarters for these giants to be regulated as “public utilities.” Given the attitude of the current administration, it is unlikely that there will be a dramatic rethinking of antitrust laws and FCC regulations in the coming months. But, even if some of these policy proposals are enacted, they likely would not make a significant difference in the long-term financial health of newspapers in small and mid-sized markets. Unlike the large national and metro papers, small-market newspapers simply do not have the reach and scale to reap much financially from an ad “revenue-sharing” arrangement or a pay-for-use of news articles.

Google and Facebook recorded earnings before interest and taxes of $26 billion and $16 billion, respectively, in 2017. Their executives continue to insist they are a “platform” or “technology company” – not a “media company.” But, as a consequence of their companies’ role in disseminating fake news, there is a growing realization – among the public, the business community and politicians – that the fate of these “tech companies” is tied in many ways to the sustainability of news organizations in thousands of communities around the country. So far, the two tech companies have only set aside a small fraction of their profits to experiment with new business models for news organizations. Much more of a financial commitment is needed from the digital giants.8

Additionally, it is imperative that industry organizations, universities, government agencies, newspaper owners, elected officials and community activists redouble efforts to find new and creative ways for local news organizations to thrive financially in the digital age – especially those in small and mid-sized markets. At the 2018 annual shareholder meeting of Berkshire Hathaway, Warren Buffett admitted that his company’s recent investment in a chain of newspapers in mid-sized communities in the South and Midwest had fallen short of expectations. He predicted a grim future for all but a handful of the country’s largest newspapers, such as The New York Times, which has successfully looked to its subscribers to pay more and replace a significant portion of lost advertising revenue. If newspapers in the digital age must rely primarily on subscriber revenue to fund their newsrooms, however, very shortly, only the largest and most affluent communities in the country will have for-profit news organizations.

Encouraging a renewed emphasis on civic and media literacy. For our democracy to function at all levels, we need to be able to easily access reliable news and information. We then need to know what we can do to act on that information. Testifying before the Knight Commission on Trust, Media and Democracy, Michael Cormack Jr., CEO of the nonprofit Barksdale Reading Institute in Mississippi, asserted that democracy is hampered when a large percentage of our population is not “fully” literate. Being literate, he argued, is about more than simply comprehending the meaning of words; it is about the ability to analyze arguments and identify what is supported by facts9

The run-up to the 2016 election taught us how quickly false and fake news can spread in the digital era – and that there was little recourse for correcting misinformation. The McCormick Foundation, among others, has noted that “a growing sector of the U.S. population” does not distinguish between news sources and that “the 24/7 news cycles and digital advances” compound the problem. There has been renewed interest in educating high school and college students on the importance of media literacy. Others in the industry are advocating for expansion of those programs to reach adults, especially those in at-risk communities such as Flint, Michigan, where the founder of the nonprofit news site Flint Beat has struggled to engage the residents in a community still reeling from a host of issues resulting from the pollution of its water system.

News deserts arise not only when local journalistic organizations fail financially, but also when residents in a community do not know how to access and use the information that a news outlet provides. Researchers have noted a strong correlation between news deserts and food deserts, as well as low voter turnout in economically struggling communities. “If you haven’t seen an article about a school board’s deliberation over a bond issue, ever, why do you need to know that’s something worth reading, or even caring about?” asks Matt DeRienzo, executive director of the Local Independent Online News association10

Historically, strong local newspapers have informed communities about important issues and built social identity, which, in turn, encourages political activism. That is why community organizations (such as libraries and civic clubs), local government agencies and elected officials, news organizations and educators from early childhood through college need to work together to foster civic and media literacy programs that stress the important relationship between strong local journalism and a healthy community.

The fates of communities and local news organizations are intrinsically linked — socially, politically and economically. Trust and credibility suffer when local news media are lost or diminished. We need to make sure that whatever replaces the 20th century version of local newspapers serves the same community-building functions. If we can figure out how to craft and implement sustainable news business models in our smallest, poorest markets, we can then empower journalistic entrepreneurs to revive and restore trust in media from the grassroots level up, in whatever form – print, broadcast or digital.11

Senior Researcher/Writer Erinn Whitaker and Research Assistant Alex Dixon compiled data and provided much of the analysis in this report.  Both are staff researchers with the Center for Innovation and Sustainability in Local Media in the School of Media and Journalism at the University of North Carolina at Chapel Hill.


Next: The Enduring Legacy of Our New Media Barons