— Philly Inquirer (@PhillyInquirer) January 12, 2016
“If newspapers are having trouble turning a profit without deep annual cuts, how about becoming a nonprofit?” That was the question posed just a few months ago by an article in NiemanLab, a news industry publication.
Late Monday night, in a stunning development for a struggling business, that’s pretty close to what the storied Philadelphia Inquirer and its sister publications, the Philadelphia Daily News and Philly.com, reported that they would become.
Philly.com reported that owner H.F. “Gerry” Lenfest donated the entire Philadelphia Media Network (PMN), which runs all three of the outlets, to the nonprofit Institute for Journalism in New Media, part of the Philadelphia Foundation. The institute will be headed by a board composed mostly of journalism school deans and academic and foundation executives and will “focus on supporting” PMN.
Though many have contemplated the decline of newspapers in the past decade, this was not a typical moment in the long, slow death of print. According to Philly.com, Lenfest’s deal differs from any “comparable ventures,” including the ownership structure of the Tampa Bay Times.
The Times is owned by the Poynter Institute, a journalism education nonprofit but is held as a for-profit taxable subsidiary. According to a recent Columbia Journalism Review article, that arrangement has not immunized it from the revenue declines experienced by other newspapers. Nonprofits still have to bring in money, a problem for Poynter, which has been reporting significant losses.
“This new structure offers no quick fix,” wrote Philly.com writer Jeff Gammage, “no imminent balm to the economic woes that confront legacy news companies. PMN remains a self-governing, for-profit company, needing ultimately to fail or succeed on its journalistic merits and financial performance. What’s different is the ownership above it, changed in a way that can ease the financial struggle.”
Just how that would happen was a little unclear. The article said the nonprofit institute could, but was not obligated to, approve funding requests from PMN.
Philadelphia is the fifth-largest city in the United States; the Inquirer, founded in 1829, is the third-oldest paper in the United States and the winner of 20 Pulitzer Prizes. The Daily News, founded in 1925, has won three. Philly.com offers content from both, as well as its own. All told, the three brands reach more than 8 million readers per month.
Yet the Inquirer and its fellow publications were threatened by what Philly.com described as a “desperate economic environment for many traditional news organizations.” The long, steep decline in revenue afflicted what was once a vibrant, thriving industry and produced major shifts in both operations and ownership — including the sale of The Washington Post, run by the Graham family for decades, to Amazon.com founder Jeffrey P. Bezos.
But while Bezos has found success in taking The Post private, Lenfest offered another solution. According to the late-breaking story on Philly.com, “the new alignment — while unique and untested — sets out mechanisms by which public-interest reporting can be preserved and enhanced while new electronic distribution methods are developed. To evolve in an increasingly online future, Lenfest said, the news company must meet readers where they choose to read — and find fresh ways for advertisers to engage that audience.”
Contrary to the term “nonprofit,” these organizations can indeed make profits, but to retain tax-exempt status, the money must go back into the organization rather than into someone’s pocket.
Rumors of some sort of transformation of Philadelphia’s news organizations have been around for some time, as the NiemanLab article noted. Lenfest, who got rich as a cable executive and has since donated billions to charity, was quoted in Philanthropy magazine last year saying: “I think eventually it would be wonderful if nonprofits would own newspapers. … Eventually I foresee foundations taking over newspapers.”
The structure sounds complicated — because it is. What it seems aimed at doing, according to the article and a separate explanatory piece accompanying the news, is finding some financial relief through a funding mechanism that avoids the tax man without having to go through the elaborate, prolonged and expensive process of seeking IRS approval to convert PMN itself into a nonprofit.
But the method was so complicated as to require a lengthy, lawyer-like explanatory story, much of which appeared designed to explain how it can simultaneously operate as nonprofit and for-profit:
In December, talks between PMN owner H.F. “Gerry” Lenfest and the foundation culminated in the creation of the institute. PMN was then converted from a limited liability company to what is known as a “public benefit corporation.” While that specific type of corporation still operates as a for-profit, it differs from a traditional corporation because it can also engage in activities that further a public benefit.
As a PBC, Philadelphia Media Network still must pay its own bills. But its directors can consider additional goals, with a main offered “benefit” being the value to society of an active news organization in the Philadelphia region.
Lenfest then donated PMN – and all of its marketable assets – to the institute. Basically, the Philadelphia Foundation’s special-asset fund owns the institute, and the institute owns PMN.
“By coming under the umbrella of the Philadelphia Foundation, the institute enjoys the benefits of being a tax-exempt organization without the need for lengthy IRS approval proceedings,” the piece read. If the enterprise makes a profit, “its directors must then decide what to do with the money. They can use it to fund the journalistic enterprise, or give part or all of it to the institute.”
How the move will in the long run affect readers, advertisers, employees and unions remains uncertain. Lenfest and other executives said it was a way to preserve quality news coverage in the region.
“Of all the things I’ve done,” Lenfest said, “this is the most important. Because of the journalism.”
Inquirer editor William K. Marimow, one of the most respected editors in the country and once fired by one of the Inquirer’s many owners before being rehired, called Lenfest’s move “an incredibly public-spirited act.”
“Gerry’s decision to go forward with this nonprofit reinforces my belief that his goal is to perpetuate the best traditions and practices of public-interest journalism for decades to come,” Marimow said.
The recent history of the Philadelphia Media Network has been nothing short of “brutal,” as Philadelphia Magazine put it in a 2014 piece called “The Long Fall of Philly Newspapers.” One problem: “revolving door ownership” — which since 200o involved Knight Ridder, McClatchy, PR executive Brian Tierney, a group of hedge-fund owners, insurance executive and New Jersey Democratic Party leader George Norcross, and Lenfest, not to mention a bankruptcy, numerous layoffs and plunging advertising revenue and circulation.
After a court battle, Lenfest and businessman Lewis Katz bought the publications in 2014 for $88 million. Days later, Katz died in a plane accident near Boston. Lenfest eventually bought Katz’s stake.
Said to be worth half-a-billion dollars, Lenfest, then 84, told Washington Post media writer Erik Wemple he was not in it “to make money” but to preserve an independent editorial voice for the region.
The institute, which will now run the organization has a “Board of Managers” appointed by Lenfest, Philly.com said, including:
- Sarah Bartlett, dean of the Graduate School of Journalism at the City University of New York.
- David Boardman, dean of the School of Media and Communication at Temple University.
- Steve Coll, dean of the Columbia Graduate School of Journalism and a former managing editor of The Washington Post.
- Michael X. Delli Carpini, dean of the Annenberg School for Communication at the University of Pennsylvania.
- David W. Haas, vice chairman of the Wyncote Foundation.
- Pedro Ramos, chief executive of the Philadelphia Foundation.
- Rosalind Remer, vice provost of the Center for Cultural Partnerships at Drexel University.
- David Schizer, dean emeritus and professor at Columbia University Law School.
- Leonard Tow, founder and chairman of the Tow Foundation.
CORRECTION: An earlier version of this post incorrectly said that the Inquirer has won 19 Pulitzer Prizes. The newspaper has won 20. The post has been updated.