In Philadelphia, A Bold Experiment In Sustainable Journalism

"People are starting to realize that serious journalism in big cities could actually go away," says Terry Egger, publisher and CEO of the Philadelphia Inquirer. "We need to find new ways to deliver news."

Five months ago, the 86-year-old billionaire owner of the Philadelphia Media Network (PMN) — which owns the Inquirer, the Philadelphia Daily News and Philly.com — donated the company to a new not-for-profit foundation. The owner, H. F. "Gerry" Lenfest, gave that foundation $20 million. He also changed PMN's corporate status from an LLC to a Public Benefit Corporation (PBC), which is chartered to create a social benefit while also generating profits for shareholders.

Philadelphia joins a growing list of cities where local news has become a civic cause. Several newspapers have recently been sold or given to foundations, according to a new report by Tim Griggs of the Knight Center and School of Journalism at the University of Texas. Many other papers are watching closely. The benefit corporation is a new tool for the news business, one among several that might come in handy as publishers search for kinder and gentler forms of ownership.

Newspapers are in desperate financial condition after decades of losing readers and advertisers to the Internet. The total weekday circulation of American newspapers declined by 29 percent between 1990 and 2014, according to the Pew Research Center, even as the U.S. population increased by 28 percent. Newsroom jobs decreased by 34 percent in that period, and the cuts keep coming. PMN laid off 40 more reporters last November.

With their backs to the wall, publishers are questioning basic business assumptions. But Griggs, whose study outlines alternative models of newspaper ownership, says it's too soon to tell whether Lenfest's bold move will give good journalism a secure home in Philadelphia.

"Nonprofit is not a business model," he writes. "No change in structure will guarantee journalistic or financial success. To survive, [newspapers] need to take a dramatic leap forward into the digital age and find a smoother road to economic sustainability."

Terry Egger, who came out of retirement last year to lead PMN, says he took the job to blaze a trail other papers could follow. "We are still an entrepreneurial for-profit corporation," he says. "The agreement requires us to cover our own operating expenses. But the foundation and the benefit corporation give us more flexibility. Now, if we get a grant to cover education for two years, we can use our advertising revenue to cover expenses elsewhere."

The Media Network has 10,000 shares. All but one is non-voting and held by the Institute for Journalism and New Media, the foundation Lenfest endowed, which is part of the Philadelphia Foundation. The voting share is owned by PMN, giving its board of directors power to run the newspaper independently.

PMN gets more editorial flexibility by committing to a public benefit, says Richard Fox, a shareholder at Buchanan Ingersoll and Rooney who was the lead attorney for the deal. "It's common for shareholders in an ordinary corporation to object when management makes decisions that reduce short-term profits," he says. "We don't anticipate that ever happening in this case, but if it did, the Media Network's directors would be able to point to language in their corporate charter that obligates them to work for the public interest."

Lenfest said that he hopes to increase the Institute's endowment to $100 million. Egger, a former publisher of the St. Louis Post Dispatch and Cleveland Plain Dealer, says that although an endowment will help, the real task is finding ways to deliver a public service that don't lose money. PMN's new status allows it to consider experiments that investor-owned companies would never attempt.

Collaboration is likely to be part of the answer. "There are thousands of student journalists in Philadelphia," Egger says. "They are part of a broader ecosystem of journalists that includes community newspapers and bloggers. We might not share our scoops with them, but we don't really compete with them, either. We'll work with them. We will be like a teaching hospital for journalists."

Griggs says that over 100 not-for-profit websites have sprung up in recent years to deliver local news. At least one seems like competition for the Inquirer. The Philadelphia Citizen launched last September and has grown steadily. "We're part of the conversation now," says executive director Larry Platt, a former editor of the Philadelphia Daily News.

The Knight Foundation is following the Inquirer experiment and others in Miami, Dallas and Minneapolis. Griggs' report is part of an effort for participating papers to share what they learn. "Gerry's gift has created a lot more than a platform for funding," Egger says. "He has also started a serious national conversation about the benefits full-service journalism brings to big cities."

Image credits: Flickr/Kevin Burkett