The Road Ahead for Media Hybrids: Report of the Duke Nonprofit Media Conference, May 4-5th James T. Hamilton The Duke Nonprofit Media Conference was sponsored by the DeWitt Wallace Center for Media and Democracy, the Duke Center for Strategic Philanthropy and Civil Society, and the Duke Center for the Study of Philanthropy and Voluntarism The Duke Nonprofit Media Conference on May 4-5, 2009 brought together a working group of nearly forty leaders from foundations, nonprofits, commercial media, and academia to examine two questions: What are the hurdles to nonprofit or foundation ownership of media outlets? What are the hurdles to nonprofit or foundation subsidies for the creation of public affairs information? The conference began with the premise that greater support from the nonprofit sector is one of many avenues to explore for ways to support watchdog and accountability coverage. The conference did not focus on the broader question of new business models for news organizations. Topics such as the desirability of micropayments, behavioral targeting in advertising, and variation in the print frequency and prices of newspapers were left for another day. To focus attention squarely on the questions arising with nonprofit media, the conference organizers solicited six discussion papers that were distributed prior to the conference: Bad Public Relations or Is This a Real Crisis? YES by Lauren Rich Fine Financing the American Newspaper in the Twenty-first Century by Richard Schmalbeck A Nonprofit Model for The New York Times? by Penelope Muse Abernathy Subsidizing the Watchdog: What Would it Cost to Support Investigative Journalism at a Large Metropolitan Daily Newspaper? by James T. Hamilton The First Draft: Emerging Models of Regional and State Non-Profit Investigative Journalism Centers by Brant Houston A Donor Collaborative to Support Not-for-Profit Public Affairs Journalism by Joel Kramer and Jon Sawyer The best way to understand the issues raised at the conference is first to read the discussion papers, which are presented in Appendix 1. After you’ve read the background papers, this report will give you a sense of what the conference participants focused on in discussions prompted by the papers. Appendix 2 provides a short description of the conference participants and the conference agenda. This report focuses on four themes that frequently appeared in the discussions: why is there a problem with sustaining watchdog or accounting ability coverage; why may the nonprofit sector offer one way to support this type of public affairs reporting; what is the range of nonprofit media alternatives; and how specifically can foundations, nonprofits, and government foster greater experimentation in nonprofit media provision. Three centers at Duke came together to sponsor this conference: the DeWitt Center for Media and Democracy (James Hamilton, Director); the Duke Center for Strategic Philanthropy and Civil Society (Ed Skloot, Director); and the Duke Center for the Study of Philanthropy and Voluntarism (Charles Clotfelter, Director). The Centers’ faculty and staff would like to thank the conference participants for sharing so many insights into the how the nonprofit sector may play a larger role in sustaining the watchdog function of journalism. What is the market failure? Most financial indicators in the journalism industry currently point in discouraging directions. Lauren Rich Fine, in her aptly titled paper Bad Public Relations or Is This a Real Crisis?: Yes , recounts the challenges facing newspaper companies: print circulation is declining, classified ads have migrated to websites such as Craigslist, and retail ads are diminished by the great recession, consolidation in retail stores, and ability of firms to reach customers through many other outlets beside the local paper. This drop in revenues has brought a precipitous drop in media company stock prices, profit rates, and newspaper staffing levels. Though profits remain relatively high in some smaller markets, these papers are less likely to have strong traditions of accountability and watchdog coverage. While many large metropolitan papers with traditions of investigative journalism are still profitable, the large amount of debt owed by parent companies who made ill-advised acquisitions means even profitable papers are cutting staff to pay off these debts. Conference participants often pointed out that attention to the products of newspaper firms was at an all-time high, because of free access to stories provided on the web. They noted that the crisis in journalism was essentially a crisis of business models, with the unanswered question being what will replace the once steady stream of classified and retail ads generated by print audiences. If newspapers were like goods sold in perfectly functioning competitive markets, changes wrought by technology and business cycles could simply be viewed as a painful process of creative destruction. Firings and closings would occur, but eventually the level of information valued by customers would be provided in new formats through new business models. By this reasoning, the public’s interest would define the public interest. Much of the discussion at the conference centered on the threats to watchdog coverage at the local level precisely because participants believed the market would not adequately sustain this type of journalism. The economic reasoning behind this worry is straightforward. Newspapers provide information that meets many different types of demands. As producers, people want information that helps them at their jobs. As consumers, they want to know what products offer the best value at what prices. As people in search of entertainment, they want to know stories and facts that are simply enjoyable to read and follow. The markets for these three types of demands—producer, consumer, and 2 entertainment – work fairly well. If you don’t seek out and consume the information, you don’t get the benefit. So most people will look to the media to find information that helps them do their jobs, buy products, and stay entertained. Coverage of the school board, city council, or state capitol serves a different information demand, that of a voter. A rational voter may realize that investing the time to read what’s going on in local or state government does not pay, in a strictly cost-benefit sense. If you’re about to buy a car, time on Edmunds.com can help you get a better car. If you’re thinking about casting a vote in a local election, however, the time you spend in learning about issues or candidates does not change the winner of the race. The low probability you will be the decisive voter means that the cost of becoming informed outweighs the benefits from becoming informed. Even if you care about an issue a great deal, the probability your political actions will make a difference in its resolution means the expected value of becoming informed is negative. Most people choose, in the words of economist Anthony Downs, to remain rationally ignorant about the details of politics. There is a market for political coverage. Some people believe they have a duty to vote, which translates into a duty to keep informed about politics. For some people CSPAN is like ESPN, with the details of policies being inherently interesting. Some people will pay attention to political coverage if you make it about human interest, e.g., politics as a horse race or a scandal. Yet even if you add these three demands for information together, this will not translate into the optimal demand for public affairs reporting. Many people who benefit from the changes in public policy that come from accountability coverage will still have the incentive to appreciate that the stories are there, but skip the chance to read or pay for these articles. This sets up a gap between what people need to know as citizens and what they want to know as readers. Newspapers cannot fully capture the value of the positive spillovers on society from their watchdog or accountability coverage. When individuals or families owned media companies, some were willing to provide more than the profit-maximizing amount of public affairs coverage. This gave them the warm glow of altruism and the satisfaction of providing a public good. Even within publicly traded stock companies, when profits were high managers could afford to do well and do good at the same time by indulging a preference for stories read by a few but valued by many because of their policy impacts. In the Internet era, however, the decline of profits means that media firms are less willing or able to subsidize the provision of news about government. Accountability journalism, in the form of watchdog beat reporting or investigative projects, can be highly expensive. In a world where a story’s value is measured by eyeballs attracted (and monetized through subscriptions or advertising), this type of public affairs coverage is at risk. While most conference participants expressed concern about the levels of watchdog coverage likely to survive in the currently turbulent media markets, the question quickly emerged about why nonprofits might offer a solution to this problem. 3 Why would nonprofit support help remedy the market failure involved in watchdog coverage? Economists call the positive spillovers which some goods have on society positive externalities. As the term implies, the benefits created are outside of the revenues that flow to the firm creating the good. Goods producing positive externalities will be underproduced because the firm cannot capture through the pricing system the full value of what it is creating. In some cases, the nonprofit organizational structure offers a way to increase the provision of the underprovided good. Watchdog coverage is a classic case of a product with positive externalities. A newspaper company can gain subscriptions and advertising revenues from selling the attention of people reading accountability stories. The benefits to society arising from changes in public policy, such as the increase in education levels or rise in public safety arising from stories about schools or probation systems, are not reflected in a paper’s bottom line.