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A new for-profit/nonprofit hybrid could be newspaper lifeline

Robert Lang, CEO of the Mannweiller Foundation, is pushing a new business model he says could give ailing newspapers — and local reporting — a boost. The structure, still in its infancy, creates for-profit/nonprofit hybrids.

They are called L³Cs, or low-profit limited liability corporations. They have a for-profit structure, a variation on limited liability corporations. Yet their primary goal is doing a socially beneficial work, not maximizing profit. For L³C newspapers, that social good would include producing local news.

Lang, who created the concept, discussed it Tuesday at the New Economic Models for News conference at the University of Minnesota. Its application goes beyond newspapers, he said. “The L³C is an attempt to cure some of the problems in the nonprofit sector, and one of them is the lack of money.”

Eligible for foundation support
L³C organizations are eligible to receive foundation support. As for-profits, they can’t get grants, but they can get something called program related investment. These investments could be no- or low-interest loans or equity investments. The foundation money could take the highest risk position, and makes it easier for L³C organizations to get credit, Lang said. (For more on program related investments, go here.)

The L³C partners could be Newspaper Guild members, private investors, foundations and others. An operating agreement sets out partnership rules. For example, guild members might not have a lot of money to invest, but could still have a greater amount of control in the L³C, depending on how the deal is structured.

Vermont approved the L³C structure in April 2008. Other states are following, Lang said. (Once one state approves it, any organization in the country could use it. Many for-profit companies incorporate in Delaware then operate in other states).

The L³C website does not list any current L³C companies. Lang said a number are in progress. “We are working on a food processing plant in Montana, we are talking about housing projects in Detroit,” he said. “We are all over the map with this concept.”

The conference was a joint project of the Minnesota Journalism Center and The Newspaper Guild. The center will post video of the event within a week.

Nonprofit model
No one attending disputed the underlying premise that local newspapers are critical to the civic health of a community. Panelist Ted Venetoulis, CEO of Corridor Media Inc. and former Baltimore County Executive, is part of a private investment group that would like to buy the Baltimore Sun, return it to local ownership and turn it into a nonprofit. The Chicago-based Tribune Company owns the Sun.

U.S. Senate Bill 673 (carried by Sen. Benjamin Cardin of Maryland) would help their cause. It would allow newspapers to become nonprofit organizations, receiving tax-exempt advertising payments and tax-exempt donations, Venetoulis said. (Qualifying newspapers would have to contain news stories of interest to the general public and be “necessary or valuable in achieving an educational purpose,” the bill says.)

Drawing on a sports analogy, Venetoulis noted that Baltimore lost a football team and the government built a stadium to get it back. Baltimore was about to lose a baseball team, so government built it a stadium, too.

“We are about to lose the Preakness. What are we about to do? We are about to build a racetrack ….” he said. “Why can’t we generate that kind of enthusiasm for a newspaper? If it goes, what the hell is the town worth?”

Lang questioned whether the federal government would be willing to part with tax revenue to nonprofit newspapers. Further, the purely nonprofit model wouldn’t generate the money needed to support thousands of newspapers, given the decline in endowments and increases in community needs.

“Do you think there will be a rush to give those kinds of billions of dollars to the newspapers?” Lang said. “It’s not there. There are homeless shelters and food banks going broke.”

Journalists as artists
MinnPost CEO and Editor Joel Kramer also presented and was asked to predict how the local Internet-based news market would shake out. Would there be multiple nonprofit news organizations such as MinnPost seeking citizen support, or would one dominate?

Kramer said the likely scenario is multiple small players rather than one large player. Still, the sum of all news ventures would not hire and pay as many journalists as the area had in the past.

Philanthropy would play a key role in paying for investigative journalism, he said. While it was the “ultimate public good in journalism,” investigations take time and it’s tough to recover the costs.

For the journalists in attendance, Kramer gave a blunt assessment: The journalism world is heading in the direction of the arts world. “We have a thriving art community in America,” he said, “but most of the participants in it don’t make a living at it.”

New reports highlight funding woes
The Nonprofit Times reports that overall giving dropped 2 percent last year, or 5.7 percent down counting inflation. It’s the first drop since 1987.

The Minnesota Council of Nonprofits Current Conditions Report for the first quarter of 2009 said unemployment claims for nonprofit organizations were up 67 percent compared to the first quarter of 2008. It sent out a survey and received 571 responses. Among the findings:

• 54 percent nonprofits reduced their budget

• 27 percent eliminated full-time positions and 18 percent cut part-time positions.

• 34 percent reduced programs.

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