Editors note: This article was originally published on Entrepreneurial Journalism, created by James Breiner. You can sign up for his newsletter here.

A common stuggle for digital news startups is that they depend on grants to fund operations or to fund special projects chosen by the donor organization.

So they suffer the uncertainty of whether they can pay their staff and continue providing trustworthy news and information. Grants usually last for a few years at most and must be renewed. So a news organization that goes on a hiring spree with donor money might have to do a painful downsizing if a donor pulls the plug.

Another ailment caused by grants is “mission creep”, in which a news startup undertakes special investigations chosen by donors that might stretch their resources and not align with their core mission. These publishers have to run faster and faster only to see their primary goal fade in the distance.

The $300 million club: Google, Facebook, and . . .

Lately, the two biggest disruptors of quality journalism, Google and Facebook, have helped digital startups with big grants. The tech giants have encouraged the launch of startups to fill gaps in news coverage left by legacy media that have cut staff or closed down. But how long will their support last? What can replace it?

Google committed $300 million over three years “to build a stronger future for news”. It has provided various types of technical support, tools, and training through its Google News Initiative.

Facebook followed up with its own announcement that it, too, would invest $300 million over three years, mainly to support local news. (Was it a coincidence that Facebook chose to use the exact same figure as Google?) The social network giant then announced a program called Facebook News in the US, UK, and Germany in which it committed to pay publishers to post their news on its platform.

These investments, by the way, represent pocket change for the tech giants — the annual commitments represent less than one-tenth of 1 percent of their ad revenues in 2020–US$ 84 billion for Facebook and US$ 147 billion for Google.

The million-dollar question is whether it was also a coincidence that the John S. and James L. Knight Foundation, the major US funder of public-service journalism, later chose to announce that it would invest $300 million over five years to build “the future of local news and information, which are essential for democracy to function”. Why choose the same $300 million figure? Was this nonprofit hinting that the tech giants should do more?

Creating value for users

How to escape the grant-funding trap? SembraMedia’s study of 201 digital news startups in Latin America, Africa, and Southeast Asia suggests one way. The study found that those with a paid sales or business development person had six times the revenue of those that did not (graphic below).

Beyond that one remarkable data point, there is no single formula for creating a viable business model for trustworthy public-service journalism. But there are tactics and strategies that can be emulated.

The International Press Institute’s “The Local Media Survival Guide 2022” includes 21 case studies that show specific actions taken to solve the funding problem in Asia, Africa, Latin America, the Middle East, and Eastern Europe. Lead researcher and author Jacqui Park prepared this report based on in-depth discussions with three dozen journalists, editors, media leaders, and entrepreneurs from legacy media and new local startups.

Dr. Anne Schulz analyzed the funding challenges of media in 38 countries and came up with some recommendations in her report “Local news unbundled: where audience value still lies” for the Reuters Institute’s Digital News Report 2021. Among her conclusions is that each local market’s dynamics are so distinct that solutions will be different for each. The differences begin with the local news topics that matter most in each market and include which consumptions channels are considered most trustworthy, from print, to broadcast, to social networks, to search results.

In the same Reuters Report, Dr. Richard Fletcher and Prof. Rasmus Kleis Nielsen examined the question “How do people think about the financing of the commercial news media?” Specifically, at least 2000 media consumers in each of 33 countries were asked, “How concerned are you, if at all, about the financial state of commercial news organisations in your country?” The answer, across all markets, was that 53% said that they are either ‘not at all concerned’ or ‘not very concerned’.

Conclusion

Given that most people aren’t concerned about the financial viability of the news media, we professional communicators have to admit we have not made a case for why ordinary citizens should be willing to pay for news. In 20 countries, only 17% have paid for any online news in the last year, according to the Reuters report.

The covid-19 pandemic did increase people’s awareness around the world of the importance of trustworthy news sources. But we have to do a better job of showing the value (see my Journalists discover marketing (finally).

And I still believe that local journalism offers an alternative to the algorithm-driven distraction industry of cable TV, social media, and optimized search (see my Local news startups: digital entrepreneurs and philanthropists are collaborating to replace lost coverage).

What this means is that grants will continue to be part of the financing solution for many local media. Because of that, many will fail or stumble along. But others will manage to find enough other support from subscriptions, memberships, events, consulting, and other sources to grow and thrive.

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