Digital Start-ups: Great Local News Hope or Disappointment?

As many legacy news outlets struggle to survive, industry analysts are looking to digital start-ups as a promising way to revive coverage of local news. After all, digital-only means you don’t need massive presses or barrels of ink or fleets of trucks. The barriers to publication are low, so there’s great growth potential.

Right? Well, maybe not. At least not yet.

A recent update of the University of North Carolina’s “news deserts” research by Penny Abernathy showed that since the fall of 2018, more than 80 community-scale digital news sites have been started — and an equal number have closed.

Jed Williams, Chief Strategy Officer at Local Media Association, assesses it this way:

“You’re a digital startup. You have no legacy costs. You have no overhead. … But you also have no existing brand assets whatsoever, and building a brand from scratch is really hard.”

The Medill Local News Initiative talked to industry leaders and people who have created their own start-ups to get a sense of the potential of this segment of local news. The bottom line: launching a start-up isn’t as easy as it looks. But industry groups such as Local Independent Online News (LION) Publishers, the Institute for Nonprofit News, the Local Media Association and the American Journalism Project are working to make it easier. LION and the Google News Initiative just announced an eight-week start-up boot camp to begin in September. Perhaps the big era for start-ups hasn’t happened yet but is about to begin.

Sue Cross, Executive Director and CEO of the Institute for Nonprofit News

Sue Cross, Executive Director and CEO of the Institute for Nonprofit News, is bullish about the future of start-ups as awareness and momentum grow.

“The public is just really realizing what’s lost,” Cross said. “And it’s never easy to do a start-up and there’s a cultural change in helping the public understand that the news isn’t out there just free and it’s not just going to always be there, but that the community needs to support it in some way, or some combination of ways. That’s a big cultural shift and we’re very early into it. In most communities, the shrinkage is just down to a point where people are saying OK, we have to do something.”

In most communities, the shrinkage is just down to a point where people are saying OK, we have to do something.

Sue Cross, Executive Director and CEO, Institute for Nonprofit News

Among the advice from Williams, Cross and others for people thinking of launching a start-up:

  • Start with a year’s financial stake, but don’t raise so much money that it tempts you to grow too fast.
  • Worry about the business as much as the journalism.
  • Diversify your revenue sources. Beware of over-reliance on ads. Consider crowdfunding.
  • Learn your audience. When you think you’ve talked to enough people in your community, talk to some more.

“Digital start-ups will increasingly be critical players in local news, no question. But what we’re seeing now is that it’s really challenging,” said Tim Franklin, Senior Associate Dean at Northwestern University’s Medill School of Journalism, Media, Integrated Marketing Communications. “It’s true that local news start-ups aren’t stuck with the cost structures and debt of legacy organizations. But they also don’t have the brand equity and audiences of the legacy outlets, and they face many of the same economic headwinds in growing revenue as well as the same competitive pressures.”

But Franklin, who heads the Medill Local News Initiative, sees reasons for optimism.

“I think foundations and civic-minded investors increasingly see local start-ups as a pathway to strengthen decimated local news coverage,” he said. “And there are success stories around the country. I think the thriving digital-only operations share common traits – they have clearly defined audiences, they go deep instead of wide in their coverage, they have diversified revenue streams and they’re disciplined in their growth.”

Not the First Time Around the Block

A start-up that began with some advantages is Block Club Chicago, a nonprofit that launched in June 2018 with the aim of serving the city’s neighborhoods.

Block Club Chicago was built by veterans of DNAInfo Chicago, a for-profit site started by TD Ameritrade founder Joe Ricketts that was a journalistic success but not a financial one. DNAInfo shut down suddenly in November 2017.

“Not only did we close, we closed very publicly, so a lot of people knew our story already,” said Shamus Toomey, who came to DNAInfo as Managing Editor after serving as Assistant Managing Editor/Metro at the Chicago Sun-Times. Now he’s Editor-in-Chief and Co-Founder of Block Club Chicago, and he believes the credibility from DNAInfo was “hugely important” when it came time to launch the new digital-only site with Co-Founders Jen Sabella and Stephanie Lulay.

Block Club Chicago began with financial help from the now-defunct Civil media project as well as from a Kickstarter campaign.

“I always urge these sites to start with a crowdfunding campaign right off the bat,” Toomey said. “Do not announce your newsroom without a Kickstarter or a GoFundMe or something in place. … Harness that excitement at that moment, because that’s going to be the most excitement you’re going to have for a while. … Get a good Kickstarter campaign, for example, with a video explaining exactly what you’re going to do, why you’re going to be different, why it’s important.”

Do not announce your newsroom without a Kickstarter or a GoFundMe or something in place. … Harness that excitement at that moment, because that’s going to be the most excitement you’re going to have for a while.

Shamus Toomey, Editor-in-Chief and Co-Founder, Block Club Chicago

Don’t depend too much on advertising, says Toomey, who wondered whether some of the outlets that closed in the last year or two made that mistake.

“How many of the 80 that closed had been reliant on banner ads as a main revenue driver?” he said. “That to me is perhaps something that the digital start-up 10 years ago may have gone into, launched with that as a main revenue stream and perhaps seen it dry up or never come about.”

Block Club’s long-term strategy, on the other hand, is based on reader revenue. Some of its stories are “locked,” and non-subscribers can access five of those a month before they hit the paywall.

“We intentionally keep many stories unlocked, however, for the public good,” Toomey said. “Those stories include all of our coronavirus coverage, our breaking crime news, public safety stories, election stories and stories specifically about under-resourced neighborhoods, including the West Side and parts of the South Side.”

To Block Club, more subscribers mean more journalism.

From the start, Toomey said, “we sort of formed a theory that if we could get 10,000 people paying $59 a year, well, that’s almost $600,000 right there. What could we do with that? How many reporters could we get? How many editors could we get?”

Careful, steady advances are important, Toomey said.

“You can’t come out – unless you’ve got a billionaire – you can’t come out with a 20-person newsroom right off the bat,” he said. “You have to build it up slowly.”

Block Club had a staff of seven when it announced its Kickstarter campaign. “When we actually launched with our first stories, we had five reporters and three editors. We are now at 15 [total].”

The website also has received support from foundations, including Joyce and McCormick. And Toomey is pleasantly surprised by the loyalty of Block Club’s readers.

“I’ve worked in newspapers for 20 years,” Toomey said. “Hardly ever do you get people writing in to thank you for covering things. And we get a ton of that as well as, like, they send checks: ‘Here’s 50 bucks. I want to support you.’”

Alex Garcia
Shamus Toomey (left), Editor-in-Chief and Co-founder of Block Club Chicago, with Maple Walker Lloyd, Block Club’s Director of Development and Community Engagement.

Competing With Legacy Outlet

Another digital start-up worth watching is the Daily Memphian, which began in September 2018 with strong financial support but took on a daunting mission: compete with the legacy Memphis Commercial Appeal newspaper head-on with a broad local agenda, from news to sports to arts to business.

Jenna Braunstein
Ronnie Ramos, Executive Editor of the Daily Memphian. (December 2018 file photo)

“We cover everything,” said Ronnie Ramos, Executive Editor of the Memphian. “Most of the journalism start-ups in this country are focused on a specific area, whether it’s business or Chalkbeat with education, or Texas Tribune with politics and government, or ProPublica with investigations. There’s nobody that is really doing a full local news site. And so, that part of it really attracted me to it as a way to sort of try and figure out what the future of journalism is.”

Ramos came to the Memphian in January 2020 from Gannett’s Indianapolis Star, where he was Executive Editor. “The journalism is the same. Well, mostly the same,” Ramos said. “It’s been incredibly liberating not to worry about print.”

The Memphian is a nonprofit with subscriptions and a paywall. “Three free articles [a month] and then you have to buy a subscription. There is no discounting, so we’re not doing $1 for five months or $9 for the year that other sites have done. You can either pay $10.99 a month or $99 for a year. Those are your options. The result: We have very low churn, which is great.”

The Memphian launched with journalism credibility, but in a different way from Block Club Chicago: It raided the competition.

“They hired a trio of people from the beginning that were very well known and established in the community,” Ramos said.

“They took Geoff Calkins, who was a 20-plus-year veteran sports columnist at the CA, and hired him. They hired a food writer, Jennifer Biggs, who also has huge power in the community. And they hired Chris Herrington, who was sort of a pop culture person.”

It’s been incredibly liberating not to worry about print.

Ronnie Ramos, Executive Editor, Daily Memphian

The Memphian began with an impressive war chest, about $6.7 million in startup funds, but also was the target of criticism because it allowed donors to give money anonymously to the foundation that funds the operation, raising concerns that the news outlet could be subject to secret influence. Ramos said this policy was “a hindrance to getting funding from some of the traditional nonprofit funders” but insisted that he had a free hand editorially.

Ramos said the average engagement time on the Memphian site is a minute and 40 seconds, which he said is far longer than for most legacy news outlets.

“When people come, they stay,” Ramos said. “Our challenge is really a top-of-the-funnel challenge. We just need more people to know about us and visit us. Once they visit us, we get them.”

Growing Support System

While Block Club and the Daily Memphian started with advantages, some other entrepreneurs are less prepared when they plunge in. A host of organizations have stepped in to share best practices.

One effort is Project Oasis, run by LION Publishers; the Center for Innovation and Sustainability in Local Media at the University of North Carolina’s Hussman School of Journalism and Media; the Google News Initiative; and Douglas K. Smith, Co-Founder of the Poynter Institute’s news transformation program Table Stakes, part of the Knight-Lenfest Newsroom Initiative.

Project Oasis is “an effort to understand the digital news ecosystem with the idea that those that are successful have enough in common that we can learn from them what the way forward is for sustainable news businesses,” said LION Executive Director Chris Krewson.

The project has received completed surveys back from 250 digitally native news outlets in North America and is using that information to develop materials that will help would-be start-ups.

“One of the things we’re going to set up is called a ‘Starter Pack,’” Krewson said “And we’re just starting to identify what that’s going to look like, but it’s basically an index, if you were going to launch something, that shows you, ‘This is how you form a board of directors if you’re nonprofit.’ ‘This is the paperwork you have to file if you’re going to be an LLC.’ ‘This is how to make a business plan.’ ‘This is how to build your first budget.’ ‘This is how to pick an email provider.’ That kind of stuff.”

The Local Media Association, meanwhile, works “with an increasing number of digital start-ups,” said Jed Williams, the group’s Chief Strategy Officer.

“Our focus as an organization is reinventing business models for news,” he said. LMA and the Google News Initiative recently announced creation of the Center for Journalism Funding, a six-month program to explore philanthropic support for news. Fifteen news publishers will be selected to participate, including newspapers, broadcasters and digital news sites.

Jed Williams, Chief Strategy Officer, Local Media Association

The American Journalism Project, formed by Chalkbeat CEO Elizabeth Green and Texas Tribune founder John Thornton, provides financial support and guidance to select local news organizations. Among its grantees: Mississippi Today and VTDigger.

Sue Cross’ organization, INN, works with a wider group of news outlets – nonprofits, whether they are digital start-ups or not. But she thinks the rise in certain segments of INN’s membership is a good sign for start-ups. In June 2016, 30 local news outlets and 38 state news outlets were INN members. In May 2020, INN’s membership included 89 local outlets and 57 state outlets.

INN provides an environment in which nonprofits, including start-ups, can swap tips.

“These news organizations share with each other constantly,” Cross said. “Not just ‘Oh, we’re gathering at INN once a year.’ They are on our listserv every day. They share vendors, they share resources, they share their financials. … They share the innards of their businesses in a way that is really meaningful and helping them survive and grow.”

We get cold calls from business people. We get cold calls from a community foundation, from civic leaders, saying, you know, I’m just poking around the web, and we lost our news, and we’re trying to figure out what to do about it.

Sue Cross, Executive Director and CEO, Institute for Nonprofit News

Cross sees growing interest in start-ups by people outside the news industry.

“We have seen a huge uptick in calls from people in communities who are not journalists,” Cross said. “That didn’t happen until about two years ago. We never heard from people outside. We heard from journalists. …. Now we get cold calls. We get cold calls from business people. We get cold calls from a community foundation, from civic leaders, saying, you know, I’m just poking around the web, and we lost our news, and we’re trying to figure out what to do about it.”

When Start-ups Mean Business

Enthusiasm isn’t enough. Journalism isn’t enough. Start-ups need business sense.

“How many of the best editors that you know were also good business people?” asked LION’s Krewson.

“The business model never just figures itself out,” said LMA’s Williams. “It has to be actively cultivated and nurtured.”

Kelsey Ryan, whose Kansas City start-up The Beacon soft-launched in May, agreed: “You really have to approach it as a business and not just, ‘Well, I’m good at journalism so I get to do this thing.’”

Ryan, a former Kansas City Star reporter, said she avoids that trap by not writing stories at all and leaving that to the Beacon’s reporters. She cited advice she received: “Work on your business, not in your business.”

Rick Edmonds, media analyst at the Poynter Institute, said start-ups need to be sure to hire support staff.

“They’re started by journalists. Everyone’s sort of gung ho,” Edmonds said. “They grow a little bit and they want to hire another journalist, another journalist. That’s a real trap because the next phase, you need some capacity on the business side. … You’ve got to have somebody who’s out there developing advertising and sponsorships. You do need a business head in the publishing slot. You probably may need someone developing events. That was one of the big lessons. Both the MinnPost and the Texas Tribune are good examples of that. They did a diversifying-revenue-streams thing early on and put in strong people. [Start-ups also need] a tech and product person.”

They grow a little bit and they want to hire another journalist, another journalist. That’s a real trap because the next phase, you need some capacity on the business side.

Rick Edmonds, media analyst, Poynter Institute

Start-ups might want to beware of starting on a shoestring.

“We’re really lucky in that we have a full year of runway,” the Beacon’s Ryan said. “And that’s because I started fundraising at the end of 2018. … My No. 1 piece of advice is to figure out how you can start getting the money put away for at least a year for operating.”

But beware of too much money, says Jim Brady, whose Spirited Media operated and sold three digital start-ups: Billy Penn in Philadelphia, The Incline in Pittsburgh and Denverite in Denver.

“In some ways you could argue maybe a big pile of money is the worst thing that can happen to you,” Brady said, “because then you feel like you have to spend it all, and then you stretch yourself too thin. I don’t think it’s how much money you get at the start that dictates much. It’s how disciplined you are. … I do think a slow build is smart. But I don’t think you have to start with a big pile of money. You probably [should] start with enough to run it for a year, I’d say.”

And diversify, diversify, diversify.

“Ads are not a bad thing,” Williams said. “Ads and sponsorship when effectively done can still be … an important part of the business model. But just saying we’re going to launch a site and throw some ads up there and that will sustain our journalism … that’s a false promise. Because that’s not really thinking through how the advertising model can actually be effective and work for our business.”

Getting the customer to pay up, either with a subscription or a membership, is the No. 1 goal for many start-ups. While events have been lucrative for some news outlets such as the Texas Tribune, that revenue stream seems largely blocked by the pandemic. On the other hand, foundation support of local news seems to be on the upswing.

According to Edmonds, “there’s a lot more receptivity” by community foundations, which “back in the day said, naw, news is not for us.”

But Brady warned that foundation funding can cause start-ups to lose focus.

“Picking that narrow thing and being relentless about it is really important,” Brady said. “People do sometimes get too broadly focused. And that can happen with funding too. That’s what I mean by funding can be dangerous up front. You can go get a bunch of foundations to give you money to cover a subject area or this or that but then the problem is that sometimes you get stretched so thin that you can’t cover any of them all that well. So you got the money except you didn’t really deliver great quality in any of those areas because you just took too much disparate money to cover disparate things.”

Brady urges start-ups to focus tightly on their topic or target market.

“You have to find the geographic area you’re covering and the topic area you’re covering – one of them has to be pretty narrow for the other to be broad,” Brady said. “You have this axis where if you decide you want your geographic mission that you cover to be really big, you have to be very small with what it’s going to cover, and vice versa. If you want to cover a four-square-block area in Washington, D.C., you can cover everything going on there. So I think that’s a mistake people make too, is they don’t compromise on one of those two axes, and you end up trying to cover too much in too wide an area without enough people.”

The Beacon’s Ryan offered an example of aligning strategy with financial realities. She considered launching a start-up in her hometown of Wichita, Kansas, but concluded that “the vision I had probably didn’t align with what the market there could support. But Kansas City can.”

There is no substitute for knowing your market.

“Our first hire was actually ‘audience’ by design,” Ryan said, “because if you start writing but nobody’s there to read it, what’s the point? We wanted to make sure, for us, we spent several months just doing listening sessions, surveying people – and this is part of our Google News Initiative grant that funded this position – making sure what we were building was something that people would actually use in our community, because otherwise there’s no chance of it becoming a sustainable business.”

INN’s Cross said successful start-ups “form a broad board or advisory board, and really go out and find evangelists outside of journalism to help extend the evangelism and build broad support in the community. It might be wealthy philanthropists. It might be foundation people. In other places it’s just meeting [people] from a diversity of communities or whatever communities they’re going to serve.”

For example, the Beacon’s listening sessions gave clear input on audience desires, prompting Ryan to emphasize solutions journalism and decide against publishing opinion pieces. Also, Ryan said, “People told us here they wanted to see an anti-racist newsroom.”

Kelsey Ryan, Founder and Editor, The Beacon in Kansas City

I really hope we have more founders who come from diverse backgrounds. That is a major problem.

Kelsey Ryan, Founder and Editor, the Beacon in Kansas City

Nationwide, more start-ups run by and serving minorities are needed, said Ryan, who works for LION in addition to her Beacon role. “I really hope we have more founders who come from diverse backgrounds. That is a major problem. I think there’s got to be targeted investment there. … There’s just a lot of people out there who could do this, but they have situations and backgrounds that there are extra barriers.”

In the end, the success or failure of start-ups comes down to thousands of day-to-day decisions. Here’s Jim Brady with a reality check:

“A lot of them go bad because they’re run poorly. People are always looking for a reason why some start-ups make it and some don’t, and there are a lot of reasons. But the one that’s discussed the least is just: Did you run it well? It’s basic operations. Restaurants open and close all the time too. The reasons are all over the place. But one of them is frequently: Did you run it well? Did you project well? Did you make hard decisions when you had to make them?”

INN’s Cross and others are optimistic that digital start-ups are on a growth trajectory.

“As I’ve watched it grow,” she said, “I’m much more optimistic than I was just a few years ago.”

About the author

Mark Jacob

Editor

A former Metro Editor at the Chicago Tribune and Sunday Editor at the Chicago Sun-Times, Jacob is chronicling the Local News Initiative’s progress for the project’s website. He is the co-author of six books on history and photography.

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