An L3C Newsroom What’s that?

A presentation by Sally Duros

Steve Yelvington

• “The truth is that journalism has never had a business model of its own. It’s always been a useful component of some other business model.”

• Before the middle of the 19th century, journalism in America was primarily subsidized by political parties.

I Say .....• Happy Birthday, Journalism!

• Born as a social enterprise, or L3C.

• Journalism was a tasty morsel of Democracy hidden inside the wrapping of newspaper ads.

• No More — It’s growing up!

The Old Way

• Main Assumption: News is a byproduct of something more important — Profit.

The Old Way• News orgs are source of high

return, 5% or more.

• To meet this return, management extracts value from newsroom by cutting costs. Costs = newsroom staff

• Fewer staff means less local coverage, fewer readers.

• Readers fled newspapers

Old Way = Vicious Circle• Readers flee. Fewer ads.

• Management needs profit to make shareholders happy.

• Management cuts costs, i.e. newsroom. More wire, PR stuff in newspaper. Yuck!

• Less local coverage, making folks angry.

• Readers flee. Fewer ads.

Vicious Circle + Internet

•Bloody!!!• Zombie newsrooms.

• Displaced journalists everywhere

• Confounding variables aplenty

There’s Hope!

• Main assumption: Newsrooms are the soul and conscience of a community and the nation, p.s. and they are the only business specifically recognized by the US Constitution. The information they provide is vital to the proper function of a democracy.

The New Way

• Management has greater commitment to social benefit of news, not high profit

• A self-sustaining profit is enough, with a modest return of between 0 and 5%

• Retaining staff, enabling strong local reporting is most important.

How can this be?

•Enter the L3C, or Low Profit Limited Liability Company.

• The For Profit with The Nonprofit Soul

• The L3C is a new business form for a social enterprise

• The primary aim of a social enterprise is to generate profit to further social goals.

About the L3C• An L3C is a variant of the LLC, or

limited liability company.

• In an L3C, the first investment and the highest risk is taken by a foundation.

• This investment is known as a PRI.

• The L3C is governed by an operating agreement that guarantees the charitable nature of the enterprise.

The New Way

• The L3C is a form of social enterprise. There are others emerging including Benefit Corps and B-Corps.

• These new forms of business arise from an emerging worldview....

• That worldview is one of Shared Value.

Shared Value• Current economy = massive

disruption!

• Companies have been trapped in an outdated approach to value creation.

• The solution is to create economic value in a way that also creates value for society.

• Businesses must reconnect company success with social progress.

L3C vs. Non-profit• Advantages of L3C

• It is designed to be self-sustaining while NPOs are designed to be charitable. What’s the difference?

• Is attractive to smaller community foundations, while still allowing access to for-profit investors

The non-profit newsroom

• “The NPO model will not sustain journalism on its own.” Joel Kramer, MinnPost

• Minnpost is sustaining revenue because it is in a niche.

• The reader has to pay, albeit voluntarily.

L3C vs. Non-profit

• What’s the problem with being a non-profit? Where do I begin...!

• Writing grants and chasing after money can become all consuming for a non-profit.

• Political reporting is problematic and election endorsements are not allowed.

L3C vs. Non-profit• As a business, the L3C is designed to

be self-sustaining – its product will include systemic change, the return desired by a foundation.

• A foundation provides the seed capital.

• This seed capital attracts socially motivated investors.

• The L3C newsroom and the community create a self-sustaining virtuous circle

L3C Newsrooms

• “We are looking at long-term ownership that puts journalism first,” said Jennifer Towery, President of the Peoria Newspaper Guild and also Neighbors Editor for the Peoria Journal Star, who had sought to start an L3C.

L3C Newsrooms

•“It’s about journalism,” Jennifer Towery, Peoria Newspaper Guild and Peoria Journal Star.

L3C Newsrooms• What does the L3C Newsroom

look like?

• Editors, reporters, curators who all know the news come first

• Management who understands the primary mission of reporting the news

• Revenue from ads, subscriptions, syndication, every possible source

L3C NewsroomsThe L3C Newsroom operating

agreement – view a sample

• Equity or first risk tranche foundations that make program-related investments 

• Mezzanine tranches include employees, local businesses, merchants, banks and large local employers.

• Senior tranche includes foundation mission related investments

Challenges for L3Cs?• A new business model that is being

tested.

• Newsrooms are slow adopters.

• Foundations are slow adopters.

• Federal legislation to streamline the L3C/PRI process has been drafted by Americans for Community Development to appease the legal industry that has historically profited from PRIs.

L3C Blue Sky• What if one L3C could fix two vicious

circles created by legacy news and be reborn as something totally new?

• Vcircle1: Disconnect between investors and newsroom.

• Vcircle2: Disconnect between the newsroom and the public.

• Rebirth: The systemic fix to community development desired by foundations!

Economic Models

• University of Minnesota School of Journalism event on Economic Models for News

• FTC Hearings on the Future of News. From Town Criers to Bloggers. How will Journalism Survive the Internet Age?

• See an operating agreement, read more, search on L3C at www.sallyduros.com

Learn more • The News Frontier Database at

the Columbia Journalism Review

• The Death and Life of American Journalism, Robert W. McChesney and John Nichols.

• Newsonomics by Ken Doctor

• Nieman Lab on the Chicago News Coop proposed

L3Cs - Learn More

• Americans for Community Development.

• Follow @L3CFounders on twitter.

• @L3CFounders on Facebook

Learn About Shared Value

• The Big Idea: Creating Shared Value by Michael E. Porter and Mark R. Kramer in January’s Harvard Business Review.

Learn about PRIs

• Pri-Makers.net

This network of 100-plus foundations focuses primarily on educating foundation colleagues about taking an investment vs a charitable approach to meeting their charitable missions.

Learn: social enterprise

• Ashoka

• Social Enterprise Alliance

• Net Impact

More Readings• Natural Capitalism — Paul

Hawken., Amory Lovins, L. Hunter Lovins

• Deep Economy, Bill McKibben

• Slow Money, Woody Tasch

• After Capitalism, David Schweikert: A theory of economic Democracy

Sally Duros

• Digital Strategist, Fundraiser and Business writer reporting on future of news, start-ups, VCs and angels.

• www.sallyduros.com,sally@sduros.com

• Twitter: @SaDuros, Huffington Post

• Americans for Community Development, Media Working Group.