Update: Texas Tribune CEO Evan Smith’s response to my recent post

My original post about The Texas Tribune is here.

UPDATE 2: Click HERE for an interesting white paper on non-profit/commercial news partnerships from the UC Berkeley Graduate School of Journalism.

UPDATE 1: Evan Smith, CEO of The Texas Tribune just returned my call. And he was angry. At the start of the call, he cited me as having factual errors in my reporting. (In reality, there was only one. Jay Root came to the Tribune directly from the AP, not the Fort Worth Star-Telegram, where he worked for many years, as I wrote.) As promised, I will give Smith his shot at a fair response right here:

Re: My accusation about a failure to disclose Texas A&M’s contributions to his organization in the recent New York Times piece, he said, “”I think we should have disclosed that A&M is an institutional donor to the Tribune.” He called the incident “a rare lapse.”

Smith then described a December 2010 story in the Times in which a Texas Tribune reporter, Emily Ramshaw, critiqued a Tribune donor, Christus Healthcare.

He said, “I wouldn’t be in the non-profit sector if I was in it for the money. I had a higher salary at Texas Monthly. The reason I raise the money has nothing to do with me, but everything to do with the the mission of this organization.”

Smith said that $315,000 is his actual salary, even though it may seem higher on financial reports, because of deferred payments.

He critiqued my notion that I should be watching over a watchdog by saying, “You’re allowed to have a point of view, but it ought to be based on something. Be a watchdog on the watchdogs. If that’s your place, God Bless.” By my own admission,  I have not done a full review of all of The Tribune’s articles to gauge whether or not they treat their donors preferentially. I simply found one recent incident and wrote about it.

However, I feel that someone must examine non-profit news organizations with the same scrutiny that for-profit news organizations are critiqued. Smith replied, “You haven’t done the work required to rip us a new one.” Admittedly, I worked on this post for a few hours, and I was unpaid for my work. Smith also said,  “There are plenty of places that go into strong stances on issues. We give you the tools to think about things yourself.”

He insisted, referring to donations, that, “None of this ever influences the work that we do. I pointed this out to Howard Kurtz in 2009: The money we got from advertisers at the for-profit publications where I previously worked is greater then what we get at The Tribune.”

Other Smith quotes from our conversation:

1. “If you provide us with the resources to do the work we do, we will get our work in as many places as possible. We will allow the individual corporate and foundations to support us, so that we can make that content available for free.”

2. “We want to help educate as many Texans as possible about the things that happen in the world.”

3. “The goal here is to provide as many news organizations as possible with great content.”

4. “The reason that you know about my salary is because we publish it. We overdisclose. We are not obligated to publish any of this stuff.” I disagree. As a non-profit, they must disclose the salaries of their five highest paid employees.

5. “We ask transparency of others so we do it ourselves.”

6. “My salary gives me a disincentive to ruffle feathers. We have written negatively about our donors. There are countless examples where they will yell at us.”

7. “It is enormously hard work. We take it very seriously. Most of us worked for for-profit media companies, but we believe the mission of The Tribune is more important.”

SXSW – Successful Journalism Startups: Global Lessons

Takeaways from Pekka Pekkala’s sustainable journalism business models talk:

Visit http://www.submojour.net/ for more info. This is a database of for-profit news sites that make money.

Top findings from case studies of profitable journalism startups:

1. This is not a new thing: The average age of money-making web sites is 6+ years (worldwide).

2. Advertising rules: 75%of people interviewed said they make more than 75% of their revenues from advertising. Most journalists sell the ads themselves. They sell weekly or monthly ads rather than CPM-based ads. Avoid Google AdSense.

3. Make money as a consultant. You can earn 3x as much money as you do as a journalist. But make sure you are an expert.

4. Host events.

5. Syndication.

6. Be frugal. WordPress is by far the most popular publishing platform — but learn basic tech skills.

7. Be entrepreneurial: Think about the money from day one.

8. People don’t pay for content…but they are happy to support a cause: This is true in the US, but perhaps not in other countries.

9. Find your niche. Based on geography, taste, interest, or point of view…

10. Pay your contributors: Free citizen journalism is the exception, not the norm. 1 out of 10 contributors stay more than a couple of months, and those people hardly ever write again. You invest so much time and money in training people.

11. It’s about community: It’s not about you. The people who create content have to be a part of the community. (The Patch.com turnover rate was so high that new editors were not able to form relationships with the people they covered.)

Part 1: The law that could save sustainable journalism will be destroyed unless the US Senate acts now!

I recently argued that upstarts like Matter that have made successful pitches on Kickstarter are not the solution to solve journalism’s long-term problems. Why? Because crowdfunding, in its current form, does not permit ordinary people to make investments. Rather, crowdfunders make donations, or in some cases loans. The outcomes are variable and generally unsustainable.

When David Cohn started the crowdsourced journalism non-profit Spot.us four years ago, it worked on a similar premise to Kiva, whereby donors received part or all of their money back if and when a crowd-funded story sold to a legacy media outlet. Cohn prevented any one person from influencing which stories were funded by limiting each donor to funding 20% of the total amount raised for each pitch. Of course this system is potentially flawed in that one donor can spread his/her money out to friends etc, but at least Cohn tried to implement a system of checks and balances.

We’re on the brink of a revolution that could lead to saving sustainable journalism and create many jobs

We may be on the brink of a journalism revolution. Currently, only accredited investors are able to invest in newly formed companies, which prevents Kickstarter, Spot.us, and any other crowdfunding site from raising capital for startup companies and entrepreneurial journalism ventures.

Forbes reports:

Under current federal and state securities laws, startups are prohibited from selling stock or other securities via crowdfunding sites or social networking sites. Such laws include:

  • A prohibition against “general solicitation” – which means that a company may not offer or sell securities unless there is a substantive, pre-existing relationship between the company (or a person acting on its behalf) and the prospective investor (see “Can I Raise Money For My Startup Via Twitter?” );
  • Disclosure and state law compliance requirements if the investors are not “accredited investors” — which usually makes the offering of securities too costly and onerous for a startup (see “Ask the Attorney – Securities Laws”);
  • A requirement that any intermediaries (including websites) must be registered with the SEC and applicable state securities commissions as a “broker-dealer” in order to legally accept any transaction-based compensation in connection with the sale of securities (see “Ask the Attorney – Beware of Finders”); and
  • A requirement that any company that has 500 or more shareholders and total assets exceeding $10 million must register with the SEC and file periodic reports.

These laws were designed with good intentions: Nobody wants to see Mom and Pop lose their hard-earned money to a snake oil salesman. But in today’s crowdfunded world, they no longer make sense. When tech-savvy Americans realized this, they sought action.

In the United States Congress, Rep. Patrick McHenry (R-NC) (who made some excellent contributions to 2010 Census oversight, which I know from my time spent running MyTwoCensus.com), introduced crowdfunding legislation that was one of the most popular bipartisan initiatives in recent history, garnering support from Democrats all the way up to President Obama himself. McHenry’s bill, the Entrepreneur Access to Capital Act,  H.R. 2930 (full version here), passed 407 to 17.

This makes total sense. Republicans generally don’t believe that the government should be able to tell people how to spend their money. After all, anyone can gamble or booze away all of their savings, can’t they? And Democrats don’t see why accredited investors who are members of the “top 1%” should be the only folks permitted to invest in startups, thus preventing the upward mobility of the masses.

Specifically, the highlights of H.R. 2930 are as follows:

– Create a crowdfunding exemption from SEC regulations for firms raising up to $2 million, with individual investments limited to $10,000 or 10 percent of an investor’s annual income.

– Excludes crowdfunding investors from counting as shareholders for purposes of calculating the 499-shareholder cap under 12(g) of the Securities Exchange Act

– Preempt state law and exempts the ban on general solicitation for the new crowdfunding exemption.

Now, as always seems to be the case as of late with the American government, just when we’re on the brink of something great, the millionaire’s club also known as the United States Senate has failed to move forward with this legislation, thus preventing it from making its way to President Obama’s desk to become a law.

Despite Senate Republican Scott Brown of Massachusetts championing similar legislation to the resolution that the House of Representatives passed, lobbying groups like the NASAA (North American Securities Administrators Association, “the oldest international organization devoted to investor protection”) have wielded their influence over the 100 people who control the fates of the other 300+ million.

What needs to happen now is simple: An online campaign of the magnitude of the SOPA/PIPA protest variety must be enacted to create swift and effective action to boost America’s economy by causing the US Senate to pass comprehensive crowdfunding legislation. Sites like crowdfundinglaw.com and startupexemption.com have already been set up to explain this law and advocate its passage. And using a Wefunder.com petition, more than $6 million has already been pledged to support investment in new ventures if this legislation is passed.

But will Google, Craigslist, Wikipedia, and all of the other organizations that led the charge against SOPA and PIPA step in to assist with this one?

As someone who is not interested in the “rewards” that Kickstarter campaigns promise their donors, but rather direct return on investment in monetary form, I and other like-minded people would be happy to invest in startups despite our lack of accredited investor status. I don’t gamble in casinos, but I’d be happy to gamble on good ideas and innovation.

Coming soon: Direct effects of crowdfunding legislation on new journalism business models…

Future of crowdsourced fundraising? Dispersed!

Like everyone else, I have been amazed by how Kickstarter has been able to fund business, arts, and journalism projects. But I don’t give money to Kickstarter projects. Yes, new projects are cool, but what I’m looking for is return on investment.

On Kickstarter, unless you are funding a cool new tech product that will later retail for a higher price (so the creators’ claim), you will only be rewarded with a measly little cupcake (metaphorically). Do I really want a $5 cupcake mailed to me at some random point next year? No, I don’t. Other people who are mindful of their money don’t care for such gimmicks either.

I am interested in using crowdfunding for other media purposes. However, I want funders to have equity stakes in the projects they fund (which is possibly in Germany as evidenced by my friend Lars’ project…check out the 2000 Euro+ levels here).

As crowdfunding sites proliferate, the costs of building and developing them will go down rapidly, which is demonstrated by the fact that you can now find cloned Kickstarter source code free on the Internet or pay some guys — probably in India — less than $1,000 to build, modify, and maintain a clone site for you.

What stands in the way of equity investments in crowdsourced products? The US government’s accredited investor law. More on that soon…