Coop

Thoughts on a Co-op Business Model

By Tom Stites

Director, Banyan Project, and Consulting Editor, Center for Public Integrity

The big challenges in the search for models to “support investigative journalism and international reporting in the age of digital media” – 1) getting the reporting done, 2) paying for it, and 3) getting it distributed to a broad audience – are deeply interrelated and thus may be susceptible to a holistic solution: Web 2.0 journalism publishing entities that are co-operatively owned.

Such publishing co-ops are a wholly untested idea. I’ve been working for months on a conceptual framework for a large-scale, co-op-owned entity to provide exclusive, high-quality journalism through a 2.0 civic networking platform. I’ve just begun exploring the practical realities a business plan requires, including conversation with experts on co-ops. The preliminary thoughts I offer here jump over the launch to sketch what a successful venture would look like. Why co-op ownership matters is addressed in the final bullet after the first four establish the context:

• The biggest yet least addressed of the three big challenges is achieving broad distribution of investigative and foreign reporting. Fundraising is certainly a challenge, but enough money flows now that not-for-profits including the Pulitzer Center, the Center for Public Integrity and Pro Publica are turning out a modest stream of excellent journalism. The problem is that so few people get to read or watch it that it falls far short of the framing document’s goal of being a “vital component of the media environment needed to support democracy.” So what should be high-impact stories have very little. I can testify to the magnitude of this challenge from my work with the Center for Public Integrity.

• A solution to both the distribution and revenue challenges could grow from a broad Web 2.0 community arising around quality journalism produced by a new entity that’s devoted to serving its community with consistently relevant and trustworthy news and service journalism. It’s safe to say that some members of the reader/user community will pay to receive quality journalism, but how many is untested. Consumer Reports has 3 million paid online subscribers and The Wall Street Journal on line has about 1 million. If a Web journalism entity could inspire 500,000 reader/users to pay for trustworthy and useful journalism at the rate of a dime a day, that would yield $18,250,000 a year. Adding foundation grants and ad revenue would yield a budget that could support a newsgathering organization robust enough to include real investigative and foreign reporting. I’m imagining that attracting grants from foundations would be less difficult if the foundations could be confident that the reporting they were supporting would reach a broad audience. (Raising enough revenue to sustain a newsgathering organization that routinely includes foreign reporting and investigative projects of national interest has always required large-scale entities with a significant and committed base of readers, listeners or viewers. The large new not-for-profit Web model I’m envisioning would create a distribution system that it could share with smaller news-originating reporting entities that adhere to its standards – and it could possibly help fund selected projects.)

• Once the budget is in place, getting the reporting done ceases to be much of a challenge – seasoned investigative reporters and foreign correspondents, as well as editors with project reporting and foreign desk expertise, can be expected to line up to work for such an entity, both as staffers and freelancers. It would also tap the community that forms around its journalism for crowdsourcing and other collaborative citizen journalism techniques that could enrich the reporting.

• The most important ingredient for cementing relationships with a broad audience that will pay for journalism on the Web is trust. It is through trust that Consumer Reports, The Wall Street Journal, and The New York Times (before it stopped charging to see the Times Select assortment of content on the Web) managed to attract huge paid audiences for access to journalism through a medium where most people don’t pay for information of any kind. A new 2.0 Web entity will lack the base of trust the major web subscription-sellers have earned over many years, so to succeed it would have to quickly prove itself to be relevant, useful and, especially, trustworthy. In this era of endemic distrust of media and other major institutions, achieving trust will require deep integrity and sophisticated marketing and brand-building (no, these don’t have to be mutually exclusive!).

• The need for integrity is what brings the discussion to co-op ownership. The current ad-revenue-based model of commercial newspaper publishing and commercial broadcasting has a built-in, structural conflict of interest and thus a lack of integrity: Publishers and broadcasters constantly address their readers and viewers as if they come first, but when push comes to shove, as it has now that advertisers are stampeding to the Web, it becomes plain that advertisers and shareholders do. True integrity in journalism means the publisher/broadcaster has no built-in conflicts and the reader really does come first. If the owners of the journalism entity are its core reader/users – members of its community who step up to buy shares in the co-op – no structural conflict is possible. The relationship is one-to-one; no third party has the standing to intrude on this; such an entity may accept advertising, but in its integrity it would turn away any that would exploit its community. Integrity yields trust. Thus co-op ownership lays down the foundation of trust that a large-scale Web 2.0 publishing venture needs if it is to attract a significant revenue stream from the community it serves.

Should the co-op model prove out, it could scale by spawning local news sites, small service journalism sites, and independent investigative reporting sites, all in relationship with a major national/foreign newsgathering organization that would tie all the other sites together.

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Here’s some economic analysis that underlies my thinking on the co-op model:

The motive force of any economy is demand for resources whose supply is limited, so in our information-glut era what’s scarce? Integrity. Any new journalism venture will compete in what I call the Integrity Economy, a term I consider more accurate than the more popular Reputation Economy.

Because Web ventures compete for people’s attention, it’s common to hear people say that attention is in short supply. But since the day evolution delivered Homo sapiens, people have had exactly the same number of hours in a day and thus the same per capita supply of attention. There’s no question that there’s an imbalance between ventures wanting people’s attention and the attention available, but attention is a constant. It is not scarce.

It is also fashionable to say that to compete successfully for attention requires a winning reputation; hence the term Reputation Economy. But reputation is routinely faked, and even when it accurately reflects what’s beneath the surface it’s only a reflection of the deeper, fundamental value of integrity.

Integrity is vanishingly scarce in this era of manipulative, dehumanizing, and even predatory propaganda, and people have a great yearning for it. Any entity that radiates integrity will earn, and deserve, the trust of the community that forms around it. Integrity creates reputation, which creates trust, which creates value. Thus the Integrity Economy.

The value of any new journalism entity will arise not only from the quality and integrity of its journalism but more fundamentally from the quality and integrity of its relationships with the people who read and use the journalism. Publishing on a Web 2.0 platform will draw reader/users into engaged community as they gain civic nourishment that leads to better citizenship and life decisions: Integrity generates the trust that cements the relationships.

Every piece of such an entity’s structure must serve to strengthen its integrity and thus the trust the community of readers ascribes to it; every operating decision must be measured for its impact on integrity and trust.

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Chris Anderson’s cover story in the March 2008 issue of Wired, excerpted from his new book Free, is a primer on web 2.0 economics. See: http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=all

Anderson makes many important points but fails to see that what he calls three-party systems are inherently deceptive, and thus lacking in integrity; conflicts are baked into them. Anderson disputes the idea that there’s no such thing as free lunch, saying free lunches happen when somebody else picks up the tab. My perspective is that when someone else buys your lunch you nonetheless stand a good chance of paying, but just not out of your wallet in the moment. The reason a third party pays is the expectation that later you’ll pay for something else that more than compensates for the lunch tab. So the person whose tab gets picked up is tricked into thinking the lunch was free – and it’s not. This is the deception. As Anderson writes,

The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. . . .

In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. Radio is “free to air,” and so is much of television. Likewise, newspaper and magazine publishers don’t charge readers anything close to the actual cost of creating, printing, and distributing their products. They’re not selling papers and magazines to readers, they’re selling readers to advertisers. It’s a three-way market.

In a sense, what the Web represents is the extension of the media business model to industries of all sorts. This is not simply the notion that advertising will pay for everything. There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, “value-added” subscriptions, and direct ecommerce. Now an entire ecosystem of Web companies is growing up around the same set of models.

The three-party model may be fueling “an entire ecosystem of Web companies,” but whatever reputations they may create for themselves are not a reflection of their integrity, or lack of it.

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