For hyperlocal news publishers, designing a path toward financial sustainability begins with choosing between non-profit and for-profit status.
The differences between non-profit and for-profit news organizations go beyond tax filings. For journalists, editors, and publishers, launching a non-profit site is often about working toward a goal, or a vision, of what local news should ideally be. Without the pressures that come with maximizing profits, journalists and editors at non-profit news outlets are free to dig deep into the real issues facing their local communities.
According to a survey by Pew Research Center, all but nine states have at least one non-profit news organization. The business structure is especially popular among small, local, digital-first outlets.
More than $150 million in philanthropy goes to journalism annually, but business, marketing, and fundraising are just as much of a concern for non-profits as for-profit organizations. In Pew’s research, 62% of non-profit news outlets cited “finding the time to focus on the business side of the operation” as a major challenge, just as 55% cited increasing competition for grant money.
Altruism aside, there are a number of important questions that would-be publishers should ask themselves when deciding whether to opt for non-profit or for-profit status.
1) What is my vision?
Two hyperlocal websites could cover the same area, with similar news coverage, and still have very different visions of what constitutes success. Long-term goals should help inform the decision of whether to become a non-profit or for-profit organization.
Publishers who are primarily interested in using their websites as a source of income, to generate a profit right from the start, should strongly consider for-profit status. Sites with for-profit status are generally easier for the publisher to sell at a profit. Publishers who aren’t interested in flipping their websites, and who aren’t looking to make a massive profit, might be better suited with non-profit status.
Non-profit websites need to provide some type of public service. In-depth investigative news usually takes precedence over money-making business directories and sponsored content, but of course, non-profits still have the opportunity to tap a number of revenue streams—including live events and advertising—which means that revenue and non-profit status do not have to be mutually exclusive.
2) What are the tax implications?
Hang around local news publishers enough, and you’ll inevitably hear someone say non-profit is a tax status, not a business model. It’s true. One of the basic differences between non-profit and for-profit news organizations has to do with taxes paid on income. Non-profit websites are generally 501(c)(3) organizations, making them tax-exempt. At the same time, for-profit news outlets pay ordinary business taxes on the revenue they generate.
A tax attorney can get into the finer points of what it means to be a 501(c)(3) organization, but generally speaking, non-profit organizations are expected to serve a public interest, and publishers or owners can’t share in the net revenue. Opting for non-profit status doesn’t mean a news organization can get by without a solid revenue model. Non-profit sites are expected to generate revenue just like for-profits. However, becoming a 501(c)(3) organization could relieve some of the pressure that publishers and news site owners find themselves under.
3) Where will funding come from?
Funding is just as important for non-profits as it is for for-profit news organizations. Foundation funding and grants for local news organizations are abundant right now, as more organizations recognize the value in having a strong media culture. According to Pew’s research, 61% of non-profit news organizations began with start-up grants. In order to survive long-term, non-profits can’t rely exclusively on grants.
Non-profit news sites can take advantage of advertising and partnerships, including native advertising, but certain disclosure requirements must be met. For-profit sites have more freedom in how they generate revenue, and what publishers do with the profits, but the pressure to meet investor expectations can be great.
These questions are just the tip of the iceberg for publishers deciding between non-profit and for-profit status. Here at Web Publisher PRO, we provide guidance at all stages of the game for local publishers. If you’d like to learn more about how we help publisher clients develop sustainable business strategies, feel free to reach out.