Rather than chase investments from outside financiers, a small number of local publishers are turning inward and asking for help from readers in their own communities. But whether local news sites should sell stock to readers is still a hotly debated topic, and as of now, there doesn’t seem to be a one-size-fits all approach.
Questions over whether local news sites should sell stock to readers have swirled for years, but the topic made national headlines again this past week, when The New York Times covered Sonoma County publisher Rollie Atkinson’s decision to do a direct public offering to the readers of The Healdsburg Tribune, The Cloverdale Reveille, The Windsor Times, and Sonoma West Times & News. With the capital raised in the direct public offering, Atkinson is hoping to make necessary website upgrades and raise his staff’s salaries.
What Is a Direct Public Offering
A direct public offering is an investment technique that allows outside investors of all sizes to buy shares of a company. Direct public offers are made to both accredited and unaccredited investors, which is what makes it possible for everyday readers to invest in a local news website. Direct public offerings don’t have to cost much more than traditional reader membership programs, but they give readers a deeper connection to the publication by giving them a financial stake.
While the term ‘direct public offering’ is relatively unknown in the outside world, most people have heard of crowdfunding. Investment crowdfunding and direct public offerings are very similar.
How a Direct Public Offering Works
A local publisher’s decision to sell stock to readers is never an easy one. In the case of Sonoma West, the process started with the hiring of a broker. That broker placed a value on Atkinson’s four community publications, which have a combined paid circulation of 9,900.
Next came setting a financial goal. Atkinson set his at $400,000, with the direct public offering open until March 2019. Usually, publishers will offer a certain dollar amount worth of preferred stock as part of a direct public offering, and then they will let people in a certain group—for example, California residents—buy into their publications.
Readers need at least $1,000 to buy into Sonoma West. Shares of the company cost $4 each, and the minimum purchase is 250 shares. (A prospectus is available to let readers know what the financial requirements are to invest.)
The local news parent startup Whereby.Us started its offering even smaller, inviting readers in Miami and Seattle to chip in as little as $500. In all, the company raised $250,000 from its reader-turned-investors.
Every direct public offering is unique, but it’s not uncommon for investors to be promised a certain annual dividend—for example, a 3% annual dividend—so long as the publication continues to flourish.
Why Readers Buy Stock in Local News Sites
In the local news business, a direct public offering only works when a publication has a strong relationship with its readers. Given the current political environment, there’s a desire from citizens to support local journalism. Publishers can capitalize on that interest by deciding to sell stock to readers now, before interest begins to wane.
More broadly speaking, direct public offerings tend to work best for local publishers in wealthy areas, with Berkeley and Sonoma County being two prime examples. The hyperlocal news outlet Berkeleyside ended up raising $1 million from 355 readers after its direct public offering, which is no small sum for a community-focused publication.
In addition to an annual dividend, readers who invest in local news sites also usually get access to certain perks, like the opportunity to meet with publishers or editors, and early access to special content and live events.
Why Local News Sites Sell Stock to Readers
Rather than chasing down funding from outside financiers, local publishers who sell stock to readers are putting control of their publications into the hands of their own communities. Major decisions, which would otherwise be made by an individual publisher or a financier with no ties to the community, are instead made collectively by that community’s residents.
The decision to sell stock to readers also gives publishers room for long-range planning. With fresh capital in hand, publishers can make any website upgrades they’ve been delaying, like mobile-friendly site redesigns or the development of mobile apps. The additional capital can also help publishers strengthen their coverage of certain areas or topics that matter to readers, like crime or education, or raise their employees’ salaries.
