Pando

"Can you help?": Media startups find models for journalism without ads

By Hamish McKenzie , written on September 12, 2013

From The News Desk

Disclosure: This story covers Paul Carr, who is a regular PandoDaily contributor and a friend of the company. It also quotes Andrew Anker, who is chairman of PandoDaily’s board and an investor in PandoDaily.

On September 5, NSFWCorp founder and editor-in-chief Paul Carr sent an email to the publication’s subscribers. The subject line was just three words, but it communicated a message greater than just the contents of the email:

“Can you help?”

In the missive, Carr shed the chirpily optimistic tone he usually assumes when speaking about his Las Vegas-based startup, which publishes a paywalled publication that bills itself, tongue in cheek, as “the future of journalism (with jokes).” Although the company has raised close to $900,000 in venture funding, Carr told his readers, it is never more than a couple of months away from running out of money. Despite the funding, without the 5,000-or-so paying subscribers, the company would be out of business in a week, he said. He asked readers to encourage others to subscribe, and he promoted a new way to support the publication: a 10-year subscription to the website and its monthly print companion for $200.

NSFWCorp is one of several startup publications experimenting with business models to try to make quality journalism sustainable in the mobile era of the Internet. If you believe Business Insider CEO Henry Blodget – and, in this case, I do – we are now in a “golden age” for journalism, in which the costs of news production and dissemination are lower than ever before, and the proliferation of mobile devices has made it possible for any news organization to reach readers all over the planet at any time of the day, all without the constraints of the print age. The only problem, as Blodget points out, is that the business side is yet to catch up.

Journalism is doing fine; the journalism business is struggling. Media companies could still use a lot of help.

That condition may not last forever, and institutions such as NSFWCorp are leading the way in experimenting with new business models that could unlock ways to fund high-quality journalism. NSFW’s unconventional mix of revenue streams, from its paywall ($3 a month) to its monthly print magazine ($7 a month, including the web subscription) and its Conflict Tower – in which people pay to occupy a digital property in an illustrated skyscraper – is just one approach to solving the problem of how to pay writers for expensive-to-produce work. Carr says the company needs to get to 10,000 subscribers to be able to completely fend for itself.

The top floors of NSFWCorp's "Conflict Tower". The top floors of NSFWCorp's "Conflict Tower".

A raft of other promising startup publications and media companies, including The New Inquiry, Narratively, The Magazine, and 29th Street Publishing, to name a select few, are also tugging at the corners of traditional media money models. These new enterprises are finding money through digital subscriptions, events, crowdfunding, syndication, micropayments, and content agencies, with advertising either conspicuously absent or playing only a minor role. None has struck upon the perfect solution that is guaranteed to sustain years of growth, but most are, for the moment, at least financially self-sustaining, and all are helping writers get paid.

NSFW has, in its 15 months of existence, published a range of quality journalism, which is usually of the ball-busting variety, including senior editor Mark Ames’ examination of the deals NSA whistleblower Edward Snowden had to cut with Russia to secure asylum there and David Sirota’s revelatory piece about why Congress fears the NSA.

None of that comes cheap. Carr has employs a staff of eight writers. He pays freelancers about $1 a word for online pieces, with print rates ranging between $1,000 and $5,000 a story, which can be more than 10,000 words long. NSFW also relies on work from 15 regular contributors, all of whom are on contract. Payroll and healthcare costs are the main reasons the company has been burning through its venture checks so quickly, Carr says.

Recently, the company launched a crowdfunding campaign on Tugboat Yards, a new marketplace for content creators, in an attempt to raise funds to pay for foreign correspondents. Carr had hoped to raise $100,000 via the campaign, a number that could have supported a network of up to eight reporters. The campaign ended up bringing in just over $13,000.

Carr is realistic about the enormity of the challenge he faces in keeping NSFW afloat. A writer by trade, he has not exactly had a stellar career as an entrepreneur, as exhibited by the failures documented in his first book, “Bringing Nothing to the Party.” And the magazine’s senior editor, Mark Ames, previously ran a renegade Moscow-based newspaper called eXile, which was fuelled by amphetamines and ads for sex services. In a profile on Ames and his eXile co-editor Matt Taibbi, who now writes for Rolling Stone, Vanity Fair called it “Russia’s angriest newspaper.”

“What we’re doing is a huge fucking gigantic experiment headed up by a guy who has multiple failures in the past and whose senior editor was thrown out of Russia by Putin,” Carr notes.

Tuboat Yards founder Andrew Anker thinks small media companies like NSFW have a promising future, despite the current turmoil on the business side of the equation for such publications. He established Tugboat Yards as a way to help Internet media people make money. The idea behind the marketplace, which has soft-launched but is in its very earliest days, is that content creators can sell products (think special editions), services (like commissioned illustrations), or experiences (for example, dinners with editors) on the site and build and maintain a relationship with a fanbase. The San Francisco-based startup is trying to develop a person-to-person revenue model for Internet media.

“All media being created by individuals is getting a very large share of attention, but revenue hasn’t followed that attention,” says Anker, who was a cofounder and the first CEO of Wired Digital, which was the online arm of Wired magazine. He later became an executive at SixApart and is now an investor in several media-related companies, including Federated Media, Byliner, and PandoDaily.

“Every time there’s a new medium developed, the eyeballs have gone first and the dollars have lagged years and years behind,” Anker says, noting that that is a “classic pattern.”

One of the reasons the dollars have been slow to catch up is that the tools have always been lagging, he says. The ad network, as seen in Federated Media, is the only innovation that’s happened for Internet media, he argues. And that model takes the best of the medium – the Internet’s reach, immediacy, and flexibility – and turns it into a race-to-the-bottom commodification of eyeballs, which incentivizes aggregation over original reporting. There is still a place for online publications to rely solely on advertising to get by, but they either need to be reaching a huge mass-market audience or cultivating a niche audience that is attractive to premium advertisers.

Now, however, the time is ripe for building sustainable business models beyond ads in Internet media in which the production tools match monetization tools.

On the supply side, Anker notes, we’re no longer just talking about a couple hundred bloggers pecking away at laptops in their basements. There are now hundreds of thousands of content creators armed with websites, blogs, YouTube channels, Tumblrs and there’s a lot of great content with real audiences that isn’t being adequately monetized.

On the demand side, some digital media subscribers are getting used to paying for stuff online. Paywalls aren’t strange anymore, as proven by the New York Times and Andrew Sullivan. People are also reacting to the fact idea that if you don’t pay for something, then you are the product. Behavioral and geo-targeting has gotten so sophisticated that ads now follow you around the Web. You are literally being tracked – no need to bring the NSA into it.

Anker likens Internet media today to where cable television was in the 1990s, when a burst of innovation led to the creation of a giant new business. Cable TV disrupted the dominance of public TV by segmenting the mass market in providing lots of different, targeted channels. It also transitioned into bundling your phone, Internet access, premium channels, video-on-demand, and DVR – all in an attempt to increase the number of subscriptions and squeeze more money out of each one.

Internet media takes that phenomenon to its logical conclusions, Anker says. Now it’s possible for independent content creators to have small audiences and intimate discussions with their consumers. That offers great potential for monetization – these companies just have to figure out what that is. It should be noted, however, that other commentators have made similar analogies to cable TV in the past and have turned out to be wrong. In 2004, for instance, people said similar things about satellite radio when Howard Stern jumped to Sirius FM. Others have said online video channels would also become like cable, a prediction that certainly hasn’t panned out yet, despite YouTube’s best efforts.

Anker, too, has a history of being over-eager when it comes to the prospects of making big dollars from small publishers. Spurred by his enthusiasm for blogging's early days, he left behind a cushy job as a venture capitalist at August Capital to become the first non-founder executive at SixApart. Despite becoming the publishing backbone of many professional blogging efforts, the company wasn't able to translate itself into a major media player. Ultimately, it ended up merging with VideoEgg in 2010 to become Say Media, which is essentially a multimedia ad network.

Exciting but uncertain times

TNI cover

For Brookyln-based The New Inquiry, the revenue model hinges on getting people to pay for what they could otherwise get free.

The website carries articles produced by a network of contributors and editors who write, mostly, about culture. The nonprofit organization doesn’t have outside benefactors, and the publication doesn’t carry ads. It pays writers a minimum flat fee of $50 per article, and everything it publishes is available on its website for free. However, the organization is able to support a paid staff of five editors (two full-time, three part-time) based on sales of subscriptions to The New Inquiry Magazine, a $2-a-month digital publication that collects selected works based on a particular theme, such as “Family Planning,” “Games,” and Drones.”

Rachel Rosenfelt, The New Inquiry’s founder and editor-in-chief, says the magazine subscription model is in part an experiment around creating something that’s valuable without putting a barrier between the work and the readers, or creating artificial scarcity. Although the PDF magazine doesn’t contain any content not already published online for free, it is beautifully designed, and it’s a highly portable bundle. She describes it as “an excuse to ask people to throw us $2 to help us do what we do.”

The magazine brings in enough revenue to pay the small staff, but Rosenfelt hopes to get subscriber numbers up to a minimum of 20,000, at which point the incoming revenue would be “enough to pay writers what they deserve.”

The subscription model, she believes, is transferable to other publications, but building a readership is what’s most important, and more difficult. “The trick is, if you ask people for a low-barrier micropayment on a recurring basis, you need to have a large enough readership for that to be substantial over time.”

Another Brooklyn-based niche publication with a lean budget but high hopes is Narratively, a platform for local stories. Narratively got its startup capital from a Kickstarter campaign that brought in $54,000. That was a year ago. Since then, the publication, which employs two full-time staffers and a handful of part-timers, has supported itself with sponsorships, storytelling events, syndicated content, and some advertising.

However, Narratively’s biggest source of income stems from the production of branded content. Advertisers tap into Narratively’s network of more than 350 writers to produce their branded content, which used to be known as “advertorials” but is these days known as “content marketing.” Some of the assignments come via Narritvely’s fellow New York media startup, Contently.

Today’s media landscape, says Noah Rosenberg, Narratively’s founder and CEO, is an exciting new frontier. “That I can sit here talking to you as a publisher without having a fortune in the bank is pretty remarkable.”

The next question for Rosenberg and his peers in the new new-media landscape is how long he’ll get to keep having those conversations. Narratively, like NSFWCorp and The New Inquiry, is a young and tender being. Its continued survival, let alone growth, is not guaranteed. Equally true is that there are analogues cropping up every day – including The Big Roundtable, Beacon, and Medium – all competing for similar slices of the attention economy.

For NSFW’s Paul Carr, the future – especially his company’s future – is a big uncertain blob.

“It’s a journalism startup with a paywall,” Carr says when asked how he feels about NSFW’s potential for longevity. “I don’t think the New York Times feels good about its longterm prospects.”

He reasons that NSFW’s “future of journalism (with jokes)” tagline is “99 percent bullshit,” but, “the 1 percent is what we are trying to do with NSFW to figure out ways to make all of this shit sustainable.” Asked if he’s worried about whether or not his investors question the publication’s long-term financial viability, he offers a verbal shrug.

“Given that they’re investing in someone who wrote about a book about why he should never start a company, I assume they think I’m going to lose their money.”

He is doing his best to be a responsible financial steward.

“All I’m trying to do is lose it as slowly as possible.”

Image via Leafcutter Designs.