“If newspapers are having trouble turning a profit without deep annual cuts, how about becoming a nonprofit?” That was the question posed just a few months ago by an article in NiemanLab, a news industry publication.
Late Monday night, in a stunning, unprecedented development for a struggling business, that’s pretty much what the storied Philadelphia Inquirer and its sister publications, the Philadelphia Daily News and Philly.com, became.
Philly.com reported that owner H.F. “Gerry” Lenfest donated the entire Philadelphia Media Network (PMN), which runs all three of the outlets, to the nonprofit Institute for Journalism in New Media, part of the Philadelphia Foundation. The Institute will be headed by a board composed mostly of journalism school deans as well as academic and foundation executives. If recognized as tax-exempt, it will not have to pay federal or state taxes.
Though many have contemplated the decline of newspapers in the past decade, this was not a typical moment in the long, slow death of print. Lenfest’s circuitous profit-to-nonprofit deal is without precedent or, if something similar has been tried elsewhere on a smaller scale, it has never involved a paper with such a storied reputation and large readership.
Philadelphia is the fifth-largest city in the United States; the Inquirer, founded in 1829, is third-oldest paper in the United States and the winner of 19 Pulitzer Prizes. The Daily News, founded in 1925, has won three. Philly.com offers content from both, as well as its own content. All told, the three brands reach more than 8 million readers per month.
Yet the Inquirer and its fellow publications were threatened by what Philly.com described as a “desperate economic environment for many traditional news organizations.” The long, steep decline in revenue afflicted what was once, many years ago, a vibrant, thriving industry and produced major shifts in both operations and ownership including the sale of The Washington Post, controlled by the Graham family for decades, to Amazon founder Jeff Bezos.
But while Bezos has found success in taking The Post private, Lenfest offered another solution. According to the late-breaking story in Philly.com, “the new alignment while unique and untested sets out mechanisms by which public-interest reporting can be preserved and enhanced while new electronic distribution methods are developed. To evolve in an increasingly online future, Lenfest said, the news company must meet readers where they choose to read and find fresh ways for advertisers to engage that audience.”
Contrary to the term “nonprofit,” these organizations can indeed make profits, but the money must go back into the organization rather than into someone’s pocket to retain tax-exempt status.
Rumors of some sort of transformation of Philadelphia’s news organizations have been around for some time, as the NiemanLab article noted. Lenfest, who got rich as a cable executive and has since donated billions to charity, was quoted in Philanthropy magazine last year saying: “I think eventually it would be wonderful if nonprofits would own newspapers . . . Eventually I foresee foundations taking over newspapers.”
The structure sounds complicated because it is. What it seems aimed at doing, according to a separate explanatory piece accompanying the news, is avoiding the tax man without having to go through the elaborate, prolonged and expensive process of seeking IRS approval.
But the method was so complicated as to require a lengthy, lawyer-like explanatory story, much of which appeared designed to explain how it can simultaneously operate as non-profit and for-profit:
“In December, talks between PMN owner H.F. ‘Gerry’ Lenfest and the foundation culminated in the creation of the institute. PMN was then converted from a limited liability company to what is known as a ‘public benefit corporation.’ While that specific type of corporation still operates as a for-profit, it differs from a traditional corporation because it can also engage in activities that further a public benefit.
“As a PBC, Philadelphia Media Network still must pay its own bills. But its directors can consider additional goals, with a main offered ‘benefit’ being the value to society of an active news organization in the Philadelphia region.
“Lenfest then donated PMN – and all of its marketable assets – to the institute. Basically, the Philadelphia Foundation’s special-asset fund owns the institute, and the institute owns PMN.”
The story makes an additional point. “By coming under the umbrella of the Philadelphia Foundation, the institute enjoys the benefits of being a tax-exempt organization without the need for lengthy IRS approval proceedings,” the piece read. If the enterprise makes a profit, “its directors must then decide what to do with the money. They can use it to fund the journalistic enterprise, or give part or all of it to the institute.”
How the move will in the long run impact readers, advertisers, employees and unions remains uncertain. Lenfest and other executives said it was a way to preserve quality news coverage in the region.
“Of all the things I’ve done,” said Lenfest, “this is the most important. Because of the journalism.”
Inquirer editor William K. Marimow, one of the most respected editors in the country once fired by one of the Inquirer’s many owners before being rehired, called Lenfest’s move “an incredibly public-spirited act.”
“Gerry’s decision to go forward with this nonprofit reinforces my belief that his goal is to perpetuate the best traditions and practices of public-interest journalism for decades to come,” Marimow said.
The recent history of the Philadelphia Media Network has been nothing short of “brutal,” as Philadelphia Magazine put it in a 2014 piece called “The Long Fall of Philly Newspapers.” One problem: “revolving door ownership” which since 200o involved Knight Ridder, McClatchy, PR executive Brian Tierney, a group of hedgefund owners, insurance executive and New Jersey Democratic Party leader George Norcross, and Lenfest, not to mention a bankruptcy, numerous layoffs and plunging advertising revenue and circulation.
After a court battle, Lenfest and businessman Lewis Katz bought everything in 2014 for $88 million. Days later, Katz died in a plane accident near Boston. Lenfest eventually bought Katz’s stake.
A man of great wealth said to be worth half-a-billion dollars, Lenfest, then 84, told Washington Post media writer Erik Wemple he was not in it “to make money” but to preserve an independent editorial voice for the region.
The Institute which will now run the organization has a “Board of Managers” appointed by Lenfest, Philly.com said, including:
– Sarah Bartlett, dean of the Graduate School of Journalism at the City University of New York;
– David Boardman, dean of the School of media and Communication at Temple University;
– Steve Coll, dean of the Columbia Graduate School of Journalism and a former managing editor of The Washington Post;
– Michael X. Dell Carpini, dean of the Annenberg School for Communication at the University of Pennsylvania;
– David W. Haas, vice chairman of the Wyncote Foundation;
– Pedro Ramos, CEO of the Philadelphia Foundation;
– Rosalind Remer, vice provost of the Center for Cultural Partnerships at Drexel University;
– David Schizer, dean emeritus and professor at Columbia Univeristy Law School; and
Leonard Tow, founder and chairman of the Tow Foundation.
A look at owner who turned newspapers over to nonprofit
PHILADELPHIA (AP) — The owner of The Philadelphia Inquirer, the Philadelphia Daily News and Philly.com announced Tuesday he’s turning over the media company to a nonprofit institute. Local philanthropist H.F. “Gerry” Lenfest says he hopes that a new business model will help them survive. Here’s a look at Lenfest:
HOW DID HE MAKE HIS MONEY?
In 1974, while working as a lawyer for media mogul Walter Annenberg, Lenfest borrowed money to pay $2.3 million for Suburban Cable, which then had 7,600 subscribers. It grew into the largest cable system in the Philadelphia area. Lenfest and his wife, Marguerite, made about $1.2 billion when they sold the company to Comcast Corp. in 2000. The Lenfests immediately set out to give away the fortune. By June 2014, Gerry Lenfest estimated he had given away $1.1 billion.
WHY IS HE GIVING EVERYTHING AWAY?
His three children didn’t need the money, because they were given stakes in Lenfest’s cable company when it wasn’t worth much. Lenfest has said he disliked the idea of a permanent foundation that, he thought, would be more interested in perpetuating itself than helping others. He said he wanted to control how his wealth was spent, so it could do the most good.
HOW DID HE COME TO OWN THESE NEWS OUTLETS?
Lenfest, 85, unexpectedly became the sole owner of the two newspapers and the news website in June 2014 after his business partner, Lewis Katz, died in a plane crash. Lenfest actually bought the struggling newspapers twice. The first time came in 2012 as part of a six-person local ownership group. When feuding factions developed, he and Katz paid $88 million to outbid rival co-owner George Norcross in a May 2014 auction. Katz died five days later.
WHAT ELSE HAS LENFEST GIVEN MONEY TO?
The Lenfests’ philanthropy has touched arts organizations, schools, hospitals, museums and conservation groups. Recipients include the Philadelphia Museum of Art, Barnes Foundation, Kimmel Center for the Performing Arts and Lenfest’s alma maters: Mercersburg Academy, Washington and Lee University and Columbia University. Wilson College, Marguerite’s alma mater, also received funds.
About $150 million went to a foundation named for the Lenfests, but it must give away every penny it has within 20 years of the last one’s death.
“Money is a responsibility when you have that kind of wealth,” he said Tuesday of his fortune. “I’ve tried to do right by it.”