About the author: Judd Olanoff is a master’s of public administration candidate at Harvard Kennedy School. His work on news innovation has been published by the Shorenstein Center on Media, Politics and Public Policy and the Stanford Graduate School of Business.
“Some investors are scared of media startups,” Nathaniel Schachter said. The founder of news startup MTTR was speaking at a January Zoom gathering of 15 budding media entrepreneurs. They’re all early-stage. Some have customers. Some have a vision on paper. What they have in common is that they’re exploring how to make the news work better for democracy. And they’re struggling to raise the money they need.
New digital publishers, like other startups, often turn to venture capital for funding. Because most early ventures fail, VCs target ones with the potential to reach a valuation of hundreds of millions or billions of dollars. But it’s difficult for a news outlet to hit that mark by producing original coverage that enriches and educates. Scale requires millions of paying subscribers, which only a select few publications achieve. Or scale means optimizing for clicks—but virality doesn’t favor vital stories.
It’s no surprise that venture funding for media has declined. VC plays an indispensable role in the economy, catalyzing ventures that shape the future. It powered BuzzFeed to a $1.5 billion public offering, and The Athletic to a $550 million sale. It fueled Substack, which has boosted independent media. But often venture funding isn’t a fit for the niche digital publishers that news consumers and citizens need more of.
Take Stat News. Launched in 2015 by Boston Globe owners John and Linda Henry, it shines as a sterling source of health reporting. Stat was among the first to report the story of Covid-19 in the U.S. Its coverage is rich and serious. But if the Henrys hadn’t funded it, Stat might not exist. It generated an estimated $15 million of revenue last year, so early-stage investors may, understandably, have passed.
Or take Morning Brew, the business-news standout. Started as a single newsletter by two college students in 2015, it hit two million subscribers and $20 million of revenue and sold for $75 million in 2020. It’s a journalism home run. But $75 million isn’t a venture home run. Thankfully the founders were able to bootstrap and tap $750,000 from friends and family. But not all founders can access capital in their networks, and growing a newsletter into a media company is expensive.
One solution is for angel, strategic, and impact investors who care deeply about the news to sacrifice some return, welcoming doubles rather than home runs, since home runs and superior journalism rarely coincide. A healthy media calls for slower builds to smaller exits too.
Healthy media doesn’t reduce carbon emissions or provide food or shelter. But research shows that it heightens voter participation, reduces corruption, and mitigates polarization. It establishes shared truth and promotes rational debate. It binds society.
That binding demands reinforcement. A fifth of local newspapers shut down between 2004 and 2019, and trust in media has hit troubling lows. Social media feeds hardened narratives to political silos. Cable anchors race from one Breaking News chyron to the next. Outrage spikes. Learning takes a backseat. News startups are no panacea, but, at this moment of media transition, new entrants help challenge the status quo.
We sit in the early innings of media rebirth. Substack proved that readers will pay their favorite writers directly. Legacy media is following suit with its own newsletters. The Information, Punchbowl News, and others show there’s demand for topic-specific subscriptions. The digital ad pie, though dominated by Facebook and Google, keeps expanding, and first-party data presents ad opportunities.
New players are popping up—like a startup that slows the news cycle, and one that reinvents the local newspaper. Grid, launched in January, explores the “fuller picture” of big news stories. MTTR cultivates curiosity and sensemaking. David Barboza, a former New York Times correspondent, launched the digital news magazine The Wire China to explain China’s economic growth. Former Bloomberg Media CEO Justin Smith and New York Times media columnist Ben Smith are building a site to counter “polarization and parochialism.” These ventures are important. They’ll need funding that advances a growth plan consistent with a sustainable news mission.
Philanthropy and government can help too, but neither can replace private investment. The emergence of 200-plus new digital nonprofit news outlets has yielded stellar experiments, but many rely on the support of donors, leaving newsrooms without an independent revenue stream. Government, for its part, might help keep nonprofit news afloat—the Build Back Better proposal includes a $1.7 billion tax credit for local news—but it won’t hatch new ventures, even if it eventually passes Congress.
News founders need capital that cultivates sustainable growth and prizes learning and exposure to a range of reasonable ideas. We’ve decided as a society that some goods are crucial enough to compel investment at below maximum rates. If news at this moment doesn’t rise to that level, what does?
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