Andy Cates on Why Non-Profit The Daily Memphian Must Be Self-Sustaining
Jacob Donnelly: Let’s go back to September 2018. That’s when Memphis Fourth Estate and your primary product The Daily Memphian launched. Walk me through why you started this organization.
Andy Cates: First of all, thanks for having me. Our legacy paper, our paper of record in Memphis was failing, the coverage was reduced. There were articles often about Nashville that were not relevant to Memphis, which, by the way, is like having Boston articles in New York or vice versa every day. A group of us and I felt extraordinarily strongly that you’ve got to have a healthy paper for a healthy community. We had looked at trying to purchase the legacy paper here that was at the time owned by Scripps.
We had gotten down the road. GNET, as you well know, ended up buying those Scripps papers, including the legacy paper here. That was a blessing, because I think if we had gotten the paper here, we would’ve thought we could fix it, and that that model would work with Hubris. It would not have. It would’ve been a mistake. We were far better off being forced to do a start-up digital paper, The Daily Memphian. That allowed us, obviously, to also bypass a huge portion of costs and printing, and also to build something, build a foundation that would work for the long-term.
As part of that, we recruited the best and the brightest journalists in the market. Of course, we left– Some either didn’t come over or we couldn’t get. That’s not meant to criticize, but we had an incredibly strong group to start, including the most well-read journalist in the city and a very strong leader. He was well known in the city as well and well respected. That’s a long answer to your question, which is we saw a huge need and this was meeting that need.
Jacob: You mentioned that it would’ve been a mistake to acquire, I guess, what’s called The Commercial Appeal.
Andy: Commercial Appeal. Yes.
Jacob: You would’ve said it would have been a mistake. Beyond just the printing costs, were there other reasons you’d think looking back it would’ve been a mistake to have acquired that?
Andy: Yes, I think that it’s– I believe, and obviously we’re going to discuss this today, the old model of local newspapers doesn’t work. It’s very important to start by saying we did a million different proformas, projections, and business plans around for-profit. We always make a big point of saying we are non-profit in structure, but we run this as a business, and we run it like we would any other for-profit business because we need it to be sustainable. By the way, in that for-profit model, even with the logic of no real return, more of a civic investment, it still didn’t work, because we just don’t think that you can generate enough operating cash-flow to cover your costs, or if you do, you’re barely going to pull it off.
I’d start by saying, I think the model for a local paper, and by the way, of course, again, there are exceptions to every rule. In many examples in the US, you may have a city that’s growing extraordinarily quickly or a mega city that can support a local paper. I think for the most part, and I think we all know this, and you know this better than anyone, we’re seeing a collapse of local papers for a reason. It’s not just because of mismanagement. It’s because of a structural flaw.
One side note example, we met with a friend who’s a car dealer who was sharing the numbers that they used to advertise in the legacy paper on weekends, and it’s collapsed. It’s gone from a very, very attractive number to zero basically, and not just because of COVID. The second part of that, you have a infrastructure that’s based on a model where there used to be 300 journalists and an enormous payroll and coverage areas that no longer exist. By definition, they’re already cutting. We would be in a cutting business instead of a growth business, and again, out of necessity. I feel strongly our model now is six years proven. I feel strongly that the model for certainly mid-size American cities and smaller cities is this model. I think it’s a non-profit digital only model if you want a sustainable, healthy paper of record.
Jacob: You mentioned that you run the publication like a business, so it’s got to make enough money to support itself. Then you also said that a for-profit model wouldn’t work even if you were not looking for any returns. What is it about a 501(c)(3) that makes it possible to make this sustainable, but even if you were taking zero out of the business from a profitable business, you couldn’t do that. What about that designation makes that possible?
Andy: For starters, it gives you the ability to raise charitable funds– to receive charitable funds. Out of the gate, you have a competitive advantage, if you want to say it that way. That may be the wrong way to characterize it, but you are a civic investment, and it’s, again, a very clear civic enterprise with a mission to support the city, not to generate shareholder return. By that definition, you’re going to bring in a wider range of civic investors and philanthropy. Out of the gate we’ve raised to date over $16 million since inception of philanthropic donations.
Now, that said, what I’m very excited about and proud of is on an ongoing basis. Now, remember, that was to get it launched and to generate enough revenue to keep us going as we launched. At this time, roughly 70%, and I’d say between 70% and 75%, depending on some cost-variability and performance. Call it, to be conservative, 70% of our current operating expenses today, which are over $5 million a year, and closer to [unintelligible 00:08:21], 70% of that is covered by operating revenue, which I’m proud of. Which is, to me, the core of why we’re a sustainable business model.
I’m going to flip that over and say I was at one of the major forums in the space at night, which is great, but one of the things that was discussed at length is how many non-profits there are out there that don’t generate any operating revenue. I don’t think that works. We’ve had very energetic debates with some who want a non-profit model that doesn’t generate operating revenue, also known as won’t charge for any of the content, and they want everything to be free. I don’t believe in that model. I don’t think that works either. We are the only model we know of in the country that generates the amount of our total revenue, that generates 70-plus percent of that with operating revenue, which, by the way, is subscriptions and ad revenue primarily.
Jacob: Can you break down the revenue across subscriptions, advertising, subs, and fundraising?
Andy: The subscriptions overwhelmingly is the majority of that 70%. I would say, and it jumps, but I would say about one-fifth of that is your ads. About three-fifths of that is your subscriptions. The rest is other and fundraising of your annual budget.
Jacob: Do you view advertising as a channel for growth? Is it something that you’re continuing to invest heavily in or is it primarily just like, “We’ll get it when it comes in, but mostly that’s not the focus?”
Andy: Say that again. I’m sorry.
Jacob: Do you view advertising as a growth channel or–
Andy: Oh, I see. We feel we can do a lot better with that. That’s why you heard me hesitate on those percentages, because I think we have a lot of potential to increase both in the subscriptions pricing and– which I’ll also tell you it’s counterintuitive, because we hold to pricing. We don’t radically discount it while we watch a lot of the nationals do these 99 cents for a year, which is what I subscribe to. I’ve never paid full, because they always offer me 99 cents. It makes no sense. I think it really frustrates me, because I think that is hurting all of journalism. I understand their logic. I’ve heard their argument why they do it. I don’t agree with it.
If you did 99 cents for two months and you didn’t give me 99 cents for the three years, I’ve got 99 cents, and friends I know have gotten it for five years. When are you going to go from 99 cents to a real number? Otherwise just do it for free, or why not one cent? I’m frustrated by that, and we don’t do that. I think it’s also an important message to say that content that’s quality deserves to be paid for. Like any other product, if you give it away for free, you’re effectively messaging that it’s not worth anything.
Knocking on wood, we’ve been rewarded for that. Our subscribers are loyal. We have lower churn rates by multiples than what I would say are the national averages. I’m pleased with what we’ve seen so far even as we’re not ever comfortable with it, because we know things can change. Again, I feel strongly this is the model. We want to have this debate with more people because I think it’s important. We want our model to be replicated, not out of ego, but because we think this is the way you save local journalism in the US.
Jacob: Back in 2021, Politico wrote a story about you guys. Great story. It said you guys are probably one of the best local publications out there. At the time, I think they said the average subscription price was like $9.75. Today, subscription costs $14 or maybe even $15 a month. Talk to me a little bit about how you’ve determined the subscription price and how you’ve evolved that over time.
Andy: We started with a price– I’d like to tell you it’s ultra scientific and it’s not. We have some of the same software product that many of our peers do, so we certainly use technology, and we discuss pricing at the board level and with Eric Barnes, our CEO, in a very detailed way, of course. Then Eric and I, early, early on, ran probably, I’m not exaggerating, 20 projections. There isn’t a simple answer. When we did this, we joked. Obviously, there wasn’t a comparable or a playbook we could go off of. We, of course, could look at other subscription pricing of local media, but that didn’t help us, because back to the legacy paper, that was 99 cents.
We had some national funders that back then and to this day wanted us to provide everything for free, and yet didn’t want to provide us the capital that we’d be losing to do that or foregoing. To cut to the chase and answer your question, we established what we felt like was a fair price for the content and for the product. It was a test. We were building a plane in the air. We always say this is a laboratory experiment. That was the first test of this lab experiment, and it stuck. We had way more initial subscribers than anyone that we spoke to, including former local media professionals and others around the country.
No one believed we would get anywhere close to the amount of subs that we have. We have more digital subs now, I think by a big margin than the local legacy paper has of digital. We have effectively become the paper of record in a five-year period. Those words can sound arrogant or overly competitive. I don’t mean it to, but we are the disruptor, and I would say– It’s also not meant to criticize the local journalists here. I am openly criticizing the National Conglomerate’s hedge funds, because they really, really, in many cases, I think we would all agree are not focused on the journalism or on the specific cities that they serve.
Jacob: Look, I think if you go back to something you said originally, you treat it like a business and you run it like a business, business is competitive. You want to put the best product out, and you want to beat the competition. I don’t think there’s anything inherently wrong with having a competitive attitude about it. I am curious, as The Commercial Appeal continues to shrink, because it was significantly larger 20 years ago than it is today, every local paper probably is, do you take a targeted approach to trying to convert disgruntled Commercial Appeal subscribers to your product, or is it mostly like a, “Hey, we’re here when you’re ready?”
Andy: It’s the latter. It’s a great question, because we’re asked that a lot. We’ve actually more and more tried to steer away from talking about The CA. We also don’t want to– Again, I want to reiterate, we’re sensitive to the local folks. We’re not trying to demean those people. I am sensitive to that, but you’re right, we’re hyper-competitive. We’ve been accused of being too competitive. I’m also competitive nationally about– One thing that, again, frustrates me and we need to be louder about is not getting enough national support for this model. A, because we’re in Siberia in middle America, and B, I think there is initially by many of the media elite, and I hate to use that term, but I have to, that you have to provide it all for free, and this is not the right model.
If you want to talk about sustainability, you have to generate revenue to have a sustainable business. Whether it’s a non-profit or for-profit in structure, in ownership, it doesn’t matter. You have to run it as a sustainable enterprise that has revenues that will cover expenses. Just that simple. To answer your question, I’ll go back to The CA, we do not run this as how do we go beat up The CA, or how do we go convert their subscribers at all. We run it as, how do we produce the best product that we can? Most importantly, how do we affect our city? How does this meet our mission is overwhelmingly the most important, because once you do that, it’ll meet all those other hurdles or overcome those hurdles.
Then inevitably, I would say we already get, and we already hear this from our subscribers and our readers. I think there’s already been a massive shift to us anyway, even as some of those readers still pay 99 cents to get The CA and monitor that loosely. One of the other things I’d add, The CA’s print product is obviously falling down like every city. It’s also not timely. The way it works and where they’re printed, it has to be done at a certain time of day. It does not allow them to have –It’s true of most printed papers in the country, you have a cutoff time. The power of digital, as we all know, is there is no cutoff time. You can constantly update the story, constantly correct a story, because we’re not perfect. You can constantly modify the story as news changes.
Print, to me– I was addicted to print, and I was a voracious reader, a huge believer in all periodicals, and again, in the local paper. That was one of the reasons we started this, because we have that deep-seated belief in its importance. I never thought I would give up a paper in the morning, a physical paper, but I’m now fully addicted to digital of all the media I read. That’s an important thing to point out, though, because most of the local papers in the country, and again, you know this, the vast majority of their profitability, when they were profitable, came from and still comes from their print product that is falling off. That’s not sustainable. We looked at that. We looked at, do we do a paper product, even if it’s weekly, and the math is just beyond brutal? It just does not make sense.
Jacob: Do you incrementally increase subscription prices for your current subscribers?
Andy: We do. We do it, I’d say, in a granular way, in a very targeted way, and then we also don’t effectively collapse our pricing power by offering– I don’t want one of our subscribers going to dinner with a friend and saying, “I get Daily Memphian for a dollar a year.” That immediately, it’s offensive to me. What have you done to your other subscribers? I’m not saying we never have discounting. We do, but we don’t have this radical discounting, and we’re extremely targeted about how we do it. I do want to add, one of the things we need to do a better job of, we already offer it at no cost to teachers, underserved neighborhoods, students. We need to do a better job getting that message out and getting those free subscriptions out.
The other thing we do a poor job of articulating, and that’d be on me, I’m not picking on our team, but nationally, some of the national funders, we’ve done a poor job of even explaining, we are free. All of our critical content and crisis is free. COVID, all that coverage was free. Election’s free. Anytime we’ve had anything that I would characterize as a crisis and emergency is paywalls down. Then the other thing I’d tell you is paywall is such a dirty word I’m trying– When we had Tonight Media conference, I joked with Eric. I mention Eric Barnes. I don’t like founder terms, but I’d say co-founder, because a lot of us were– That’s, again, uncomfortable because we’ve had such a good group help build this.
Eric and I were in media night together, and I said, “We would have been better off just saying we’re in the porno publication, pornography business than the paywall bit.” We get as an equally happy reception. Paywall has become such a dirty word to so many of the funders including the largest national funder of nonprofit media, and I don’t get it. It’s very frustrating to me. I think it’s a challenge to us to come up with better terminology, because even our paywall isn’t a pure paywall.
I’ll tell you that is, again, why we want to get out there more and more because we want to have a civil and thoughtful debate about what the structure should be, and that includes generating revenue for your content. Again, doing the work we’re doing to the city, we are providing at no cost, so effectively, you have a very large group of people paying full ride, and then those who can’t or shouldn’t have to pay the full ride don’t. That’s tricky to execute, but it is doable.
Jacob: Then when we talk about the funding, obviously, the very biggest funders hate the fact that there’s a paywall, but of the people and of the organizations that are contributing funds, is it primarily small individuals or is it bigger institutions, and what are the bigger institutions looking to get out of this?
Andy: When you say the nat– You’re talking about the national funders or our existing funders?
Jacob: Your existing funders.
Andy: Our existing funders runs the gamut from hundreds of individual donors, to our largest foundations in the city, to our corporate leaders. We’ve had a diverse group of funders unbelievably generous and unbelievably trusting. I want to say something else on that. The other place we got hammered early by the national funders, and specifically the largest national funder that I won’t name. You probably know who they are. We were friendly but very frustrated. They had two things they didn’t like about our model. The paywall was anathema to them, and we were DOA on that. Then the second piece that we hadn’t talked about is a lot of our initial funding was anonymous.
That to me– Our city is a very generous base of philanthropy on a city that has a lot of great needs. The thing I find comical is someone giving anonymously is an advantage, and we were penalized for it, because the perception was we’re in the media business. Journalism is all about transparency. That’s not transparent, and you could have Putin supporting you and trying to pull the strings. I wasn’t offended by the concern that who is funding, what are they getting? That’s a fair question. One of the things we offered and we still offer, all of those donations went through the Community Foundation of Greater Memphis, which is our largest community foundation, which has a peer in every city in America.
Every city in America has a large community foundation. I know of every donor. I’m the only one that actually knows who every one of our donors has been and is, unless– One or two cases there’ll be a pure anonymous that even I can’t see. Of the major donors, I’ve offered the national donors, “You can go meet with the president of our community foundation here, he’s a great person, and he will sit down with you and confirm their local, and most importantly, there are no strings attached of any donor.” Any of our donors at any level, no coverage requirements, no board seats, no requirement of any kind behind that donation, and we will guarantee that.
That’s the part that frustrates me is a lot of those that get dollars, even if they claim was transparent, I got money from Exxon, but Exxon wants me to cover a climate change article about carbon recapture, okay, and I’m fine with that. You’re going to say all that, but how is that better than having an anonymous donation that requires nothing? Oh, and by the way, it has no clawback either. I should have mentioned that. We raised an enormous amount of money up front, because that’s also the only way I think you can start this. We raised over $7 million before we even announced we existed.
To have that capital in hand allowed us to start this from a standing start, which, again, is the business model. We tell other cities looking at this, “I think you have to have that. You have to go big and go fast.” That was an incredibly trusting group of donors supporting us, because inevitably, they were trusting us to execute on this, and they knew it was a– I always called it philanthropic venture capital investing. It was big risk, big need, go try it. The vast, I would say, I guess you can never say all, but the super majority of our supporters are very pleased with where we are. We’re imperfect. Nobody’s ever happy about everything we do or everything we cover, but overall, we still have a very loyal and happy base, and a base of donors that have zero regrets about starting this.
Jacob: A theory I have that one of the reasons local news struggles is because it is oftentimes hard to connect the benefit of local news to the individual. I think they sometimes see there’s a disconnect. Across the bottom of your site in big bold letters it says, “Support the future of local journalism.” Do you find that the majority of your subscribers subscribe purely for a civic reason, or have you found a way to connect the utility of local journalism to the readers day-to-day life?
Andy: That’s another great question that I don’t have a great answer to. That’s really good. I would have to say, with the number of subscribers we now have and the analytics I get to see and all the traffic, and we also have a very large number of free emails, which is its own discussion of, do we give too much free content out, by the way? Our email subscriber list is wildly bigger than those paid so that tells you, “Okay, why is that? Are we giving too much free?”
I mentioned that because I think it would be dishonest to say that I believe most of our subscribers subscribe to this because they want to support local journalism. I think that would be false. I’m guessing, though. I don’t know. Maybe we need to do another– We do different market studies or polls to our readers. Maybe we need to do that. I think the vast majority come to us because they feel like they need to come to us if they want to know what’s going on in our city, and that is our mission.
That, to me, is ultimately why most people subscribe to us. Now, that said, obviously, those who not only subscribe to us but are donors to us, obviously do believe in the importance of journalism, local journalism, and what the Fourth Estate means to any community. I think the way I’d answer it is I think it’s more transactional for those that are just a base subscriber, and then of those subscribers and others who support us financially, obviously, they see that this is much more important than a transaction.
Jacob: A couple years ago, I had Mike Oren, the former Chief Product Officer at Dallas Morning News on the show. One of the things he said really stuck with me was that people who own homes have kids, go to church, vote, and pay taxes are the perfect subscriber. Do you agree with that?
Andy: More or less, yes. What’s funny, by the way, the first paper that I ever read would have been the Memphis paper. The second would have been Austin, Texas, where I went to college. The first as a young professional was the Dallas Morning News, because that’s where I lived. Those papers, like all of us, you remember the first paper, and of course, the different national, whether it’s New York Times or Wall Street Journal or whatever. You even remember the ages you were when you really started to have that daily routine of reading the paper.
I think what he said is right, and I would say it maybe a different way, and then it becomes a huge challenge with the younger folks who’ve been raised on social media. I think it’s, ultimately, I used to say leadership, but I think that’s not right– civic leadership. Certainly, any civic leader, political leader, business leader, I feel strongly knows they need to read us to know what’s going on in their city. It goes way beyond that. It’s anybody who wants to be civically engaged. What he articulated to me is right, but also somewhat dated, and a lot of people that are civically engaged now either don’t have the benefit of doing those things or don’t choose to do those things anymore. Then you say church was one of the ones you listed?
Jacob: Yes.
Andy: I go to church, and a lot of people do, but I also have a lot of friends that don’t go to church, and the numbers of people going to church are dropping off dramatically. If that is right, then he is showing a correlation that’s dropping. I’m not willing to give up on that. I think there are a ton of people who have a less traditional lifestyle than I do who feel a deep need to be wired in and in touch. Then that gets into that delicate balance between social media and what we do. It’s that love-hate relationship where you get a ton of–
We all have talked about this, and you’ve talked a lot about it. Obviously, it becomes both competition and final, and that’s its own longer conversation another day. I don’t know. I’m yet to decide whether that’s something that’s going to kill us or help us. I don’t know. Going back to your question, I think it’s about civically engaged. I think anyone who’s civically engaged finds their way to the paper of record of any city.
Jacob: Are there specific categories of content that drive the biggest number of subscribers?
Andy: Yes. Sports is huge. Metro is huge. A lot of the things that I like a lot that I would say are really important don’t drive subscribers, but you need to do it. Business is interesting, because we have– FedEx is based here, AutoZone is based here, International pay– For our size of city of about 1.2 million MSA, we have a very strong corporate base. Interestingly, a lot of our readers, obviously, want to read about the large public companies, but guess what? We just wrote or did a story that Publix is looking to bring their grocery business to Memphis, and that got an enormous number. That traffic was enormous.
We tell people, of course, we want to have extraordinary enterprise journalism and [unintelligible 00:34:54], but we also– I used to tell people, the Red Cross can’t do their work without a really good communication system, and radios ,and mobile phones that work, and the disaster– We’re not a disaster area. I don’t want to use that part of the analogy. We are that communication system, and not everything we do is sexy coverage, but it’s incredibly important even if it’s not sexy, and I’m proud of that. I think that’s the other thing I wanted to point out. We’re doing a lot of the very basic foundational news that the community wants, needs, and brings them together.
It’s not always sexy, and it’s not always what somebody gets on a stage and brags that they wrote that story. That’s not in any way to diminish the importance of those hugely critical stories. I’m not remotely running away from that. Those are critical also in holding people accountable, in exposing injustice and fiscal idiocy and other things, critical. Hold people accountable, absolutely. I think often it gets underestimated and blown off how important it is to speak to people at where they are and give them news that is extraordinarily meaningful to them on the ground.
Jacob: Can you talk a little bit about the team that makes up The Daily Memphian?
Andy: Yes, absolutely. We have a great team. I would take all day. Eric Barnes, I mentioned earlier, is the CEO. Extremely talented, great person, well-known in Memphis. Of course, I’m going to leave people out, because inevitably, again, there’s too many to name everyone on our list. Somebody that doesn’t get enough attention, Robert Davis, is VP of our board, and spends an enormous amount of time on this and gives an enormous amount of time.
Robert is an esteemed medical journalist, and he’s been widely published, incredibly good person. He’s, again, given a massive amount of time and talent to this. Our entire board has. Another journalist board member is Edward Felsenthal, by the way, who is just the recent CEO of Time Inc. He’s also a Memphian. Jason Israel’s our Chief Technology Officer. He doesn’t get enough credit. What we’ve done with the dollars that we’ve had, I think, is extraordinary, especially when we compare it to peers in the research we did building this. Our entire newsroom, I wouldn’t have time to go through everyone. Mary Cashiola is running the newsroom day-to-day, does a great job.
We’ve got Geoff Calkins, is the most read journalist in the city the last 30 years. Geoff is a Harvard undergrad, Harvard Law, Columbia Masters in journalism. Left the law practice to be a journalist and study in Miami– study in, I think, Fort Lauderdalen, but South Florida years ago. He’s been in Memphis for 30 years. I got to know him through– We had worked on an effort around the Grizzlies, the NBA franchise here. I got to know Geoff that way very well.
I watched how his voice was beyond critical in that effort, and, at the time, the legacy paper. That was the place where this whole massively important civic project played out, because a lot of people weren’t for a publicly financed arena and didn’t care if the team came here. Others felt unbelievably strongly we needed the team. By the way, if you did a survey today, 95% of Memphians, I’d argue maybe 99% would say it’s been an extraordinarily positive thing for the city of Memphis, and is, and it helps bring the city together.
I saw the paper of record, The Commercial Appeal at the time, they were immensely important in that effort. You had to have a strong paper during that effort for everyone to understand what was going on. Anyway, so Geoff, I would throw in there. Again, I’m leaving so many out that it’s a disservice, but we have a team of roughly almost 40 in the newsroom. We, of course, have a great support group for that newsroom. We have an active board of nine, all of whom are wonderful, and all of whom are engaged in this. Again, you put me on the spot because I’m leaving so many out. I literally could spend 30 minutes walking through all our key team leaders and board members.
Jacob: Looking at the teams, it sounds as if the vast, vast majority are on the news side? Do you view–
Andy: Absolutely, yes.
Jacob: When you think about continuing to invest, is there a ratio of newsroom to business side, or anything you think like that?
Andy: No. We have Kathy Kendrick is our controller and our business manager, and she does a great job as well. We run thin on the business side, and we put most of our resources, obviously– Again, we have a good team leading advertising and sponsorships as well, but we ultimately see putting more and more the resources– as many resources as possible, of course, go to the newsroom.
Jacob: One strategy that media companies, that they deploy, is to expand into new markets, because it gives you efficiencies of scale. You can take the advertising team and try to sell across multiple markets. I looked at the map last night when I was preparing for this, and Memphis is squarely in the middle between Little Rock and Nashville. Could you see replicating this strategy you’ve taken and going west to Little Rock or going northeast to Nashville, or is it squarely Memphis and that’s it?
Andy: We’re in Memphis, period, but we will share our playbook and welcome, including Little Rock and Nashville, we would welcome leaders from other cities to come here, and we would happily share our playbook, including the mistakes we’ve made. We think it’s replicable. Now, I will say this. I mentioned Eric Barnes a lot. Eric was crucial to this, to put it mildly. Without an Eric, and without a Geoff Calkins who is ready to come join us as the most read journalist in the city, and without the board we have, and I mentioned Robert earlier and the time he spent in this, without some of the other journalists that I’ve left out, and I feel bad, because, again, I can name every one of them.
The folks that joined us early and the ability to put that team together, and the fact we had extraordinarily generous people, a large number of both– including foundational support that was ready to make a big bet on this, and that included a lot of folks in the corporate community, because I’m talking specifically corporate sponsorships. We had a perfect storm going our way, and then the anger at Scripps, and then really at GNET, of how bad the legacy paper had collapsed in our eyes, in everyone’s eyes, left the rim for this to get going.
I’m sorry, gave us the platform and the tailwind to take off, and it was remarkable. We had everything going our way. It’s the only thing I would openly say is, I think it’s replicable, but admittedly, those ingredients have got to be there for you. I think they are. If, again, every city has what I just named, you just got to put them together. Of course, it’s not easy, but it’s doable.
Jacob: I’d like to ask a question I don’t normally ask, but because I know so little about local media, I think this is a good opportunity for me to learn. What is something I should have asked you about either local media or The Daily Memphian that I didn’t ask you that the audience would benefit from knowing?
Andy: Oh wow. I think, ultimately, what you didn’t ask me is– I’m trying to also think of a way to ask a question that will benefit us. I’m just kidding. I would go around the national support is, what will it take for the large donors to recognize this model, whether they like us or not, and whether they support Memphis Fourth Estate or not. How is this going to play out for local papers of record throughout the country?
What you didn’t ask, but I think you agree. I think you have to have healthy local papers for a healthy country. I believe that. I think you have to have that. There’s some that may not agree with that or don’t believe it, and we also can define healthy in different ways. The other thing you didn’t ask me that is related to this answer is balance. I think you have to be balanced. I at this moment have people in the far right and the far left, the way I would define those groups, who are really mad at us. The far left says we’re elite, corporate biased paper, and I’ve got far right people yelling at us that we’re wildly liberal and we’re woke.
I truly have both of those terms being used from both groups. I think we’re doing something right, because the wings, the far extremes do not like us. By the way, but they read us. I also get a kick out of that. They don’t terminate their subscription or cancel their subscription. They just get mad at us, and that’s okay. What does it take for us as a country to recognize this as the model? That, I think, is going to start with the philanthropic donors. There is actually legislation in DC that is being considered to provide funding for local media. I’m not going to get into whether I think that’s smart or not. I think there are huge pros and cons, and if the money is available, obviously, we’ll jump at it.
Part of this question has to get down to, if you’re going to have all this national support, philanthropic support for media, how are those dollars going to be properly and intelligently allocated is a huge question. Then second is, how do you allocate to what model, and then how are these things going to be sustainable long term? So that once those dollars are not available anymore, or will they always be available? What you didn’t ask me is, do we still have a gap? When we started this, we wanted to have no gap. At this point in our story, I wanted to be able to tell you we’re covering 100% of our expenses with operating revenues.
This is exactly how we had to go nonprofit, because we aren’t there. I mentioned earlier, we’re about 70% there. When we talk to peers, I literally know of no other peer that’s over 30%, with no exaggeration. With maybe the exception being some of these papers like Salt Lake that converted to nonprofit, I’m not including those. I’m talking about a startup, digital nonprofit, similar to our model anywhere in the country, like we’ve got to have them. I’ve heard of no one that has a higher or equal amount of operating rev. That’s going to be the question is, okay, then what’s going to happen? How are these things going to be sustainable?
Jacob: Is there a path to The Daily Memphian getting truly sustainable?
Andy: Yes, I think so. I think we have multiple revenue streams, the biggest being subscription and ads. We’re growing those, and I should have mentioned that. They are growing. Number one, that path is you grow those into your budget. Number two, you can cut your budget. Knock on wood, we haven’t. That’s really important to point out. There is a model today, and Eric and I talked about this in our board– We talk about this with the board, obviously. There’s a model today we could try to do less and probably break even. Then we wouldn’t necessarily be meeting our full– We certainly wouldn’t be meeting our goals of broader coverage, but then we also wouldn’t be serving the community as well.
Then finally, if you really look at the net difference of the annual raise we need philanthropically, I don’t say this loosely, lightly or casually because it keeps me up at night. If you do that dollar amount and say, for that dollar amount, and just let’s say it’s a million dollars, just broadly, for a million dollars a year, if I told the philanthropic community of a city of 1.2 million that has a lot of challenges, but also has plenty of wealth. I said, for a million bucks a year, you get a very healthy, very balanced, very constructive, important, effectively civic enterprise that is your paper record, is that a deal? That’s a deal. That’s a good deal. I think most people would say, “Heck, yes, I would do that.” That makes me feel good.
Again, I don’t take comfort in that because that’s still a lot of money a year to raise and that’s still a headache, to put it mildly. That, to me, is actually sustainable. I should have mentioned this. When we’ve spoken to a lot of folks about sustainability, and when we tell them how our budget is the way it is, and I’m talking about specifically in nonprofit journalism, they say you are already sustainable. Their attitude is, if that’s the percentage you have to raise a year, you should be able to raise that a year. You’re already good.
We don’t look at it that way. Again, I look at it as no, that’s a deficit. That’s an operating deficit we got to fund. We don’t want to have an operating deficit that we have to fund. Anyway, I hope that answers it. I think we have a reasonable model today that is sustainable. To make it purely sustainable, you would theoretically not have any philanthropic needed every year.
Jacob: I want to end with the same two questions that I ask every operator that comes on the show. First, what is a mistake that you have made in your career? What did you learn from it?
Andy: How much time do you have? I’ve made a lot of mistakes. One mistake I’ve made– I’ve made a lot of mistakes. One of the mistakes I’ve made is the things– I shared this with a college class I did on a real estate project the other day at my son’s college. Is sometimes I’ve claimed to be an entrepreneur, and I’ve tried a lot of different things. I’m primarily a real estate guy. I have an operating real estate business in the outdoor hospitality world. That was a good idea 16 years ago, and I didn’t do enough. I didn’t grow it fast enough when I should have. It’s successful, and I’m happy with it, but it’s much smaller than it should be, because we should have done more earlier.
In many cases, I’ve been too conservative, and I haven’t gone big fast enough. In this case, we actually did learn from that and said, “We have to go big. We’ve got to get this going and be the paper-of-record as quickly as we can.” It can’t be just two people on a blog. It’s got to be clear that we have the ability to grow this thing. Also, that we’re going to be around, that the people don’t have to worry about the lights going off. On that, I’d say, even a specific mistake we made on that, and Eric and I joke about this all the time, we didn’t have a lot of weekend coverage. I know that sounds hilarious, but we really didn’t. We were like, well, as we played this out.
We didn’t have a University of Memphis basketball reporter. University of Memphis basketball here is a huge deal. We do now on both those things. Just the fact that we thought we could get away without doing that, that lasted about two weeks. We immediately realized this is– We’re dumb. There are mistakes that I would say were as much about what we didn’t do to go big as there were– It was omission more than commission in many cases for this, especially.
Jacob: Second, what is some advice that you would give operators looking to grow their media business?
Andy: Prayer. I think, steal as many good ideas as you can. We spent a year doing research. Before that, we had spent years being– Eric had already been in the media business successfully. A lot of people engaged in the board had already been deeply or media professionals. I’d say humility, and take advantage of the fact people want to help you. We did that. We had a lot of very kind people, including Jim Brady, who’s now the Knight Foundation leader in his previous life– Leader in media, I should say. We took advantage of the fact that folks wanted us to win, and they shared a lot of really helpful information with us. We do the same where we try to when people call.
I think my biggest piece of advice would be, and I’d say it humbly, would be ask a lot of questions of a lot of people. Then don’t be afraid to do a structure you didn’t think you were going to do. Again, I want to reiterate, we started this thinking we would do it as a for-profit, even if it was a really bad return to the investors. That wouldn’t work. Again, I’d finish the way I started. I think this business model is so challenged that it has to be this non-profit, but almost a hybrid in the sense that you have to be a rigorously disciplined business manager of the enterprise or it will not– You have to have a business minded person running it and a board that thinks that way or it won’t work.
