But why?

Several times at tonight’s terrific kickoff of Portland’s new Online News Association chapter, guest speaker Mark Briggs quoted a variation on the line: "nonprofit isn’t a business model; it’s a tax status."

If that’s not a cliché yet, let’s hope it will be soon. It’s certainly true.

Nonprofit news companies are just businesses with a little extra flexibility over here and a little less over there. But as Oregon Public Broadcasting’s Toni Tabora-Roberts said after Briggs’ talk, the country’s most successful models of nonprofit local news – NPR, PBS and their affiliates – consider it unethical to compensate their "development" staff based on the size of the sponsorships they bring in.

I know bupkis about fundraising, let alone public broadcasting. But I know an assumption worth questioning when I see one.

Let’s grab this argument by both horns.

Of course! Nonprofits should treat fundraisers like salespeople and pay commissions when they land sponsorships

The argument:

Humans respond to incentives. The faster news economics change, the more important it will become for news organizations to reward entrepreneurial thinking and results. Paying on commission gives development officers clear incentives to invest time in new ventures, and helps organizations know when to pull the plug on bad ideas. It reminds everyone to be bold and fail fast. It gives managers the ability to tweak incentive structures in ways that encourage fundraising around a promising new idea.

Refusing to pay on commission for a job that basically comes down to advertising sales is a relic from the vanished era of scale. No journalism startup, nonprofit or otherwise, would dream of putting all its salespeople on flat salaries. By doing so, public broadcasters are riding the brakes of innovation.

No way! Public broadcasters know this game better than anybody, and they’ve got good reasons to not pay on commission

The argument:

Public radio sponsorships aren’t just ads. Sure, exposure is part of the package a sponsor is buying for their money. But a development officer is also selling warm fuzzies: The feeling of having supported a good cause. A sponsor can then share those warm fuzzies among its own executives, employees or customers.

Most nonprofit funders are ignorant of whether their money is being spent well. Almost all their information comes from their contact in the recipient organization: the development officer. Therefore a funder can’t get warm fuzzies without a close, trusting relationship with a development officer who they’re confident isn’t just out for a quick buck.

I’m already constructing the next round of arguments in my head, but that’s how the basics look to me.

(Creative Commons pledge drive photo by Indiana Public Media.)

I’ve been doing my own thing for exactly 11 months. This does not make me a moneymaking expert. But I’m as certain as I get that I’m right on this one.

First, two points of information:

1. Yes, pageviews and uniques matter to advertisers. I’m saying they’re not the main decision driver.
2. Yes, a few people make money on traffic alone, or something close to it. I’m saying that for those of us at content companies, as opposed to technology companies — which includes almost everybody here at the local level — traffic for traffic’s sake is a sucker’s game.

Don’t take my word on this. Take it from Numbers Nick Denton. It’s the principle behind his ballsy, controversial Gawker redesign:

Many web advertisers, even those that buy banners, treat it as a direct marketing medium. For premium media properties such as ours, this is a contest that should be avoided at all costs. It’s a race to the bottom — for the lowest quality ads and the least valuable visitors. … Gawker Media has already put distance between our properties and those of the commodity ad networks. We booted them out from our titles five years ago; they were cheapening the sites and devaluing the brand benefits to our directly sold campaigns. … Critics say internet advertising suffers from limitless inventory, which depresses prices. These exclusive front-page sponsorships are not limitless. If HBO doesn’t move quickly enough, Showtime can buy out Gawker and Jezebel for the key fall TV season. On any individual day, there isn’t room for both of them; and that’s healthy. After falling by half from 2004 to 2008, revenue per page has now stabilized.

Is Denton’s execution crap? Maybe. But his reasons are sound and his figures don’t lie.

• The Oregonian doesn’t make money on pageviews; it makes money by being the only website in the Northwest that prints 250,000 sheafs of paper every day and distributes them to a zilliion homes and every high-traffic location in town.
• The Mercury doesn’t make money on pageviews; that’s why its writers are forbidden from seeing how popular their stories are.
• ReadWriteWeb doesn’t make money on pageviews; the house ad on its front page plays up its audience of “tech influencers,” not its 2 million monthly visitors.

These publishers make money on the strength of their brands. They make money from advertisers who have heard of them, who like their content, who want their particular slice of the audience, who have a gut feeling that being associated with them would be a good idea.

Pageviews are dandy: more chances to see an ad are always better than fewer chances. And pageviews are useful: they’re a leading indicator of brand strength. More visits mean you’re probably doing something right. This is why journalists are attracted to them. (And yes, I check mine every week.) But do more pageviews bring more money? That’s correlation, not causation.

As a news-business reporter and a two-bit publisher, I see no evidence that web traffic is the key currency in profitable journalism, especially local journalism.

And without evidence, we should make sure that our attempts to sustain local journalism aren’t built around the assumption that maximizing pageviews is the road to profit.

(Creative Commons eyeball photo by Kaptain Kobold.)

“We tried that. It didn’t work.”

But there’s a powerful rebuttal to that case, one that grizzled online-news veterans (like my man Steve Yelvington, linked above) miss: The economics have changed since last time.

No, consumer desires haven’t changed since 1996. Sorry, Al, they wouldn’t pay for traditional newspaper content online then, and they won’t now. But local media incentives have changed since 1996.

The real question: whether those incentives have changed enough to force newspapers to make the crucial shift that could keep them alive — a shift to niche products.

If you want to understand how newspaper incentives have changed, you need to understand the following short story from the great Northwest.

It’s a story about hog fuel.

Hog fuel is a byproduct of papermaking. It’s basically a bunch of tree scraps that get left on the mill floor because they aren’t even good for turning into pulp. Paper plants, like this one in my old hometown, produce hog fuel by the metric ton; they can’t avoid it.

What do you do with a nearly worthless byproduct? Maybe you could find some odd use for it. But that’d take a lot of work: gathering it, measuring it, marketing it, lining up buyers and shipping it to them. And for what? Obviously your workers’ precious time would be better spent on the operation that makes the real money: paper.

No, it’s much easier to find some use for hog fuel that costs nothing. And that’s exactly what paper mills do: they burn it. Hog-fuel furnaces offset a huge share of many paper plants’ substantial electricity bills. It’s a cheap and effective way to dispose of something you’ve got too much of.

But what if paper suddenly ceased to be so profitable?

What would happen to your hog fuel then?

You’d still have a mill that’s very good at chopping up trees. But suddenly, you’d start looking closer at your hog fuel. You might start looking for those obscure hog-fuel markets. You might start chopping your logs a bit differently to maximize the value of that hog fuel. You might even start researching how to turn hog fuel into something really valuable, like ethanol — research that would have never been worthwhile before.

You’ve got incentives you never had before to make hog fuel valuable.

Hog fuel is Web content. Paper is — well, paper.

In 1996, when the print product was gushing cash, the rational thing to do with newspaper content online was to throw it up for free. Unlike with paid online content, which requires a helpdesk, a sales effort, and maybe even some changes to the production process, the marginal costs of free content were minimal.

The newsroom was already churning out a metric ton of content, after all. So what if it wasn’t optimized for online readership? Hire a kid to hit CTRL-C/CTRL-V for an hour or two each morning, and you’ll get some cheap exposure, a hunk of cheap online ad sales and a cheap feeling of progress.

But now, the paper market has dried up.

It’s time to figure out what to do with all this crap we’ve been leaving on the floor, kids. We can squeeze money out of it. We just have to change the process a bit.

They’re wrong.

A year ago — three months ago! — I would have been the last person to make a case for paid content. But I’ve been coming around, and not for the reasons you think.

It’s not because I think newspapers can ever turn back the clock or put the news genie back in the bottle. They can’t. From now on, most content will always cost $0.00.

But not all content will be free, because money is not the only cost consumers must pay to read content. Gathering information — even free information — requires time, effort and knowledge: time to find it, effort to determine whether content is reliable, and knowledge of what content does or doesn’t exist.

If a product can save its readers enough time, effort or knowledge, they’ll pay money for it.

This isn’t to say that newspaper Web sites in their current form can save people enough time, effort or knowledge to be worth money.

My point is: the problem here isn’t the price.

It’s the product.

(photo courtesy Flickr user Roby72)

The story stirred up a predictable tizzy among futurists. Newspapers’ job is “to inform the public to what’s going on,” wrote Chris Tolles in an intelligent but presumptuous post (not pegged to the search engine story, but quite applicable). Search engines, wrote one Techdirt contributor, are merely “making that content more valuable by making it easier to find.”

Alas, these generalizations don’t fit small markets.

What Tolles describes is the job he thinks newspapers should do . . . in the future. But don’t mistake his prediction for a sustainable business model. Today, newspapers do much more than provide news content: they sort, prioritize and distribute it; they pair advertisers with content that fits their needs; and in small markets they even design the damn ads.

Someday, maybe, a model will arise to support pure newsgathering operations of decent quality. But until then, mere reporting simply doesn’t pay for itself, especially at the local level, where there aren’t enough rich people to support philanthropic drives like NPR’s or enough outlets to support economies of scale like the AP’s.

Moreover, whatever Techdirt may assume, local newspapers have a very different relationship with Google News than Agence France Presse does. Unlike national outlets, local newspapers have little use for non-local traffic. Non-local readers who stumble in from national aggregators don’t fit a local newspaper’s niche; visitors won’t be buying locally, so they only dilute the value of the paper’s pageviews.

As I wrote yesterday, local papers need to become the dominant information-and-connection brand within their communities. They won’t do that with news alone, and they certainly won’t do it with news outside their niche.

So what’s the harm in opening local news content to search engines and news aggregators? Don’t laugh: competition. Unlike national outlets, local papers retain near-monopolies on original reporting within their niche. This eliminates a major value aggregators and search engines provide consumers: diversity. Until local papers no longer have the dominant local news brand, small papers who hand their headlines to a local aggregator are asking people to start turning to another brand for the news.

As Carl Howe argues, newspapers provide the increasingly valuable service of cutting through all the crap. (Several of these links, by the way, come courtesy of Howe’s own post on this subject.) Newspapers judge what’s important to their audiences, and arrange it accessibly. This is as important as newsgathering itself. But aggregators like Newsvine aim to do the same thing better and cheaper. If they succeed, they’ll use that advantage to demolish the brands of local papers. And when that happens, Newsvine won’t be paying for the level of newsgathering that newspapers now do.

If, however, local papers can quickly co-opt the innovations of aggregators and search engines and tweak that technology for local use, they have a fighting chance at remaining the dominant local information brands. That should be their goal.