Network Effects For Sustainable News Startups

Thanks, Wikipedia: Small-world network example
Hubs are bigger than other nodes

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After the latest terrible rounds of media industry layoffs this past week, there was plenty of Twitter chatter about models for digital news sustainability. See: Chris Hayes, Rep. AOC, Josh Stearns, Zeynep, Vivian Schiller, Pareene, Emily Bell, Joshua Benton, Zephyr, Jim Waterson (via Aaron Bady), Haley Mlotek, Stoller, Jia Tolentino, Jeremy Littau, Indra Lakshamanan.

Holy Mackerel, the scale of the response to Chris’ Tweet, below — it was like my entire Twitter feed came together to respond to Hayza’s plaintive cry:

I hollered back about how Twitter’s format isn’t amenable to differentiating between various project goals, and I gestured towards “decentralization”:

Put broadly, I think we can bucket different types of startup projects:

  • Type A: VC-backed for-profit media, seeking to deliver returns to investors
  • Type B: Sustainable for-profit media, such as TPM Media, or in the software business, the classic example of 37Signals — real-service-to-customers- driven profit. Other examples would include Certified B Corps such as Kickstarter.
  • Type C: Earned-revenue-sustainable non-profits — in this case, media orgs. with at least 50% or 67% of revenue from stable subscriptions, or products and services with a solid revenue forecast.
  • Type D: charitably-funded non-profits—broadly, any news org. with more than 50% of funding coming from foundations or philanthropists whose giving priorities could conceivably change in five years. Some earned-revenue, perhaps, but not enough to keep up a critical mass of programs.

The sustainability strategy and business models for these types of media companies will of course differ, as then would their digital news and content offerings. But whichever type is the goal (which may of course change or evolve), in the current declining-ad-market and declining-social-traffic environment, each type of “news startup” will likely incorporate subscriptions (pay $5/mo. to read, through either the relatively-hard paywall, like the WSJ, or relatively-soft paywall, like the NYT & WaPo) or memberships (pay $5/mo. to support our mission, like NPR stations).

For type B & C startups, one challenge in the membership-driven field is that recruiting a critical mass of recurring-small-donors is challenging when your initial traffic is on the scale of ‘just’ hundreds of thousands of visits per quarter, not millions of visits per quarter. The legacy media brands have an advantage in converting their longtime readers & traffic sources to donating members or paying subscribers.

Even a startup site that does original and quality work in the crowded media landscape can find itself in the position of asking readers to be the tenth or eleventh or twelfth recurring-donation charge. A typical reader might pay for NYT & WaPo, a legacy magazine brand, a small local news publisher, and several email newsletters or podcasts, in addition to paying monthly for internet & data access, streaming music & video services, cloud hosting for photos, etc. Asking readers to be the fourth news $5/mo. charge is a challenge, and pitching being the twelfth is a haul, even when the value is unique and the engagement program is warmly active. At the same time, member-driven sustainability is still where you def. want to aim.

Over the past 13 years, I’ve been part of mostly type D (OpenCongress, with an exit; AskThem, in hibernated re-development), one type C (Councilmatic), and now type B (Sludge, currently a Public Benefit Corporation). As a startup Director, you’re responsible for matching available resources with strategic priorities and product roadmap, responding to real-world analytics with team development time, and determining areas of emphasis and work deadlines.

What follows is a back-of-the-envelope calculation of how a staff-person’s annual pay could be broken out by small-donor membership base — obvious caveats here, that these ballpark figures do not cover all publishing expenses, and do not provide for the important employee benefits and training, and wouldn’t be enough for many personal and family situations, and don’t offer enough for re-investment in startup’s growth, etc.—but, towards full-time work in publishing independent work and building an engaged audience:

Full-time professional $60,000 annual target pay, at $5,000 per month, can be met by 1,000 donors at an average of $5/mo. for subscriptions or memberships. A team of five full-time equivalents can set a goal of 5,000 donors at $5/mo. for a funding base, and then layer-in revenue from consulting, events, sponsorships, ads, content partnerships, or other services. Think: two reporters, an editor, a community manager, and partnerships / business development lead, with some freelance contributors to the project.

If signing up 5,000 donors at an average of $5/mo were straightforward in the current media environment, it’s very likely that more reporters and writers and media producers would leave their current day jobs and hang their shingle for the chance at independence. Because being independent is awesome, and it makes possible far more incredible work during our time on Earth. But for most startup types B & C , while it’s possible to sign up hundreds of recurring-donors over three-to-six months, making headway on the path to thousands of $5/mo. donors requires more publishing runway than is typically feasible. (Perhaps it’s 18–24 months, not six.) Think of $5/mo. email newsletters: they’re generally solo efforts, not supporting teams of two or three for daily investigative journalism.

There are fewer type A investors for journalism startups (for example, the Matter VC accelerator is in transition), and type D funders may not exist for adequately-staffed local newsrooms in each of the nearly 500 U.S. urban areas with at least 50,000 residents (Grand Island, NE, at 496, or Pascagoula, MS, at 497?). Without a five-person team, it’s hard to fulfill a robust mission; but if your startup can get up to that sufficient base of three, four, five thousand monthly recurring donors, you have pretty stable ground for planning, partnerships, experiments, and additional revenue growth.

Here’s where the benefits of a decentralized publishing platform come in, creating network effects for independent sustainability. Startup types B and C might want to opt-in to join a decentralized publishing platform because they maintain 100% control over ownership of their startup and operation of their work. Unlike a free platform like Medium, they own the database that stores their work and license the terms by which it displays on the internet. And the affordable costs of joining such a decentralized network are worth the expense, because the platform is governed as a co-op, and the rules of the token-curated registry are transparent and collaboratively determined.

With a decentralized platform made possible over a blockchain such as Ethereum, it’s not possible for a single company founder or one major funder to unilaterally make changes to the platform’s rules of operation. The process of changing platform rules is fully set through a transparent governance process, visible to all and executed by the math of the token curated registry over the blockchain.

That’s why decentralized platforms deserve to be trusted, in the “trust-less” sense—blockchain technology guarantees that when listed on a token-curated registry, the community rules will always be as the parameters state. The rules of the Constitution are enforced though votes on the registry, as a liquid feedback platform that creates a true cooperative—different from a non-profit, which can switch its program emphasis at the expense of grassroots community, or mega-for-profit, which might decide to compromise its previous privacy standards for profit.

While the community can move to change it through a formal process, that process is fully stakeholder-driven, with voting outcomes verifiable by outside observers. As a result, our Sludge news publishing as part of Civil’s token-curated registry cannot be changed without weeks of strongly-informed, multi-channel community deliberation—and our news articles themselves can never be changed or altered in a compromising way after the fact, because they can be archived permanently on Ethereum or IPFS, with fully-transparent updates and version control. Everyone has the same assurance that publisher and audience growth of the Civil network will benefit our wholly-self-owned sustainability. For more, read investor Chris Dixon in WIRED on Jan. 4th, or of course science writer Steven Johnson’s NYT Mag cover story on blockchain’s features for self-sovereignty, on Jan. 16th, 2018.

Such a decentralized network, by virtue of sharing a community of practitioners and self-governance, can still generate positive network effects. Being part of a shared platform encourages collaboration for mutual exposure and fair benefits: a local news audience can gain quality reporting through the expertise of policy journalists, and policy newsrooms gain an engaged local audience for their analysis. A shared platform (while each site retains its own ownership) means new subscribers in Southern California gained through quality local news collaborations thereby help grow the Civil network in upstate New York, and vice versa. Individual newsrooms can pivot and test new revenue strategies in ways that are compliant with the Civil Constitution and fairly-challenged by other token-holders on the network, and out of this decentralized foundation, news websites should get a lot better, less ad-cluttered and click-bait-y. Content worth supporting… with donations!

For example, on testing new membership programs and revenue strategies: for nearly every article we publish on Sludge, there is an opportunity for follow-up outreach and engagement. From our most-recent investigation by Sludge co-founder Donny Shaw into Big Pharma contributions to a leading House Dem, some ideas for follow-up from the time our article is published:

  • In-district outreach to community groups and government watchdogs in the Silicon Valley area of CA-18
  • Outreach to people who have been prescribed biologic drugs as treatment
  • Translations into languages such as Spanish, Chinese varieties, and others
  • Short social-media videos with subtitles and/or translations, for social-sharing of every news article and wider accessibility
  • News illustration for our money-in-politics reporting other than photos of members of Congress, specifically using the unique reporting of story
  • Further research into the rep’s voting record on health care issues, going back deeper into previous Congresses and publicly available statements
  • Data visualization of campaign contributions and legislative activities
  • Town hall meeting organizing, or planning of candidate forums, for local public dialogue with members of Congress, state & city elected officials, and district staffs, creating feedback loops for continual accountability

Sludge’s small team can manage these outreach projects and follow-up reporting tasks centrally, by emailing and linking to Trello tasks and shared Google calendars and Mailchimp analytics and accounting services and sending Paypal payments from our bank account. But for every article, every week? We have to write and edit our core reporting coverage, too. That’s a lot of wrangling for tasks that, by acknowledged design, might not yield much traffic or more memberships or impacts. Startups currently suffer a mismatch in the scale of potential productive experiments in membership with the resources involved for starting & managing them. At the same time, if one type of local outreach yielded more engagement and Membership signups, we would likely shift our resources to continue to build out that strategy.

Another way that we can openly experiment with impacts from our articles is to have these tasks be further distributed and managed through smart contracts using the CVL token on Ethereum, in ways that are ethically governed by the Civil Constitution and its journalistic standards. A San Jose reporter could sign-on to a community outreach contract from a Sludge article as long as they had successfully gone through the process of applying and being approved on Civil’s token-curated registry, and was therefore able to activate small, defined contracts involving CVL (and perhaps other forms of compensation as well: links of public credit for promotion, labor-swap, rewards programs, USD transfers, or other cryptocurrency such as ETH).

Freelancers in the marketplace don’t necessarily need to have a personal IRL connection to a newsroom to sign-on to a contract for journalism work if they’re in good standing on the registry, though they would need to be verifiably transparent about their qualifications and their professional identities. A freelancer could sign on to five hour-long contracts per day with Civil newsrooms, and when the completed work of each is verifiable according to the terms of the smart contract (for example, published by a Civil website to Ethereum, or just transmitted manually to an editor for review), the transaction involving compensation is executed in just minutes on the blockchain, without extensive emailing of invoices or needing to trust that you’ll be able to reach a busy manager or someone on vacation. A freelancer can contribute fact-checking or news illustration skills with the confidence that, if the work is done as per the terms of the contract, they’ll be compensated for their labor right away, exactly according to the terms of the smart contract they signed with their crypto address signature. The breezy turnaround time is an incentive to find and sign a project smart contract, do some nifty work, and harness your real-internet-real-life social networks to share with your human reputation and enthusiasm, for wider social attention—to contribute your skills and professional graph to the growth of a decentralized network.

What’s more, smart contracts can build-in fair and transparent incentives — for example, if an article prompts an engaged response from a local community, that can unlock a higher tier of compensation in cryptocurrency / USD, or an option on future bylined work, based on quality of performance. Again, the ethical and journalistic standards of contractors and newsrooms, according to the community-generated Civil Constitution, would be continually reviewable by all CVL token stakeholders.

The math of the blockchain, then, enforces and underlies the token-curated registry. The token-curated registry turns a publishing platform of decentralized websites into a real network (an actual community, sharing a mission and Constitution and governance process). A real network can generate positive network effects, steadily building audience and engaging members. Positive network effects can lead to independent sustainability for local news and investigative journalism—with lots more open experiments in the membership and subscription models, for sharing best practices with the wider field of journalism.

To bridge the gap between hundreds and thousands of recurring donors for a news startup, collaborations and freelance projects and editorially-directed tests will all be required, and the decentralized model offers a trustworthy way for the field to conduct them in a true co-op fashion. This is a key advantage over simply bundling together subscriptions to multiple news sites, though props to those startups—I hope those experiments succeed as well for independent sustainability, it’s definitely not either-or, bundling or decentralization. It’s going to take lots more experiments, which is the point.

Take the 495th-largest U.S. urban area (above 50k population), which is New Bern, N.C. — does a $5/mo. bundled-subscription to national publications do enough to under-pin the membership revenue for sustainable local news in their area, as well? The growth of a network of decentralized publishers will harness the human-created value of quality reporting, real-person social sharing, engaged membership, relatively-reliable local subscription revenue for planning and sustainability. Managing it at a national scale, and beyond, is possible with tech that allocates funds transparently and frictionlessly and trust-lessly, according to human-signed smart contracts and the wealth of human attention. And the incentives of the local newsrooms and national policy publications on the network are aligned.

Decentralized publishing, as I view it, is a key step towards enabling the survival of independent news reporting projects, as antitrust law catches back up to the realities of the marketplace and democratic needs, and as open technology for micropayments develops. Because: computers are really good at allocating resources automatically—so when human will flags at signing up for another $5/mo. donation to a local newsroom (even as telco & ISP monopolies charge exorbitant fees and profit from internet & data service), there’s still a way to match up quality passive human attention and deliberate activity with a global pool of funds for information needs.

Going back to the $5,000 monthly target pay for a staff-person, another way to generate that is from about 1,613 donors at a dime-a-day—which, for individual donors, would be an improvement on the $0.16 per day over 31 days they’d be giving at the traditional $5/mo. level. But the numbers really start to work at the level of a nickel-a-day, requiring 3,226 donors, or a penny a day, at 16,129 donors— there are plenty of close-at-hand cases of independent reporters with 16k+ Twitter followers, ballparks for audiences who would pay on average $3.65 annually to support that writer. It could be a special type of independent journalist, which might even be managed by its own token-curated registry for reputation, ethics, diversity, and financial situation.

Crypto’s advantages over fiat here are as follows: highly efficient (and still developing) ways of managing these micro-payments, through a high degree of self-sovereignty (set transparent terms by which I’ll continue my payments, e.g. must publish minimum of one article per month); customizable privacy; and lack of middle-person fees. Looking ahead to one possibility in the medium term, attention tokens and blockchain-backed internet browsers and other apps will be able to automatically allocate funds from a co-op or a pool over the blockchain. according to human behavior. With projects like uPort and others on Ethereum, it will be possible to view personal dashboards of different levels of micro-payments, setting strict individual limits of how much can be allocated from a hot wallet per month, managing all the various logins for special rewards programs through one Metamask account via a browser plugin or mobile app. Imagine: just one highly-customizable, privacy-aware, personal login for thousands of news websites, with the guarantees of the blockchain. Only the additional passwords you want to set, with all the benefits of self-sovereignty through open-source smart contracts.

Twitter’s 67 million monthly active uses could be fairly described as “extremely online”, so let’s use that as a starting peg to to imagine subscribers to a “dime-a-day” global fund for independent content, with an emphasis on news. The numbers are a bit boggling, but at just $36.50 USD annually, the resulting $2.45 trillion annually could be allocated by blockchain micro-payments to 40,758 full-time equivalents, tens of thousands of independent projects and local newsrooms thriving annually, before additional revenue streams. Meeting the potential of abundance and decentralization on the open internet, in a fair and inclusive co-op model, for continual public accountability and local impact. Much of my money currently going monthly to fat profits for monopolists could be re-allocated to make possible full-time free culture hacks and radical, independent work that changes our ways of interacting with the world, developing new commons resources for continual efficiencies.

I would happily pay an independent provider one-third of what my ISP and data services cost me for a more-true cost of access—fiber-internet is possible even in the U.S. for just $10/month, if there exists an open market and last-mile retail line for competition. The remainder of the $60 I pay monthly to my local monopoly ISP could be allocated to 1000 projects via micropayments around a nickel per day, and that’s just the start of using what I’m already paying to the unproductive wealth of shareholders and unaccountable corporate executives of monopolies. I’m already paying about $3,000 per month in services, which could be directed towards thousands of independent projects at a nickel per day or less.

Last, if you’ve read this far, soon I’ll be sharing more thoughts about the possibilities of various models of state funding of journalism, as seen for example in Canada, through $595m non-profit funding and a 15% tax credit. For an even longer-form ramble, see my personal essay on my mostly-abandoned personal Wordpress install from Sunday, Oct. 15th, 2018. Feedback welcome, email: david at readsludge.com, @ppolitics.