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From AJR,   March 2010  issue

Plugging the Gap   

As Chicago’s struggling newspapers cut back on coverage, an ambitious news cooperative run by a former Tribune editor and heavily staffed by Trib refugees has emerged to pursue public service journalism. Its premier client: the New York Times.


By Sherry Ricchiardi
Sherry Ricchiardi (sricchia@iupui.edu) is an AJR senior contributing writer.     

A year and a half after he was ousted as editor of the Los Angeles Times for bucking budget-slashing bosses, James O'Shea had what he describes as a "3 a.m. epiphany." After months of thinking about the sad state of American journalism and trying to come up with ways to improve it, O'Shea bolted out of a sound sleep in the predawn hours last June with an idea: "We should start a co-op," he thought.

The veteran newspaperman slid out of bed and headed to the computer in his one-bedroom apartment in Cambridge, Massachusetts, a few blocks from Harvard University's Joan Shorenstein Center on the Press, Politics and Public Policy. O'Shea was there on a fellowship doing research for a book about the ill-fated Tribune Co.-Times Mirror merger.

Sitting in front of his laptop, he recalled the early days of his career when he reported on Iowa agriculture cooperatives for the Des Moines Register. O'Shea began Googling co-ops around the country and how they operated. Why couldn't a similar business model be adapted to a news outlet?

Too excited to go back to bed, he went for a 5 a.m. jog, then headed to his Harvard office to sketch out a plan and contact cohorts who had solicited his help in developing an alternative news operation in Chicago, where he had worked for the Tribune for 27 years. O'Shea, 66, was the managing editor of the paper in November 2006 when he was tapped by Tribune Co. to run the Los Angeles Times.

In the meantime, Chicago's two main newspapers, the Tribune and Sun-Times, had declared bankruptcy, and coverage had been crippled by wholesale cutbacks.

Among those he contacted that June morning were Ann Marie Lipinski, the Pulitzer Prize-winning former Chicago Tribune editor; Newton Minow, a prominent Chicago lawyer and former Federal Communications Commission chair who famously described television years ago as a "vast wasteland"; and former journalist Peter Osnos, founder of PublicAffairs Books. All had expressed concern about the retreat of public service journalism in the city and were eager to find ways to fill the void. The co-op idea struck a chord and quickly gained momentum.

O'Shea celebrated Thanksgiving with the launch of his startup under his belt and a to-die-for client enthusiastically on board.

On November 20, the Chicago News Cooperative's work appeared in the A section of the Chicago edition of the New York Times, its first paying customer. The day before, Times reporter Richard Pérez-Peña pointed out on the paper's Media Decoder blog that the new Chicago edition was "part of a national strategy to win over new readers and advertisers, particularly in markets where the major local papers have contracted."

Indeed, CNC's staff roster reads like a Chicago Tribune Who's Who, many of them editors and reporters who once worked with O'Shea. Two quit high-profile jobs at the paper in recent months to join the cooperative; others already had resigned or retired. Of the 14 staffers listed on the CNC Web site in February, 11 were Tribune alums. Talent also has been lured from Politico, The Huffington Post and the Omaha World-Herald.

A supporter is providing spacious eighth-floor offices in Chicago's Loop, a few blocks from the Tribune Tower, pro bono, but other than that, the co-op remains a bare-bones operation.

During a visit in late December, there was no receptionist at the desk to buzz visitors in or answer the telephone. Reporters worked at laptops scattered among makeshift workstations in sparsely furnished rooms. There is no large cash reserve or multiple benefactors waiting in the wings--at least not yet. CNC's biggest asset: a finely tuned commitment to public interest journalism or, as O'Shea puts it, "giving people a voice who don't have a megaphone."

He cites a December 13 story by CNC reporter Don Terry about the budget woes of Cook County's health system. Terry talked to patients like Sam Garcia, 51, who had been laid off from a sheet metal plant and lost his health insurance. Garcia had been waiting for 10 hours in the emergency room when he finally approached a nurse's station. The story ran in the Times and on CNC's Web site (chicagonewscoop.org), where all of the cooperative's copy will appear. Here is an excerpt:

"Ten hours, that's not too bad," [the nurse] replied, flashing a friendly smile. "The longest I've seen is 30 hours."

Mr. Garcia dropped his head and returned to his seat in the waiting area with about two dozen other people.

"Next time," the nurse suggested as he walked away, "pack a lunch."

That, says O'Shea, is the "kind of stuff we're doing--holding people in institutions accountable to those who are paying the bills." Voices like Garcia's "are not being heard in the papers here."

CNC isn't modeled after the typical agricultural co-op, with farmers as owners. No one will own the cooperative in the classic sense of ownership, explains O'Shea. Rather, money from members will be invested in newsgathering and creating networks where journalists and consumers can interact.

Instead of paying dividends to owners, as a farm cooperative might, O'Shea says, "We will invest all surplus revenue in more journalism, hiring reporters and editors, photographers, financing a special series or financing a project with a local partner."

What is playing out in the Windy City is a microcosm of the journalism crisis across America. Web sites like Newspaper Death Watch chronicle the industry's decline, while bloggers keep bankruptcy scorecards and post lists of journalists who have been handed pink slips.

The financial woes of Chicago's two main newspapers sounded alarm bells about the potential loss of the Fourth Estate's role as government watchdog and an underpinning of democracy. It is particularly critical in Illinois, a state fraught with corruption, and in Chicago, a city with staggering social problems.

As a news manager at major newspapers, O'Shea had helped search for solutions to such problems as declining audiences and dwindling advertising dollars. He witnessed layoffs that gutted newsrooms and forced leaner coverage.

Now he is launching a new kind of news outlet that he hopes will flourish in the digital age. It's a daunting assignment. A November 6 column by blogger Alan Mutter on his Web site, Reflections of a Newsosaur (newsosaur.blogspot.com), suggests a tough road lies ahead for the co-op that started on a shoestring.

O'Shea's "ambitious news start-up is funded far more thinly than any of the high-profile news projects that have launched in recent months," Mutter wrote. He cited the $30 million commitment for ProPublica's nonprofit investigative reporting enterprise launched in 2008 and the $5 million in seed money committed by a wealthy investor to the San Francisco Bay Area News Project (see Drop Cap, Winter 2009).

CNC is at the opposite end of the spectrum. Editor O'Shea is taking a salary of $1 for the first year and has been successful in obtaining a single major grant of $500,000 from the Chicago-based John D. and Catherine T. MacArthur Foundation to help hire staff. The Chicago Community Trust contributed $50,000 to the venture. O'Shea is seeking additional grants, sponsorships and clients.

WTTW, Chicago's main public television channel, signed on as a founding partner, and the co-op's reporters often appear on the station's popular "Chicago Tonight" show to discuss their stories. That focuses "a couple million eyeballs" on CNC, says WTTW CEO Dan Schmidt, who sees the content-sharing as a win-win for both operations.

"Over the last few years, we watched with growing concern the dumbing down, bankruptcy and collapse of enterprise journalism in our region. We have an overwhelming mess in Springfield [Illinois' capital]; we have a very powerful mayor and a sort of rubber-stamp City Council," says Schmidt, who serves on CNC's governing board. "The role of journalists to help illuminate public policy and keep our government accountable is vitally needed, but that increasingly has become a void in this town."

One asset sets CNC apart from other fledgling media operations: its strong relationship with the New York Times. The cooperative produces four pages a week of "branded news" focused on Chicago for the Times, two on Sunday and two on Friday, which run in copies distributed in the region. The cooperative became the first outside news organization to produce entire pages for the Times, no small feat considering the paper's lofty standards.

"They are doing bang-up journalism, which is what we hoped for," says Jim Schachter, the Times' editor for digital initiatives and point person working with CNC. Over the past couple of months, the Times has conducted focus groups with loyal readers in the Chicago area. They found that although new, CNC already had established strong name recognition. "They were excited that we were doing more about Chicago and that we found local Chicago journalists with well-established names to work on it," Schachter says.

From a business perspective, he adds, "It's too early to tell. But performance on the circulation front has substantially exceeded expectations."

The hook-up with the Times came thanks to an e-mail from the newspaper's Chicago bureau chief, Monica Davey. She had heard O'Shea was contemplating a startup and wondered if he would mind if she mentioned it to her bosses. Years earlier, O'Shea had hired Davey away from the St. Petersburg Times to work at the Tribune.

"I said, 'Sure, go ahead,' thinking that weeks or months later we might talk," O'Shea recalls. Five minutes later, his phone rang, and Schachter was on the line. O'Shea explained his idea about the cooperative and found an avid listener. He headed to New York City for a meeting.

The relationship developed rapidly, from a July meeting between O'Shea and Times brass, including Executive Editor Bill Keller, to August, when Schachter called and set a Labor Day deadline for CNC to come up with a plan that was solid financially and journalistically. The two sides reached an agreement in late October.

When O'Shea was negotiating with the Times in late September, he didn't have a single employee. "In the newspaper game, somebody gives you a deadline, so you make it," he says. Osnos, who was a driving force behind the development of a startup in Chicago and is listed as CNC's cofounder, says O'Shea is perfect for the job. "You have to have leadership that people will be inspired by," Osnos says. "Jim supplies that in every respect."

During a December 28 interview in his spacious office strewn with unpacked cardboard boxes, O'Shea showed off the Times' A section for Friday, November 20, the first day CNC stories appeared in the paper. Bylines once familiar to Chicago Tribune subscribers ran under the banner, "Produced by the Chicago News Cooperative for the New York Times."

"This is ours," he said, pointing to the headline "Company Piles Up Profits From City's Parking Meter Deal" over a story by award-winning reporter Dan Mihalopoulos, who only weeks before had been the Tribune's main City Hall reporter. He resigned on October 26 to accept O'Shea's offer to cover city government for CNC. Business columnist David Greising also left the Trib in late October to become a deputy editor and general manager at CNC. According to the journalists, neither took a pay cut.

The Chicago Tribune has said little about the cooperative. In an October 23 story about the arrival of CNC on the city's media landscape, Tribune reporter Phil Rosenthal quoted Tony Hunter, president, publisher and CEO of Tribune Media Group, as saying, "I'm obviously paying close attention."

When AJR requested interviews for this story, Kathleen Mersman, the Tribune's communications coordinator, issued an e-mail response: "We take all our competition seriously. It's up to us to respond by providing consumers with the best information. We'll elevate our performance and cover this market better than anyone else. We wish our former colleagues luck in their endeavors."

It will take more than luck for CNC to become self-sustaining: It will take a sound business model, which, at the moment, is a work in progress.

The co-op is operating as an extension of its tax-exempt partner, WTTW's parent company, enabling it to immediately conduct business under the station's 501(c)(3) nonprofit status and seek money from foundations. What comes next remains a question mark.

A change in Illinois law would allow CNC to reorganize as a low-profit, limited-liability company, or L3C, a type of corporation that allows organizations to issue stock as long as the primary goal is social good, O'Shea says. Bottom line, it combines the benefits of for-profits and nonprofits.

An August article by Jim Barnett, posted on the Nieman Journalism Lab Web site (niemanlab.org), noted that interest in the L3C model in journalism is running high. This could provide a solution for newspapers, Barnett wrote, because "it allows a corporation to take on investors who are willing to accept varying rates of return--or possibly none at all. Foundations would be assured that their investment would qualify as a program-related investment--a crucial distinction under tax law--while socially responsible investors might be willing to settle for, say, a 3 percent return."

O'Shea is developing a five-year plan to wean CNC away from philanthropy and thinks L3C status could be part of that effort. "No news organization in America has tried this new form yet, but we are thinking about it," he says.

The multimedia co-op could become self-sustaining through money from clients like the New York Times and a Web site with thousands of paying customers, which would draw advertising dollars. O'Shea serves on the board of directors of Creative Loafing, a chain of weeklies that includes the Chicago Reader, which he views as potential collaborators.

So far, media organizations have been largely unsuccessful in earning profits from their online operations. How would CNC's business model differ? O'Shea's answer: News Interest Networks.

CNC chose education to test the special interest model. On January 20, CNC invited a group of about 30 teachers, parents, reform advocates and researchers to address such questions as: Where are the holes in coverage? What kind of stories do they value? What are they willing to pay for?

Over time, the prototype for an education network might spin off into numerous different groups, including ones organized around charter schools, schools in the Northwest suburbs or on Chicago's South Side, preschools or programs for school dropouts. There could be News Interest Networks for culture, politics, sports or foreign policy. "The possibilities are limitless," O'Shea says.

"If you find out what people value, they will pay for it. We're not talking about paying a lot--$2 a week is a cup of coffee at Starbucks. The whole idea is to build something where we can show them, 'There is something in it for you--it's good news coverage, the kind you value and want.' "

The way he figures it, if CNC draws 30,000 to 40,000 subscribers at $2 a week, the co-op could support 25 to 30 staffers and be self-sustaining on a $60,000 to $80,000 weekly income. "Now, will it work? Who knows, but it's better than sitting around saying 'woe is me' over the state of American journalism," O'Shea says.

The co-op would be "owned" by anyone willing to pay $104 a year to become a member. A much more ambitious Web site, scheduled to launch in the next several months, would serve as a link for communication among members and enable them to participate via the many different News Interest Networks. (The current site is pretty basic.) Rather than smooth out every kink, O'Shea decided to push ahead and deal with issues as they surface, "much the same way a reporter approaches a story. You start with unanswered questions and resolve them as you go along," the editor says.

Some media experts believe the model CNC is developing just might work. For one thing, the cooperative is avoiding the pitfall of charging Chicagoans for news that they could get free on the Internet. That's where the nature of the cooperative comes in, says Bill Mitchell, who runs news transformation and international programs for the Poynter Institute.

"They're not talking about simply reporting stories that they would charge people to read, but creating networks of consumers with particularly intense interests in issues like education. [O'Shea's] vision is to start with a modest charge for people to be part of this. It would be more than social networking. It's more of a social/professional/passionate interest. I am really intrigued with a number of things he is doing," says Mitchell, who has talked with O'Shea about his plans.

Alan Mutter, who has written extensively about news startups, has a more cautious assessment. He points out that even the best-funded, most superbly managed and journalistically upright sites have yet to find a path of assured sustainability. "If their grant money runs out and no one gives them more money, they will go out of business," says Mutter, who grew up in Chicago and once was city editor of the Sun-Times.

His blog cites ProPublica, "the biggest of new-breed nonprofits," as he describes it, which has a $9 million annual budget. The Manhattan-based investigative reporting project started two years ago with a pledge of $30 million in support from Marion and Herbert Sandler of San Francisco. In 2008, ProPublica Editor in Chief, President and Chief Executive Paul E. Steiger, former managing editor of the Wall Street Journal, was paid a salary of $570,000--570,000 times more than O'Shea's compensation.

At the other end of the spectrum was the Chi-Town Daily News, a nonprofit that laid off its five staffers on Labor Day when founder Geoff Dougherty could not raise enough money to keep the Web-only news site alive. A few months later, he launched the for-profit Chicago Current, a monthly print tabloid with a Web site dedicated to politics and funded "mostly by family and friends."

Does the Chicago News Cooperative have a chance?

"Based on my talks with Jim and others, they're still trying to evolve what they are going to do. They are presumably trying to create streams of revenue that don't depend on large donations... They are making it up as they go along, and I don't mean that in a pejorative way," Mutter says. "They're exploring several paths to go down. Some will be fruitful, and some will be blind paths."

The riskiness of the venture didn't dissuade veteran Tribune staffers Mihalopoulos and Greising from signing on.

"It was a little bit of a gamble, but it would have been a bigger gamble to stay at the Tribune and miss this opportunity. If this thing succeeds, I didn't want to be sitting at my desk thinking, 'I could have been part of that,' " says Greising, who had been at the Tribune for 11 years. "It's more fun to be involved with an organization where you're building a business rather than overseeing a decline." Greising works closely with WTTW and is in the thick of fundraising, forging partnerships and finding customers.

Mihalopoulos resigned one day, cleaned out his desk the next and headed straight from the Tribune Tower to his first CNC news meeting. His byline appeared on the first lead story produced for the New York Times. "I believe in what Jim is trying to do--that is, to create positions for people who are serious journalists and create something lasting. I wanted to be part of it," says Mihalopoulos, who spent a decade at the Tribune.

His first story in the Times examined the privatization of 36,000 parking meters in Chicago and was based in part on documents leaked to CNC by a source who deemed the topic to be of "great civic importance." The leaked documents included the budget and financial statement of Chicago Parking Meters LLC, the private company that paid the city $1.15 billion for the right to parking meter revenue for 75 years. The documents enabled the reporter to compare profits the private company was making with what the city had been earning off parking meters before privatization in 2009.

Financial experts said Chicago's taxpayers would have been better off if the city had kept the meters, Mihalopoulos reported. "We were able to publish the balance sheet from this new company and show people how much they were raking in from what essentially is a public asset that had been leased out," he says. "Readers now know exactly who is profiting from every quarter they plunk into a parking meter..and the rates have been raised dramatically." The day the piece appeared in the Times, he walked into City Hall and saw television reporters handing printouts to city council members, asking for their reaction.

O'Shea was delighted. "We hit that story pretty hard; it's a classic example of the kind of journalism we should be doing." But it's not the only kind CNC is doing. In a November 29 article, Jessica Reaves reported on the advent of boutique distilleries in Chicago. A week earlier, former Tribune Sports Editor Dan McGrath had written about the "death grip" the Chicago Bears have on the city.

Some Tribune longtimers, such as Bill Parker, who resigned two years ago after more than three decades at the paper, were eager to jump back into the fray. He left the Trib in part, he says, because "there were some changes at the Tribune that were not under our control." Parker, who once served as associate editor for the news desk under O'Shea, signed on with CNC "for the sheer joy of it. When Jim called, somewhat to my surprise, I was in immediately," says Parker, a CNC deputy editor.

Even while he was writing columns for the Tribune, Greising was deep into soul-searching about creating new models of journalism and pondering the question: How do you start from scratch and build a successful business? After billionaire Sam Zell acquired Tribune Co. in 2007, "I began to look for alternatives," Greising says. During that time, he also was conducting interviews and research for a book, "The Masters of Private Equity and Venture Capital," which was published late last year.

During a series of lunches with local experts "to pick their brains," Greising learned that O'Shea was contacting some of the same sources about a new enterprise. The two talked and Greising signed on. Many of those who worked for O'Shea at the Tribune welcomed a second chance.

"Is Jim a reason I came here? Absolutely, no doubt about that," Mihalopoulos says. "He's somebody who works at the highest level. I don't think the New York Times would have turned over two pages to him if they didn't trust him."

Jim O'Shea fell in love with reporting during his days as a student at the University of Missouri and never looked back.

In the 1970s, O'Shea would walk into a bar near the Des Moines Register after deadline and hold court with laugh-out-loud accounts of his antics as he pursued news in the Hawkeye State. He used to joke that he was hanging on to his electrician's license just in case things soured at the newspaper. Today, the Chicago News Cooperative has become O'Shea's fallback plan.

Late on the afternoon of December 28, the editor stood in his office littered with milestones of his career, including bins packed with research for a book on the merger of Tribune Co. and Times Mirror. "The Clash of the Titans," as it tentatively is titled, is a work in progress for Publisher Osnos.

A Tibetan wall-hanging was tossed on a couch along with other memorabilia. On the wall was a photo of O'Shea addressing his staff in the Tribune newsroom. "Jim has been a magnet for folks who still look to do good journalism," says Ann Marie Lipinski, who left her editor's position at the Tribune in the summer of 2008 after 30 years at the paper. Lipinski is vice president of civic engagement at the University of Chicago and serves on CNC's advisory board.

If the cooperative is successful, other news startups might emulate the business model. If it fails, it will take its place on Mutter's list of flameouts.

Whatever happens, O'Shea has stirred the pot. On October 22, Andrew Patner said on his blog (viewfromhere.typepad.com) that CNC's arrival on the media scene had phones ringing, e-mails flying and tweets proliferating among Chicago journalists.

Some skeptics speculate that O'Shea might be taking a swing at the Tribune, which has seen radical changes since Zell took over. "Absolutely not," O'Shea says with a shake of the head. "I know there's been some 'he's a traitor' kind of stuff, but you've really got to stay focused on what you're trying to do instead of getting distracted by a pissing match with the Chicago Tribune. This isn't about them. This is about what we are trying to accomplish."

The sun was fading on the Chicago skyline as O'Shea said his farewells and headed into the bitter cold for an appointment with a prospective employee. As he walked out the door toward the elevator, one line in his Los Angeles Times farewell speech resonated more than any other. He had told the journalists in newsroom that day: "I am not a quitter."