Why DNAinfo’s Shuttering Isn’t a Reflection on the Hyperlocal Digital Opportunity

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Among those who follow such things, economists mostly, German’s productivity is well known.  Germans out produce both the U.S. and the U.K. even while the average employee works fewer hours.

There are many reasons German companies may be more productive but some economists think it has something to do with the status of trade unions. Unions enjoy a degree of legal protection unique among industrial nations and for companies above a certain size, the union is represented on the board of directors.

This gives employees a voice in how the company is run.

This is very different cooperative arrangement than the structure of unions in the U.S., where collective bargaining is about who wins and who loses and is often confrontational, very us. vs. them.

I thought about German unions this week when Joe Ricketts, the billionaire CEO of DNAinfo, announced he was shutting down his news businesses in New York, Chicago and Los Angeles. The decision came days after employees at one unit voted to form a union.

“As long as it’s my money that’s paying for everything, I intend to be the one making the decisions about the direction of the business,” Ricketts said.

Ricketts had been clear that his news business was losing money. He even made it clear that he wouldn’t negotiate with a union; yet, the employees voted to form a collective.

The employees didn’t stop to consider, it seems, this is not Germany. It’s a rare business owner who wants to cede even partial control of his or her business to a collective bargaining union, especially when it’s that owner’s money that is the only thing keeping the business afloat.

Ricketts has been made the demon here, but, really, for the wrong reasons.

There have been three interesting reactions in the mediasphere to the shuttering of these sites. One is, “this is why we can’t depend on billionaires to save local news;” this is further proof “local won’t scale;” and that once more we can conclude there is no future for local news.

All these responses miss the real story here, the actual business story — the story about how hard it is to build a business and how sometimes business owners (no matter how rich, no matter their good intentions) fail.

Ricketts failed.

DNAinfo had no real business model: if you’re getting nine million people to your content every day there’s no excuse not to make money. It’s simply not clear to me that there was a strategic, disciplined effort to generate revenue from these enterprises. (There is a report that Gothamist was profitable, and that might also apply to LAist, and Chicagoist. It appears that DNAinfo was dragging down the entire enterprise.)

The fact that Ricketts felt compelled to shut down the sites in response to a union forming is an admission of failure. If DNAinfo and LAist, Chicagoist and Gothamist had a real business model, Ricketts would have been financially obligated to continue, even with a slender profit margin. Or he could have sold it. I’ve said elsewhere that it’s easy to criticize a billionaire for shutting down a business when you’re not the one losing money. It’s also true it’s easy for that billionaire to shut down a business when all it is doing is losing money. 

The formation of a union is also a signal that the shuttering of these sites is nothing more than a business failure. Until the current ownership, The Los Angeles Times kept the News Guild at bay by paying reporters well and keeping them happy.

That’s what anti-union owners do. They build successful businesses and then take good care of their employees.

Ricketts didn’t do that. And because Ricketts failed, all of digital local news gets a black eye.

That simply isn’t the right way to look at this closure. This was a failure of a business. Not a failure of opportunity.

The opportunity is there. A multi-billion dollar opportunity. It just needs the right model and good execution to grasp it.

John Ness is one of the writers who has used Rickett’s failure as an opportunity to call into question the idea of billionaires trying to fund local news at scale. I’ll get to why I disagree with that point, but I wanted to first quote one of his observations:

“If you don’t live in a neighborhood or town with a well-supported digital reporter covering it, you probably don’t feel a deep need to get one.”

The statement reminded me of the early days of The Batavian. I lost count of how many people initially questioned why Batavia needed The Batavian. The city already had a daily newspaper. Why an online site?

A little more than two years later, The Batavian was the most read news source in the county. People would tell me how much they loved The Batavian, how they were addicted to it, how they checked the site five or six times a day.

As Steve Jobs observed, people don’t often know what they want until you give it to them.

Give people a steady stream of local news that is often delivered real-time and digitally accessible, they will find that is just what they wanted all along, even if they didn’t know it.

Build that addiction and sell ads. Easy. Especially when your ad model is aimed at all local business owners, who know firsthand, “everybody reads” your publication.

The big question now is: can this model scale?  Yes, and no. I, for one, believe people are pretty much the same everywhere in the world. It’s human nature to want to know what’s going on where you live, among your tribe.  If you capture that audience, you can sell ads.

The problem we’ve run into at The Batavian is lack of resources to grow past that easy revenue stream.  That difficulty has convinced me, scale, and billionaires to pay for it, are essential to the future of the local news business.  Creating a more robust user experience, more tools and opportunities for local business owners, and the support necessary for local publishers to be successful, is going to take Silicon Valley-sized investment. Getting local digital news to scale won’t come cheap, but it won’t come at all without tremendous investment.

It also won’t come if the billionaires, like Ricketts, and Tim Armstrong before him, insist on running the show.  If they haven’t run a local news business before, they are far less likely to be equipped for understanding the nuances and anticipate the turbulence that make local news very different from any other part of the media business.  Being a successful business owner in other fields isn’t necessarily the right training ground, nor provide the necessary expertise, to build local news businesses.

So, I remain bullish on local news and optimistic that with the right combination of investment, vision and savvy, we can once again have robust local news outlets across the nation.

Howard Owens began his local online news career in 1995. He’s been an executive with Scripps and GateHouse Media. He’s been publisher of The Batavian since 2008 and is founder and CEO of Album, Inc., an early-stage startup with a mission to provide technology for local news publications. Follow him on Twitter: @howardowens