In the region of the Western Balkans, donors and international implementing agencies have played a crucial role in supporting the development of independent media – media that are free from government, business, or political influences over their editorial decisions. These are mostly small classic media outlets, such as local or regional radio and TV stations, but also various thematically specialized web-only outlets that might be run by commercial companies or civil society organizations (all of these are here referred to as independent media). They perform an important public service function by providing content that is often missing from the mainstream media: balanced information, educational programs, coverage of human rights issues, or content addressing cultural and other needs of marginalized groups. Although important results have been achieved, there is criticism as to how sustainable such endeavors are once donors retreat or shift priorities. Numerous examples of independent media outlets shutting down, becoming excessively commercialized, or aligning themselves with one or the other political party after donor money dries up contribute to such criticism.
Consequently, both consultants and donors see the commercialization of services and diversification away from donor funding as main strategies to follow. A standard set of recommendations includes, to name only a few, the introduction of new commercial services; charging users for premium content; diversifying into related businesses such as public relations and marketing; or developing a variety of audience engagement strategies, such as crowdfunding, to monetize mission, services, or content.
Often, however, independent media remain reliant on donor grants to deliver their public service content. Attempts at substantially diversifying away from donor grants frequently underperform. Reasons are many:
- Media markets are small and oversaturated, limiting access to commercial revenues. In addition, small local and regional outlets are largely off the radar of advertisers and advertising agencies.
- Media outlets and sources of advertising revenues are often highly politicized and captured by vested interests. Independent media are not competing in a level playing field, but in a severely skewed market that favors those with powerful financial and political backing. In such a market, commercial success comes with strings attached and might be in contradiction with the mission the media outlet strives to fulfill.
- Independent media often cater to small audiences that might be highly price-sensitive and reluctant to pay or donate for media content, even though the audience might appreciate localized content. This might be because the audience has numerous opportunities to access similar types of content for free or is simply unable to afford it due to dire economic circumstances. Some examples from around the world show that membership-based funding models might work, but that motivation for most paying members is often philanthropic. Illustrative is the experience of Pablo Isaza, executive director of Columbian politics news site La Silla Vacía, who explains: “People aren’t paying to access more or new information but to make information available to everyone in Colombia” (quoted in Oliver 2021).
- Finally, smaller independent media are, by definition, severely under-resourced in terms of available in-house expertise, infrastructure, and investment capacity, which limits chances of successful commercialization. Venturing into new commercial activities might take resources away from core operations, at the detriment of its organizational mission.
Trying to achieve commercial viability while retaining editorial independence in such circumstances is often a contradiction in terms. It is therefore not surprising that despite efforts by independent media outlets to do so, donor funding seems to be their best bet. Project grants provide a much-needed corrective to unfair competition and market limitations, and at least some compensation for the lack of resources and the absence of state support for what are essentially public services that can hardly be commercialized.
Therefore, it is more likely that their financial sustainability is to be achieved within a hybrid business model that relies on donor funding, with some components of commercial revenues, not as a substitute, but as an addition to grants from donors. Such business models must establish a smart balance between donor funding and commercial revenues that ensures financial sustainability and resilience, while enabling organizations to retain their editorial independence and stay true to their mission and programmatic orientation.
Financial sustainability is considered here to be the capacity of an organization to secure a continuous stream of income that enables it to service its beneficiaries, while fulfilling its organizational mission in a long-term perspective. This text discusses some of the challenges of, and the opportunities for achieving financial sustainability through a hybrid business model. While recognizing the importance of commercialization strategies for achieving such financial sustainability, the text primarily focuses on the donor funding side of such a model.
The nature of a donor-focused business model
Organizations that are donor funded and not-for-profit are often seen as non-market organizations by practitioners, consultants, and even donors (see Hersberger-Langloh 2019). That is why it is suggested that financial sustainability cannot be achieved if they continue to depend on donor grants. Within such a perspective, beneficiary organizations are seen as not having a ‘business mindset,’ while donor funding is perceived as temporary and unpredictable, and therefore not a viable source of financial sustainability.
However, independent media that are relying on donor support must be seen as market-oriented organizations that do have a ‘business mindset’ – just a different one from profit-oriented companies (Hersberger-Langloh 2019). How would one otherwise explain the fact that so many non-profit organizations, including many independent media in the Western Balkans, successfully develop and maintain their operations for decades, primarily through donor grants? Their business model is focused on international aid programs supporting democratization, human rights, civil society, and media, which is a vast market that has been growing in scope and available amounts of funding in the past 30 years. For example, various US state agencies allocate more than $2 billion annually through foreign assistance funds for democracy promotion activities (Congressional Research Service 2019; on EU funding, see for example: Godfrey & Youngs 2019), while overall global democracy assistance exceeds $10 billion (Carothers 2015). It is also a highly competitive market, both among beneficiaries seeking funding, and among donors looking for organizations to support, thus requiring a specific set of skills, resources, and strategies for success. It is therefore not surprising that independent non-profit media can still be, and often are, financially sustainable (see for example: Breiner 2021).
Relevant literature on not-for-profit organizations recognizes that they are indeed market organizations. They operate within so-called ‘two-sided markets’ or as ‘two-sided platforms,’ and their financial sustainability strategy should focus on how to succeed in such a market (See Hersberger-Langloh 2019).
Two-sided markets exist when there is an intermediary platform that facilitates interactions between different groups in the market, which find it cheaper to interact through such an intermediary rather than directly. Two-sided platforms charge each side of the interaction, since members of both groups benefit from the existence of the other group and from the interaction facilitated by the platform. Typical examples of two-sided markets are credit card companies (connecting consumers and retailers); real estate agencies (connecting property buyers and sellers); and employment agencies (connecting employers and jobseekers), to name a few. In many cases, one side of the market is highly price-sensitive, and its usage of the platform is subsidized by the income generated on the other side of the market. Hence, often the most challenging thing is to get the pricing right. Typical examples are social media such as Facebook or Twitter, as well as classic media outlets (connecting advertisers and consumers), which offer free or reduced-price access to its content for users while subsidizing it through income from advertisers (See for example: Hersberger-Langloh 2019; also see Eisenmann et al. 2006).
Donors are investing in independent media to achieve social impact in accordance with their organizational mission and vision (such as poverty alleviation, promoting human rights, democratization, etc.). In some ways, donors are not very different from classic advertisers: they invest in media to promote something to a targeted audience. While advertisers pay media to promote a product or service and incite a purchasing behavior, donors provide grants to promote ideas and behaviors that might lead to social change. Beyond achieving social impact, donors enjoy additional benefits from the media they are funding, such as: tax deductions; increased efficiency of their programs and projects; and an increased credibility that comes with successful project implementation. Donors also benefit from a direct network effect (having as many users – i.e., other donors – on their own side of the market as possible), since the more donors are supporting the same media outlets, the lower the risk of such an investment is, the cost of obtaining information about the reliability of the beneficiary decreases, and chances for increased impact of combined funding also increases. Therefore, donors tend to cluster around the same beneficiary organizations (Hersberger-Langloh 2019; Eisenmann et al. 2006). At the same time, donors like to shop around, and are quick to move to other beneficiary organizations to decrease risk or increase impact. Finally, donors benefit from an indirect network effect (having the largest possible media audience on the other side of the market), since the greater the audience of the beneficiary media, the greater the reach of their social impact programs is, and potentially the greater the effects and better the results of their programs and projects will be.
On the other side of the market, the audience benefits from a variety of media content, reliable information, or access to educational opportunities. In most cases, such services and products are offered for free or are substantially subsidized through grants provided to media outlets. This is because end users are likely to be highly price-conscious and probably would not be interested to pay for such services, either because they cannot afford it, or because there are other, cheaper alternatives to choose from. Audiences also benefit from a direct network effect, as an increase in audience numbers increases possibilities for community involvement, identity building, and other entertainment options through engagement with other members of the audience. Audiences thus tend to grow around those service providers that ensure the greatest direct network effect. In terms of the indirect network effect, audiences of independent media benefit from an increased number of donors on the other side of the market, since that means more funding for more services and products that are to be offered for free or at subsidized rates.
In a two-sided market, independent media benefit from donors and implementing agencies directly by receiving funding and credibility. They benefit from an increased number and engagement of audiences by obtaining legitimacy in the eyes of both donors and end users. Increased audience numbers result in an increase in competitiveness within the donor market, as a media outlet can market its capacity to reach a higher number of relevant end users as an attractive proposition for donors who are seeking to achieve social impact at a greater scale. Finally, the independent media benefit from both an increased number of donors and an increased audience size in terms of greater resilience in the face of potential external pressures from political and business interests. Figure 1 summarizes benefits of all involved actors in the two-sided donor-funded market for independent media.
Towards Financial Sustainability within Two-Sided Donors’ Markets
Given the nature of the businesses operating in two-sided markets, and the constraints that small independent media face in transitional societies, financial sustainability is a complex feat.
This can only be achieved by understanding where and how value is created for donors as the main paying clients within such markets.
Based on the explanation from the previous section, we can identify at least four core strategies for value-creation from the donors’ perspective: (1) Ensuring donors’ reach to target groups to facilitate impact of their programs and projects; (2) Eliminating information costs for donors; (3) Providing return on investment for donors in terms of results and overall implementation of projects; and (4) Promotion of donors’ brand and activities. Each of these strategies are elaborated below.
Ensuring reach to target groups: Certainly, the greatest value for donors is if the media outlet can act as a platform that connects them with a large, relevant audience that is well-targeted. This means having a growing and engaged audience that is well-understood by the media outlet with respect to its expectations, price-sensitivity, communication habits, values, norms, beliefs, and behaviors. Too often, small media outlets may lack deeper knowledge about their audience due to a lack of in-house capacity and limited resources for audience research. This is where strategies for engagement with the audience through online media, and a plethora of data-gathering tools provide an opportunity for substantial improvements in the scope and depth of audience reach. At the center of such a strategy is development of sophisticated in-house expertise and capacities for audience engagement and audience data-gathering and processing. Having a growing and engaged audience which is well-understood provides a great leverage when seeking for donor funding.
Eliminating information costs through branding and transparency: Beyond providing audience reach, another value-creation strategy must focus on building trust by reducing information costs for donors when it comes to pricing, results, and other key aspects of organizational performance. That is essential for securing long-term donor engagement and diversification of donors’ sources of funding. Achieving this requires a sophisticated long-term branding strategy that rests on proactive transparency and continuous communication with donors rather than occasional ad-hoc bureaucratic interaction during the grant application and reporting process. A review of 20 examples of sustainable quality journalism from Western and Eastern Europe, Latin America and the US, conducted by James Brainer and colleagues at the University of Navarra, Spain, found that there are five characteristics that all of these media organizations share, which make the core of their branding strategy:
- They operate on the principles of independence and credibility, which is underpinned by extensive transparency about ownership, investors, shareholders, donors, sponsors, financial performance, and ways how they work when producing stories.
- All emphasize the needs and problems of their users as a primary focus, and half do not accept any advertising.
- They are digital first, using sophisticated strategies to engage users through multimedia formats and across social media platforms, always providing supporting contextual information and links to original sources together with their stories.
- Most of them are run by experienced journalists that use their reputation and credibility to attract investors, donors, employees, and audiences.
- And they often try to engage users when looking for ideas for stories, encouraging the audience to help in information gathering through collective, crowd-sourced efforts (Breiner 2021).
Providing return on investment: A media outlet should also be able to deliver what it has promised to do in project proposals in terms of value for the money invested. That requires robust project implementation capacity and necessary expertise that must be continuously and strategically improved. Another complementary approach is to build strategic partnerships with like-minded media outlets, civil society organizations, businesses, and tech partners. Having such an approach helps in addressing the problem of limited in-house resources and thematic expertise by tapping into the capacities of a broader eco-system of partner organizations, while amplifying the effects of project activities. However, this also requires developing in-house capacities for networking, building partnerships, negotiation, and management of complex collaborative projects. Beyond extending organizational capacities, such partnerships might also extend audience reach and allow access to additional funding opportunities that would otherwise be out of reach of an individual media outlet.
Promotion: All of the above calls for a strategic approach to promotion. Media outlets should undertake sustained and comprehensive promotional efforts that would boost their brand among its key investors, while also promoting the results of the assistance received from donors and implementing agencies.
Such strategies might result in a compounding network effect, where many donors and implementing agencies gravitate towards those organizations that offer the greatest value in exchange for their support. The table 1 below summarizes these four core strategies and lists some of the key tactics to be deployed:
|Value-creation strategies towards donors and implementing agencies
|Ensuring reach to target groups
|- Audience engagement & growth
- Data-gathering and analysis on audience characteristics
|Eliminating information costs through branding and transparency
|- Proactive transparency regarding organizational performance, costs, expertise, and audience, through the provision of comprehensive information, including but not limited to independent annual audits.
- Implementing branding strategies around concepts such as, for example, independence, credibility, transparency, expertise, technological sophistication, and user engagement.
|Providing return on investment for donors and implementing agencies
|- Developing robust project management capacity
- Ensuring broader reach and expertise through partnerships with like-minded media outlets, CSOs and other organizations
- Ensuring sustainability of project results through the diversification of sources of funding and testing and implementing different monetization modalities that might ensure continuity of the activities and results of the donor-supported projects after a specific grant ends.
|- Strategic approach to promotion of all activities, including comprehensive and sustained promotion of individual projects and donors’ support of those projects
Towards Sustainability Strategies for Independent Media
There are a variety of complementary strategies that can be deployed to ensure diversification of funding sources for financial sustainability, while retaining editorial independence of independent media. However, even in the best-case scenarios, where an organization has secured financially sustainable operations through a variety of donor grants, it would be advisable to make sure that funding sources are as diversified as possible, including commercial revenues. The business model should be oriented towards generating some income beyond donor grants, not necessarily as a substitute, but as a way for creating savings for strategic investment in internal capacities, such as equipment and the development of new skills, as well as having financial reserves for times of crisis. This is essential, as donor grants might not be well-suited for these due to their budgetary restrictions and relatively short lifespans. Moreover, donors themselves might be the cause of financial instability for their beneficiaries, as they may suddenly shift their priorities due to leadership change or other political or economic reasons that are beyond the control of individual organizations.
This might happen, for example, if resources are diverted from essential processes; if too much effort is invested into non-viable commercial propositions; or if the proposed monetization strategy ignores the nature of the audience or the market, which may result in a loss of audience or jeopardize the media outlet’s independence. Just because certain commercialization strategies work in other contexts, or for mainstream commercial media that cater to large audiences, does not mean that the same approaches will be successful in another country or for small media outlets that want to keep their editorial independence, while performing a public service function for a community.
The nature of two-sided markets and the experience of over three decades of development of donor-funded independent media in the Western Balkans indicate that a financial sustainability strategy is best sought for within a hybrid business model. Such a business model must be built upon a robust strategy for diversification of donor funding, combined with venturing into commercial sources of income without jeopardizing editorial independence. It is a delicate balancing act, but given the market constraints for a normal functioning of independent media, it seems to be the best bet for achieving financial sustainability while remaining true to their programmatic orientation.