Lenfest donates newspapers, website to new media institute

A crowd of about 75 people turned out at the National Constitution Center this morning as the owner of The Inquirer and its sister publications signed a ceremonial document marking his donation of the news organizations to a new media institute.

"What would the city be without the Inquirer and the Daily News?" asked H.F. "Gerry" Lenfest, who until his gift was the sole owner of The Inquirer, Daily News and Philly.com website. No TV, radio or internet portal can match the news agencies in-depth coverage, he said.

On Tuesday, in a meeting with employees and then at a news conference at the Constitution Center, Lenfest formally announced the details of a complicated transaction designed to ensure that quality journalism endures in Philadelphia for generations.

The move places the region's dominant news-gatherers under the auspices of the nonprofit Philadelphia Foundation.

"In a democracy," foundation President and CEO Pedro Ramos said at the Constitution Center, "great cities need and depend on quality journalism."

Lenfest's gift will support and enhance "nothing less than an essential element of our democracy," Ramos said.

The new alignment - while unique and untested - sets out mechanisms by which public-interest reporting can be preserved and enhanced while new electronic distribution methods are developed.

"Of all the things I've done, this is the most important," Lenfest said before Tuesday's announcement. "Because of the journalism."

To evolve in an increasingly online future, Lenfest said, the news company, Philadelphia Media Network, must meet readers where they choose to read - and find fresh ways for advertisers to engage that audience.

Subscribers and readers will see no immediate changes. Nor will PMN employees. The company's contracts with its labor unions remain in force.Bill Ross, executive editor of the Newspaper Guild, which represents journalists and other workers at PMN, said he was "somewhat optimistic" about the new structure.

"As Gerry said, he's doing it for the journalism. That leaves us hopeful."

Guild President Howard Gensler said that in the short-term, the new mechanism means little to the working lives of the union members. "In the long-term, we hope there will be more employees."

The linkage of news company, media institute, and foundation breaks ground - and offers potential hope - in what has become a desperate economic environment for many traditional news organizations.

Organization papers for the new Institute for Journalism in New Media state its mission:

"It is vital to continue the journalism so important to the Philadelphia region served by PMN."

In November, the news company announced plans to lay off 46 journalists, the latest retrenchment in what has become a decade of cutbacks, buyouts, layoffs, and management and ownership upheaval.

This new structure offers no quick fix, no imminent balm to the economic woes that confront legacy news companies. PMN remains a self-governing, for-profit company, needing ultimately to fail or succeed on its journalistic merits and financial performance.

What's different is the ownership above it, changed in a way that can ease the financial struggle.

The company now is owned by the new, nonprofit journalism institute, created at Lenfest's request by the Philadelphia Foundation and operating under that agency's special-asset fund.

That structure opens philanthropic avenues to fund the company's journalism. Foundations, corporations, and other benefactors can give money to the institute to be used for specific reporting efforts and journalism projects and undertakings.

For instance, a donor could give money to the institute to endow an investigative-reporting team or support coverage of the city schools, the same way givers now endow professors' chairs at universities and musicians' seats in orchestras.

Yet the role of the institute goes beyond being a conduit for funds.

A key goal, Lenfest said, is to explore and discover content-delivery models that could potentially, eventually, assume the role of printed newspapers - with PMN as a laboratory.

The institute will draw on the research of universities and nonprofits, make grants to groups involved in creating media models, and support the education of young journalists in a changing industry.

Lenfest has given $20 million to endow the institute, likely to be headquartered in Philadelphia or New York City. Much more money will be needed, he said.

The institute will share its findings and discoveries with other news organizations, seeking to help them survive and improve.

"It's a ... exciting day in our industry," PMN publisher and CEO Terrance C.Z. Egger said. "This is a long view about the funding and future of journalism."

The new structure holds enormous potential for PMN - offering the prospect of financial relief and a way forward at a time when the abundance of free news on the Web has gutted newspaper staffs, revenues, and advertising.

"We don't want this to be a crutch," Egger said. "We want this to be an enhancement to the journalism we do."

Egger cautioned that this was a long-term effort - not an immediate cure to the financial pressures that are wracking PMN. On the business side, the company must continue to fight for every dollar it can bring in.

Crucially, Egger said, the new structure ensures that the company's newsrooms will remain "fiercely independent." Though inherently connected, the institute and news company are run by separate boards that have independent missions and responsibilities.

The institute owns the newspapers and website, but has no governance power over them. It will not transfer funds for PMN's general operating expenses or to cover deficits. Grants to PMN must be specified in an agreement that sets out the journalistic use of the funds, and imposes a compliance requirement on the news company.

The Lenfest gift agreement stipulates: "The editorial function and news coverage of PMN shall at all times remain independent of the institute, and the institute shall not attempt to influence or interfere with the editorial policies or decisions of PMN."

Lenfest, 85, is one of the region's leading philanthropists, having given away more than a billion dollars. He said the donation of the news company - bought at auction for $88 million in May 2014 - provides for a succession plan at the time of his death.

More, he said, it creates an entity that will actively search for new models and technologies to enable public-interest journalism to thrive.

The institute's initial Board of Managers - chosen by Lenfest - includes men and women of accomplishment and standing, weighted toward academia. Aside from Lenfest, the members are:

Sarah Bartlett, dean of the graduate School of Journalism at the City University of New York.

David Boardman, dean of the School of Media and Communication at Temple University.

Steve Coll, a two-time Pulitzer Prize-winning reporter and dean of the Columbia University Graduate School of Journalism.

Michael X. Delli Carpini, dean of the Annenberg School for Communication at the University of Pennsylvania.

David W. Haas, vice chairman of the Wyncote Foundation, which has supported media and journalism undertakings.

Pedro Ramos, president and CEO of the Philadelphia Foundation.

Rosalind Remer, vice provost and founding Lenfest executive director of the Center for Cultural Partnerships at Drexel University.

David Schizer, dean emeritus and professor of law and economics at the Columbia University Law School.

Leonard Tow, founder and chairman of the Tow Foundation, which has funded projects including the Tow Center for Digital Journalism.

In an interview, Lenfest said that donating $20 million directly to the news company would have provided only a temporary fix. The gift to the institute will help ensure the continuation of local journalism, not a particular format for its distribution.

"It's an incredibly public-spirited act," Inquirer editor William K. Marimow said. "Gerry's decision to go forward with this nonprofit reinforces my belief that his goal is to perpetuate the best traditions and practices of public-interest journalism for generations to come."

Lenfest gains no tax advantage from his donation, due to a huge amount of pending carryover deductions, he and others said.

The institute is not obligated to approve funding requests from PMN. And the news company can turn down money if it has qualms about a particular donor.

In the near term, the institute will focus on supporting PMN. Farther along, if the endowment grows, the institute could make grants to others in line with its goal of developing journalism in the digital age.

Today, more newspapers are looking to outside financing and donors - and in some cases finding them.

The Ford Foundation made two big grants - $500,000 to the Washington Post to expand its government-accountability reporting, and $1 million to the Los Angeles Times to report on Asian immigrant communities and the state prison system.

Richard Fox, a Dilworth Paxson attorney whom Lenfest called the architect of the plan, said the structure differs from comparable ventures, although some exist.

In Florida, the nonprofit Poynter Institute was given the stock of the St. Petersburg Times, now the Tampa Bay Times, which it holds as a taxable subsidiary. In Missouri, Ewing Kauffman arranged to donate his Kansas City Royals to the Greater Kansas City Community Foundation, a succession plan designed to keep the baseball team from being moved to another city.

"It's a plan for the future," Fox said, "to take a vital community asset and put it in good hands."

Within PMN, the donation of the newspapers and website has been a closely guarded secret, the details known only to Lenfest and a few senior executives and attorneys. Meanwhile, the need to accelerate the company's progress into the digital age has become increasingly apparent.

"Our industry is in desperate need of taking bold and innovative steps to ensure our long-term sustainability," PMN executive editor Stan Wischnowski said. "This is a significant move in that direction."

Lenfest said he had been thinking for about a year of how to devise a structure that could support local journalism for decades ahead. After talks with foundation CEO Ramos, the formal creation process was undertaken in mid-December and swiftly concluded.

Ramos, a lawyer, previously served as city managing director, city solicitor, and chairman of the Philadelphia School Board and the School Reform Commission. He became head of the Philadelphia Foundation in July.

"We're not getting into the newspaper business," Ramos said.

From time to time, he said, the foundation creates certain structures to fit particular opportunities. None is exactly like this one, he added.

But when Lenfest described his vision, Ramos said, "the moment did not escape me, the magnitude of what he was proposing and its importance to Philadelphia, and the extent to which it falls within [our foundation] purview."

PMN planned to announce the news publicly at 11 a.m. Tuesday at the National Constitution Center.Howard Gensler, president of Local 10 of the Newspaper Guild, which represents editorial and other employees, said late Monday that the union would decline to comment until it had a better understanding of the plan.

Lenfest and the late Lewis Katz won the company at an auction in 2014, outbidding then-co-owner George E. Norcross III and his associates.

Lenfest and Egger, who was named publisher last August, said the creation of the new structure does not mean PMN could not survive on its own. But PMN, like other media firms, must aggressively search for new means of revenue and support as traditional advertising erodes.

The Inquirer, the Daily News, and Philly.com reach an average of 2.2 million adults a week - making PMN the dominant news organization in the metro region. But many people read the news free online, curtailing the income derived from that huge audience.

"Being local and having local content as your core competency has to have value," Egger said. "We have to figure out how we get paid for what's valuable."

Egger said he knew Lenfest was considering the future of PMN when he took the job as publisher.

"He's been thinking about it for a long time," Egger said. "He thinks that journalism is so fundamentally important to a great city and society, he wants to ensure it has a great future."

For Lenfest, the placement of the newspapers completes a personal and professional odyssey. As a young lawyer in 1965, he worked for media magnate Walter H. Annenberg and his Triangle Publications Inc.

That company owned TV Guide, Seventeen magazine, various TV and radio stations, and several cable properties, along with The Inquirer and the Daily News.

After five years, Lenfest became publisher of Seventeen and president of the cable arm - which proved providential. In 1974, Lenfest bought two cable systems from Annenberg - the start of Lenfest Communications. In 2000, Lenfest and his wife, Marguerite, sold the enterprise, earning them $1.2 billion.

In recent years, Lenfest has worked to give away his fortune - including, now, the donation to the new institute.

"It's important," he said, "to keep journalism strong in this community."

jgammage@phillynews.com

215-854-4906 @JeffGammage