Crowed Funding as A Future of Journalism

Submitted By:-

Sharath Ravi Kanzal

Roll No.:-16040141092

Batch:- 2016-2021

Alliance School of Law

Alliance University, Bangalore

2
Table of Content

1. Introduction

1.1 Introduction

1.2 Research Problem

1.3 Literature Review

1.4 Scope and Objective

1.5 Methodology

2. The Emergence of Crowd-Funded Media Organisations

3. Case Study: Zhongchou.com

4. Conclusion

2
1.1 Introduction

The news media industry is now facing one of the most crucial existential crises of its recent
history1. The volatility of modern day economies and ever increasing emergence of the digital
ecosystem for news outlets are now challenging the traditional news organisation model at its
core. Another reason for this includes the massive shift of consumer news patterns in recent
years; in the age of information print-journalism faces extinction unless it evolves into
something greater. Newspapers and broadcasters alike in most of the western countries have
already experienced declines in circulation and viewership numbers, while digital news
consumption has dramatically skyrocketed. For the first time in history, online advertising
spending in the United States has surpassed amount invested in the print advertising market2.
The newspaper business was first established with a specific agenda focused on a specific
environment that unfortunately longer exists. In addition, the recent emergence of
applications for consuming news based on new online platforms such as the Kindle have
further increased competition and accelerated the decline of print journalism.

The digital market has become a fast paced network of information that in recent years has
revolutionised the distribution of information that has highly disruptive effects for publishers.
News has become so widely available that it is now obtainable on the internet at zero cost,
and although it was once a very oligopolistic business, as only handful of media
conglomerates would control the industry. The news market today has fiscally lost all of its
barriers of entry; anyone with an internet access can happily provide content virtually for free
and with very low production costs .Today, publishers and Journalist alike are struggling to
find a business model for funding their newspapers and for the large staff that is required to
run. While on the other hand, digital revenues from the internet are unable to compensate for
the lower print revenues, so various commercial costs are cut in order to provide respectable
profit margins for shareholders. As the advertising revenue for these traditional news
organisations disappears into a fragmented world of various digital outlets and wherein
readers consume news for free, there is extremely little money available to subsidise quality
and investigative journalism.

1. Organisation for Economic Co-operation and Development (OECD), 2010

2. EMarketer, ‘A preview into the world of Ads’, 2010

2
A major lack of resources undermines reporting quality and fact-checking practices of a news
network which it further reduces by excepting corporate hand-outs which in turn makes the
media all the less reliable and more susceptible to bias. Personnel cuts, fewer news
correspondents and the abuse of information received from these agencies are simply but a
few consequences of an increasingly degrading industry that is doing more harm than good3.
The only thing that can be capitalised by these media houses is the demand for news products
that remain scarce, such as investigative reporting.

Surprisingly, media tycoons are still struggling to make their businesses profitable at
the expense of investigative reporting 4. How could they? Considering investigating
journalism means speaking Truth to Power, and that is never a cheap act.Leading media
outlets across the world are still somehow able to subsidise quality journalism because they
obtain their resources from entertainment units or other non-business-related assets. Thus,
conventional news outlets have become more ‘Infomercial’ in nature. By mixing
entertainment and news a unique blend of dramatization focused on not quality journalism
but on the attainment of a higher ‘TRP’. Publishers and editors from top news organisations
around the world have implemented several strategies to contain this structural revolution but
have thus far failed miserably. However, policy makers in most Western countries are very
concerned about the future of journalism4. It has once again drawn major attention to the
issue of public funding for newspapers and other social media outlets, which has sparked
debates between scholars, media commentators and journalists. Unfortunately in the end,
citizen journalism has not yet been able to become a new redemptory model that saves
journalism and public opinion along with it. User-generated contents are mostly crude and
redundant, and traditional news organisations still act as the gatekeepers of relevant
information and establishing public agenda issues6. If traditional news organisations
contribute fewer resources to quality journalism, then distractions in social media will be less
relevant and flamboyant.

3. Brogan, 2010; Starr, 2009.

4. Steiger, 2008

5. Pew Project for Excellence in Journalism, 2010

6. Bollinger, 2010; McChesney and Nichols, 2010

2
1.2 Research Problem

As many pundits who have already considered journalism to be a core institution of our
modern day democracies, the situation leads to the following questions:-

(i) Can the crowd funding model for news outlets lead to a more independent and
integral news entity?

(ii) What are the factors that have led to the increasing credibility of crowd-funded
news outlets?

(iii) Why corporate consolidation of media houses leads to bias in political stories?

1.3 Literature Review

Although the crowd funding model has achieved remarkable success as a tool for empowerment, and
has been recognised as a viable method of funding new ventures, there has however, been very little
published peer-reviewed work on the topic. Schwienbacher and Larralde 7 offered one of the first
descriptions of crowd funding and as to its applications, which included a brief case study of a French
music crowd funding start up that became famous a short time ago, and there have also been
subsequent attempts in order to build a theoretical model of when individuals would choose to crowd
fund. However, the few recent studies on the topic, all which are in working paper forms, have tended
to focus more on the role of backers and investors in crowd funding. However Kuppuswamy and
Bayus 8 show backer support on Kick starter tend to vary depending on project success and timing.
Finally G. Burtch 9 examined how timing and proper amount of exposure affected 100 pitches for a
new journalist’s stories. All these working papers offered valuable contributions, but unfortunately no
work to date has provided a large-scale understanding of this empirical dynamics of crowd funding
and they have focused on backers, not on the project founders themselves.

7. A. Schwienbacher, B. Larralde, Crowd funding of small entrepreneurial ventures SSRN Electronic Journal
(2010)

8. Kuppuswamy, B.L. Bayus, Crowd funding creative ideas: the dynamics of project backers in kick-starter
SSRN Electronic Journal (2013)

9. G. Burtch, A. Ghose, S. Wattal An empirical examination of the antecedents and consequences of investment
patterns in crowd-funded markets SSRN Electronic Journal (2011)

2
1.4 Scope and Objective
As the goal of this paper is to provide the widest possible perspective on crowd funding, Data
which has been is used primarily extracted from various crowd- funded media outlets like
The Wire 10, The Caravan11 and Contributoria12 the largest and dominant crowd funded media
sites in India and the UK. The performance of these independent entities in reporting news as
an alternate the conventional news networks in these two countries is the scope of this
research. Also all these media houses use a reward or patronage model, which is also the
inspiration for the recent legalization of equity crowd funding.

1.5 Methodology
The research methodology is a doctrinal one wherein peer-reviewed articles like
‘CROWDFUNDING AND NON-PROFIT MEDIA The emergence of new models for public
interest journalism’ by Miguel Carvajal are analysed to arrive at an appropriate solution to the
dying industry of print medium. The paper further pays attention to crowd funded media
outlets in countries like UK and also seeks to explore the status of crowd funded media
houses in authoritarian/Communist regime of China in the form of a case study of
“Zhongchou.com” 13

10. https://thewire.in
11. https://caravanmagazine.in

12. http://www.contributoria.com

13. http://www.zhongchou.cn

2
2. The Emergence of Crowd-Funded Media Organisations

The media industry in recent years has seen dramatic changes. Audience fragmentation and
online advertising have transformed existing business models very greatly. Media companies
are still struggling to find a suitable business model for funding their media, with some
relying on digital revenues to make up for their losses. However, they are still unable to
compensate for the low print revenues generated these days. Various costs are frequently cut
in order to reach profit margins and keep investors happy. This has led to massive downsizing
of newsroom staff worldwide and as a result fewer stories are produced. In this ever-changing
scenario, new funding sources for journalism are often being sought. Among them, crowd-
funding journalism, in which reporting is funded by donations from ordinary people made in
small micro transactions in large numbers, has been gaining attention worldwide and rightly
so.

Crowd-funding journalism is defined as a way to finance reporting by micropayments from

ordinary people in small quantities. It is part of a general phenomenon usually called
crowdsourcing, a term coined by Jeff Howe in an article from Wired magazine in 2006. In
this article, Howe distinguishes four categories of crowdsourcing applications:

(i) Crowd wisdom (collective intelligence),

(ii) Crowd creation (user-generated content),

(iii) Crowd voting (participation) and

(iv) Crowd funding.

Compared with other revenue applications, crowd funding differs in one key aspect: in some
other forms of crowdsourcing applications, the crowd contributes its own time and efforts,
but in a crowd-funding model of journalism, or crowd funding in general, the crowd makes
financial contributions. The idea of crowd-funding journalism is basically that through small
donations from the crowd, large projects that no singular individual could fund on his or her
own can be accumulated. Besides, local projects that are only appeal to a certain groups of
people, people can ask for articles on subjects they feel are of some importance there by
restoring the public opinion on journalism. Thus crowd-funding journalism is sprouting as a
way to supplement the present news ecosystem.

2
 If we look at crowd-funding journalism in a much broader perspective, we can see that two
principal factors can be pinned to the evolution of crowd-funding journalism.

Firstly, people tend to get access to news online very easily, especially on social media, and
people have a tendency to express themselves online. In other words, social media and the
Internet are at the heart and soul of crowd-funding journalism model. The large number of
cyber users and the forging of a cyber society make crowd-funding journalism possible and
helps keep the news free from governmental and corporate interests.

Secondly, the increased accessibility of online payment methods that is secure does not
comprise the donator’s privacy. It has broadened options for fundraising as certain crowd
funding sites even accept crypto-currency as a form of payment. In actuality everybody who
uses the Internet can be a donor or backer for such media sites. These has given crowd-
funding journalism a more enhanced and secure economic foundation. In an ever globalized
world, crowd-funding journalism like many other new forms of business models is not
confined to one country. In recent years, it is increasingly adopted on online platforms around
the world like Indonesia and Brazil. One of the earliest experiments of crowd-funding
journalism was in fact Spot.us, an online platform that was pioneering community-supported
journalism. Spot.us was launched in November 2008, and by April 2010, the donations for
the platform on Spot.us aggregated to $100,000. However, it came to an end in February
2015. Its demise cannot be seen as a sign that crowd-funding journalism is declining but only
beginning. On the contrary, more crowd-funding platforms entered the world.

In the UK, which is regarded as a haven of free speech Publish.org, a project in the making,
is developing a new version of the original experiment they tried with The Guardian’s
Contributoria. The idea is to get readers to pay a membership fee that will enable them to
vote for the best stories, write their own and edit others. Crowd funding can also be defined
as the process related to funding projects or companies using the network in order to make an
open call and receive funds from the crowd. Social networking and the Internet are at the
heart and soul of these concepts. The movement also gained speed thanks to improved micro-
payment services like PayPal which has revolutionised online financial transactions. The aim
of crowd funding is to gather enough financial resources as a small investment with no return
to be produced in an order to organise or carry out an activity within the media house. This
concept also majorly evolved in the entertainment industry, where such platforms are famous
for promoting music bands, young filmmakers or any type of artists. The deep relation with

2
the crowdsourcing also reinforces crowd funding through the added value provided by users.
It gives users the chance to also participate in the creative process through voting, comments,
sharing, twittering or a direct connection to creators. Indeed, crowd funding can also been
defined as the collective co-operation of online individuals who pool their money for a
project or product . From an economic standpoint, crowd funding allows for a better
adjustment between supply and demand, which results in a more efficient production process
(Belleflamme et al., 2010). Creators attempt to generate value for the people who support
them . Crowd funding is not a donation, but it is also not an investment. The relation between
creators and backers is originally new and deeply related to social networking economies.
Backers always get something in return from the projects they fund; each receives rewards in
exchange for the money provided. But they are not investors, as they do not generally obtain
financial benefits, and they are not shareholders. Latest versions of crowd funding platforms
focus on start-up investments. They facilitate meetings between entrepreneurs and business
angels, and successful projects share benefits with backers. In journalism, crowdfunding
platforms follow a similar process. First, journalists pitch an investigative reporting project,
documentary or photography report. Users at the site sponsor them, and when journalists
reach their objective, they can use the money obtained in order to work on their project.
Donors or backers are compensated with either the symbolic gratitude of seeing the work
published or by receiving a reward from the professional in question. Cohn (2010)
distinguishes crowd funding from micro-payments, since the defining factor is transparency
and control on where the money goes. If traditional media request contributions after work
has been finalised, this leaves little transparency or financial control for donors since editors
can freely use the funds as they wish. Aitamurto (2011) studied the Spot.us case in a recent
articled focused on crowdfunding. She defines it as a way of using collective intelligence for
journalism. Aitamurto (2011) argues that the crowdfunded journalistic process creates a
strong link between reporters and donors from the reporter’s perspective. Crowdfunding
platforms change the role of journalists in relation to audiences. Freelance journalists or
stand-alone reporters are now like the emissaries of the king’s court in older times. Users, or
readers, are like kings eager for information that will fulfil their curiosity or help in making
decisions about their lives. Crowdfunding donors have become the gatekeepers of this
ecosystem. At some point, they are also promoters of investigative journalism in those cases
in which they ask a freelancer to work on something or when they freely and happily choose
where to invest their money.

2
3. Case Study: Zhongchou.com

It is not a hyperbole to say that 28 December 2013 is a significant date for the practice of
crowd-funding journalism in China. On that day, Zhongchou.com (“Zhongchou” meaning
“crowd-funding”), one of the leading crowd-funding platforms in China announced the
launch of a crowd-funding news channel on its platform. This makes Zhongchou.com the
first crowd-funding platform to set up an independent channel for crowd-funding journalism.
The aim of the channel is to provide a crowd-funding service for news content that is difficult
to be published in the traditional media.

At the grand launch event, Mr. Jia Sheng, the founder and CEO of Zhongchou.com spoke of
the ambition he had for the news channel. His speech was generally considered as the
opening statement of China’s crowd-funding journalism: “Report what others have not
reported; find a new way to convey your opinion to the public. These are the common goals
of many ambitious journalists. However, not all the good stories can be pursued or published
in the traditional media. Through crowd-funding, your good stories might have an
opportunity to come true. Crowd-funding journalism, in a sense, can provide a new
alternative for those ambitious journalists.”

The launch attracted a fair amount of attention from Chinese journalists and bloggers.
Ziqian Wu, a journalist from The Beijing News initiated an investigative project on China’s
fashion industry. Jiyong Hou, a journalist from 21st Century Business Herald launched his
project “The investigative report on the social environment for entrepreneurs in Chengdu”. A
journalist from 21st Century Business Review, Dongfa Luo, initiated an investigative project
on the status quo of China’s animation industry. Haiguang Xin, a blogger, launched a project
on China’s mobile game industry, which would involve many interviews around the country.
Being meaningful, but it was difficult to get financial support from the media he was working
for, because the editor thought that the project was not timeless. Through crowd-funding,
Jiyong Hou got financial support from 96 individuals and raised enough money to carry out
his project. Within the first month, there were 14 stories posted on the crowd-funding
journalism channel on Zhongchou.com, attracting 733 financial supporters altogether. The
total number of money raised was 34,150 yuan (US$5,253). All the 14 projects reached or
exceeded the funding target. Examining the 14 projects, we can see that investigative
reports counted for a large portion, although none of them was hard news or politically
sensitive. However, it is fair to say that crowd-funding journalism had completed its first

2
show successfully in China and more crowd-funding platforms launched crowd-funding
journalism channels on their sites. Crowd-funding journalism became an eye-catching
phenomenon in public.

As crowd-funding journalism in China was in its promising infancy, relevant departments of

the Chinese government gave a verbal warning to Zhongchou.com and other crowd-funding
platforms, saying that crowd-funding journalism on their sites were in danger of violating the
government’s rules on media. To avoid political risks, Zhongchou.com discreetly
downgraded the crowd-funding journalism channel to an “others” channel. Users could not
see the news projects any more from the homepage but had to search for them manually.
Later, all the previous crowd-funding journalism projects were taken off completely from the
website. New projects, if they have journalistic attributes or are initiated by journalists, are
loosely catalogued under the publication channel. The crowd-funding journalism channel
does not exist anymore.

Funding Model

The funding model of Zhongchou.com is Reward-based, All-Or-Nothing crowd funding.

Funding is done via a reward system where funders are promised certain rewards for their
contributions. According to the amount of money they fund, rewards can range from signed
copies of the particular book, incidental products to other types of reward, such as private
lunches with the author or travelling with the author etc. The reward system can also serve as
a pre-order before the publication is available to the market and a way to test potential market
response and reception. Because of crowd-funding’s close ties with social media in China,
projects can often create “buzz” and go viral overnight. This means that crowd-funding isn’t
only a tool for generating funds but also as a form of advertisement and promotion. In some
projects, promotion can often be more important than the money.

2
4. Conclusion

In this paper, we have identified crowd funding initiatives around the world, but further
research is needed in order to forecast the performance of this long-term process. It would be
interesting to analyse how many journalists could benefit from this model in a specific market
and if they would be able to collect the necessary resources for quality investigative
journalism. The rise of non-profit media and other alternative platforms that support
journalism highlights journalism’s funding crisis. Traditional media cannot subsidise news
reporting because their economies have slowed. Crowd funding can be a sustainable model,
but it is obviously not a substitutive model. In this sense, this paper has shown the growing
impact of crowd funding on journalism by explaining the context in which it is carried out
and highlighting the most significant cases. As noted, crowd funding places the audience
back at the heart of the journalistic mission. Investigative journalism is discovering new ways
to obtain resources, engage users and involve them in the process. In this process, audiences
participate in the production of news and quality journalism in a broader sense than that of
traditional media. Instead of replacing the journalism professional with citizen journalists,
crowd funded journalism gives users the role of producers without endangering content
quality. Cohn, the founder of Spot.us, believes that journalism is a process in which users and
journalists should have an equal relationship. As we have shown, journalists maintain the
added value of their profession by shaping what is being reported and how. Many questions
arise about the independence and autonomy of working journalists, but platforms that
promote crowd funded journalism are trying to solve these issues. In the meantime, they have
improved their beta models in order to avoid bipartisanship and system failures.

Crowd funding theoretically works as the perfect place for connecting audiences and
reporters. It is not just a matter of distributing, sharing and linking content; instead, crowd
funding is about giving money to people who are providing a service for the community.
Journalists work openly and reach their goals when their proposals successfully receive
funding from audiences. The emergences of new outlets that make public interest journalism
possible and that coexist with traditional news organisations are a warning for the media
industry. There are many examples of crowd funding and non-profit media that offer
investigative journalism with accountability, responsibility and quality patterns. This should
be a sustainable model for the future, but its success also depends on whether the strategies
are adopted by traditional media.