James O’Shea, founder and editor of the Chicago News Cooperative, told his staff Friday afternoon that on February 26 the CNC would shut down. Or to be more specific, it would stop publishing in the New York Times and stop maintaining its website, the two forums in which it publicly exists.

Two pieces of bad news drove this decision.

O’Shea was counting on a substantial grant from the MacArthur Foundation, which had helped put CNC on its feet in the fall of 2009 and had already given it a total of a million dollars. But a problem arose. The IRS has yet to rule that CNC and similar web-based news operations in other cities deserve the not-for-profit 501(c)(3) they’ve applied for. This hasn’t been a problem for these operations, which have been able to receive through fiscal agents — which in the case of CNC has been WTTW.

But a couple of weeks ago a MacArthur staff attorney said, wait a minute. He advised the foundation that until the IRS ruled for CNC, MacArthur grants should be earmarked for specific programs rather than simply to sustain the co-op. This didn’t mean that CNC had no way to use the MacArthur grant to stay afloat, but it did mean a different approval process and a longer wait for the money to arrive. O’Shea found out about the delay early this past week. He was in no financial position to wait.

Meanwhile, CNC had been in conversations for several months with the New York Times, for which it has produced four pages of Chicago news a week. The Times knew that CNC’s financial position was precarious. O’Shea hoped the Times would pay more for the service; but instead the Times decided not to go forward at all with a shaky partner in a publishing experiment far more important to CNC than it was to the Times. On Thursday the Times called O’Shea and they called off the relationship.

But the closing of CNC is about more than a delayed foundation grant and a canceled contract. CNC has suffered throughout from a lack of development muscle. O’Shea is a former senior editor at the Chicago Tribune and Los Angeles Times, and at CNC he surrounded himself primarily with former Tribune colleagues — terrific journalists but not much for shaking apples out of trees. But O’Shea drove the deal in which a group of local investors — many of them CNC backers and board members — purchased Sun-Times Media last December. O’Shea had synergies in mind, and one of those investors, Bruce Sagan, discussed them with me at the time.

“There’s no deal between the Chicago News Co-op and the Sun-Times at the moment,” he said. “They are indeed organizations with their own goals. But the goals are not far apart. It’s a question if they can make it work, if they can figure it out. The Sun-Times needs personality, viewpoint. That can’t come from somebody else. But is there a lot of news out there that can be shared? My god!”

And the stripped-to-the-bone Sun-Times no longer had the forces to cover all that news. The way back for that paper was to restore some of the quality that austerity had squeezed out of it; and quality, at not too high a cost, was what CNC could provide.

But that hasn’t happened. Instead of pushing quality at the Sun-Times, which presumably would have meant a new role for CNC, Tim Knight, the new CEO of Sun-Times Media, has focused on the company’s suburban papers. CNC remained on the sidelines.

Though CNC employees are now looking for work, I understand that O’Shea hopes a reconstituted CNC can continue. The name commands respect and the brand surely has value. Early and Often, a paid-content political feature launched on the CNC website to monitor last year’s city elections, showed CNC that people will pay good money for tightly focused good reporting.

O’Shea didn’t want to talk to me about his future plans or about the Sun-Times, but he did discuss the problems with the IRS. “McArthur’s legal counsel said, ‘You have a relationship with WTTW but they don’t exert any legal control and I don’t think that will pass muster with the IRS. So we won’t support you.’ Our counsel totally disagreed with him. What this means is that they’d continue to support us with program-related investments, but the reporting requirements are onerous, the totals are usually far smaller, and the penalties are severe — foundation executives can be personally fined.” On Friday morning O’Shea told Elspeth Revere, the MacArthur vice president responsible for media grants, that he was withdrawing his pending grant request.




To our readers:

As you might have heard or read by now, the Chicago News Cooperative is suspending its contributions to the Midwest pages of the New York Times and its website effective February 26 so we can reassess our operations and determine if there is a more sustainable path to the future.

Effective next Sunday, the Times pages produced by the CNC will no longer appear in the Friday and Sunday editions of the newspaper and its website. Obviously I’ve taken this step with much pride and regret – pride in the excellent journalism produced by the CNC staff over the past two and one-half years and regret that I could not raise the resources we needed to continue our current level of operations. As the CNC’s editor and CEO, I take full responsibility for this situation.

Unlike similar start-up efforts like the Texas Tribune in Austin, the Bay Citizen inSan Francisco and ProPublica in New York, we never recruited the kind of seven figure donations from people of means concerned about the declining quality of news coverage around the country. As a result, CNC never raised the resources to make investments in the business side of our operation that would have generated the revenue we needed to achieve our original goal – a self-sustaining news operation within 5 years.

CNC always has been an experiment in trying to figure out a way to finance accountability journalism, the kind of reporting that many news organizations are abandoning as they struggle with a deteriorating business model and financial problems. This is a very difficult problem especially in major cities and carries ominous implications for a democracy. An organization dedicated to public service journalism is an indispensible civic asset, and we remain committed to finding some possible answers.

In the coming days and weeks, we will be examining our potential to see if we can identify an alternative path and preserve some of the journalistic assets we have developed. Continued support is welcome and would help us figure out the best path for CNC.

The decision to suspend operations was motivated by some complex factors and unresolved questions regarding our tax status and a change in circumstances that triggered questions about the economic wisdom of commitments between the CNC and the New York Times. Frankly, the situation is too complex to discuss in any detail in a note like this. Unfortunately, reports riddled with errors still get wide circulation on the Internet, and the reporting on our problems was no exception.

Early stories and twitter posts on our problems were inaccurate. The reporting was sloppy and simply reinforced in my mind the need for solidly reported, well-edited journalism, the kind that professional CNC journalists have been doing on our website and in the New York Times since November, 2009. I can assure you that most of the people involved worked incredibly hard and in good faith to come up with some solutions to the cash shortage that threatens our future

I promise to keep you posted on our plans as we wrestle with these issues in the coming weeks. Meanwhile, I would like to deeply thank all of you who have supported us over the past two and one-half years, particularly the John D. and Catherine T. MacArthur Foundation, our largest donor; The New York Times, our second largest supporter; the CNC board, especially its chairman, John Canning; everyone who has donated individually both large and small and the staff of the CNC, whose work is simply heroic.

Thanks and regards,

James O’Shea
Editor and CEO
Chicago News Cooperative.



For more on grants and grant writing, visit Grant Pros.


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