DNAinfo — A Small Company with a Big Impact

By now, most people know DNAinfo has been shuttered.

DNAinfo was inspiring, uplifting, smart and current. In just 9 years, the company grew from nothing to over nine million monthly readers and a total of 118 employees in New York and Chicago.

The CEO, Joe Ricketts, the billionaire founder of TD Ameritrade (whose family owns the Chicago Cubs) claimed he was shutting the business down because it wasn’t profitable. But the timing was suspicious, since it happened a week after the New York office joined the Writers Guild of America East, a union.

A more likely explanation for the shutdown is that Mr. Ricketts simply doesn’t like unions. From the outside looking in, it looks like a warning shot across the bow — if you want to work at one of Mr. Ricketts’ companies, you’d better keep quiet, do what you’re told and not ask for too much.

Media Consolidation

But there are other factors involved here. Hyperlocal news organizations like DNAinfo are struggling across the country and DNAinfo never made a profit.

Over the past several decades, media consolidation has accelerated. In 1983, 50 corporations owned 90% of the media. Today, just six corporations — Viacom, News Corporation, Comcast, CBS, Time Warner and Disney — control that same 90%.

Like most businesses, these corporations want to make a profit. It’s much easier to make a profit on national news by collecting revenue from a few dozen corporate advertisers than it is to focus on local news and collect revenue from thousands of small business advertisers.

So, even if Mr. Ricketts had decided to stay the course with DNAinfo, he would have been swimming upstream.

Wealth and Income Inequality800 pound gorilla

That 800-pound gorilla sitting over there in the corner is wealth and income inequality. As documented by Thomas Piketty and others, over the past 50 years wealth has increasingly flowed to the top, while middle and lower class incomes have stagnated.

Most of the economic gains made by the middle class since World War II have evaporated. Today, American consumers have far less disposable income than their counterparts did 50 years ago. The result is that the groups who benefit the most from hyperlocal news are the least able to pay for it.

Dearth of Investment Alternatives

Another factor is the slow but dramatic decline in financing alternatives available to small businesses such as DNAinfo.

Throughout most of the 1970 and 1980s over 14,000 commercial banks operated in the United States. According to the FDIC, there were just 5,112 in 2016, and the downward trend shows no sign of reversal.

The big banks operate the same way the media companies do: why bother lending tiny amounts to thousands of businesses when you can lend huge amounts to just a few giant corporations.

The only reason large banks lend to small businesses at all is that they are required to. bank consolidation continues

Small businesses usually get the short end of the stick when it comes to financing. Venture capital firms and most angel investors have no interest in small businesses.

Crowdfunding is a great idea, but volume is small ($2.1 Billion in 2015), and nearly half of that goes to real estate investments, not operating capital or equipment financing — where they could make a real difference to the small business economy.

Banks are slightly better, but still fall short. Small business bank loans totaled $585 Billion in 2013, whereas large business bank loans exceeded $2.0 Trillion.

Roughly half of SBA loans go to real estate deals rather than toward equipment or operating capital. Many “small business” loans go to franchises (which the SBA classifies as small businesses).

Furthermore, since the SBA defines a small business as having up to 500 employees, a significant fraction of SBA loans go to the largest small businesses at the top of the SBA classification scheme.

In the case of DNAinfo — and thousands of other small businesses like them — the lack of available investment alternatives has the effect of concentrating power in the hands of a few wealthy investors.  As usual, the Golden Rule applies: those who have the gold, rule.

Skewed Incentives

An October 2015 analysis by Good Jobs First found that local economic incentive programs across 14 states overwhelmingly favored large businesses over small businesses. Of more than $3.2 Billion in economic incentives, more than 90% went toward large corporations instead of the small businesses the programs were designed to serve.

Huge companies like Amazon, Walmart and Google grab many of these economic incentives, leaving crumbs behind for the small businesses that actually need the money. Even worse, many of these corporate largesse recipients never deliver what they promise — job creation — yet they still get the incentives.

New Rules?

If we had a more level playing field, small businesses such as DNAinfo would have a greater chance of survival. Less media consolidation, and therefore more competition, would increase the viability of hyperlocal media organizations.

The local communities — including consumers, small businesses and non-profits — that want high-quality local news would have enough disposable income to actually support organizations like DNAinfo. And less concentration in the banking industry, combined with better SBA rules, would enable small businesses to get a slightly bigger piece of the pie.

In theory, the 118 employees of DNAinfo could have banded together to purchase the company from Mr. Ricketts and form a worker-owned cooperative. In reality, there are major hurdles for such a transition: employees have to agree to work together; the owner has to agree to sell to them, and there has to be a viable way to finance the conversion.

It would help if more small business owners and employees understood what a worker cooperative is, and if there was a critical mass of experts who had knowledge of worker coop conversions. There are signs of positive change at the grassroots, local, regional and even national levels. DNAinfo — the company — may be gone, but their dream is alive and well.

About Andrew Clarke

Andrew Clarke is President of Ground Floor Partners. Over the past twenty years he has advised hundreds of small businesses on strategy, marketing, real estate and finance. He is passionate about small business, social and environmental justice, and is a proud member of the American Sustainable Business Council, Food and Water Watch, Green America, Food Consultants Group, and the American Planning Association.

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