The Hell Gate 2023 Annual Report
Hell Gate began as an experiment to test a thesis—that New Yorkers were hungry for trenchant, playful, outraged, and irreverent reporting and writing on our city; that people would be willing to pay to read it; and that a lean, mean, worker-owned, subscriber-funded outlet could not only survive, but be a sustainable model for our industry.
Our soft launch last May showed us there was an appetite for our stories—so we kept going. This week marks a year since we flipped the switch and the official, doing-it-for-real Hell Gate, complete with a paywall and a subscription system, went live. We were no longer sticking our toes in the water, we were swimming the icy depths of the 21st-century news business.
Twelve months later, we're still swimming. The past year has been more rewarding and fulfilling than we imagined it would be—we've published more than 800 stories, won awards, launched a podcast, hired more reporters, built a newsletter with 16,000 recipients and a 60 percent (we're told this is good?) open rate, and gotten a bunch of very nice press along the way. And we're lucky enough to now have an advisory board made up of some of the best minds in the business, guiding us along the way.
We're a year in, and in the interest of transparency, we want to share both the successes and the challenges of the past year, as well as what we think will be next for Hell Gate.
After a year of watching more massive newsroom layoffs, the rise of AI-authored garbage as a business model, revelations of bloated salaries for executives who are busy laying off journalists, and the loss of important local news outlets as funders change focus, we believe even more strongly that reader-funded, worker-owned journalism is an important solution to the crisis facing our industry.
Why Start a Worker-Owned News Outlet?
The question anyone trying to start a journalism company has to answer is this: How do you pay for the journalism? Most people reading this probably already have at least a rough idea of why the answer to that question is less self-evident than it was 30 years ago—how the internet killed print and its lucrative advertising revenue, how Craigslist made classified ads obsolete, how Facebook and Google monopolized online advertising and the lion's share of the revenue that comes from it. As the death spiral set in, private equity vultures started buying up once-thriving publications, loading them with debt and running them into the ground. The salad days of advertising-supported local journalism are over, and people have spent the past decade trying to come up with alternatives.
Some of these alternatives aren't that new. Finding a kindly billionaire willing to float your publication because it tickles them to do so is a timeworn path. It can work, kind of, sometimes, until they lose interest, taking their money with them.
Another option is to sell equity in your media start-up, convincing people that your business model is so good that it will somehow eventually make them money, as though a journalism shop is just another box that whirrs and spits out cash, when in fact a journalism shop is a box that whirrs and spits out journalism. One problem with this model? In order to keep getting that investment money, you need to convince those investors that you're going to keep growing forever like a tumor.
A popular alternative to a profit-obsessed business model for journalism is its opposite: nonprofit journalism. As the bottom has fallen out of the old model, nonprofit outlets have sprung up all over the place to pick up the slack, and a lot of them are extremely good. Nationally, there's ProPublica, the Intercept, and the Marshall Project, to name just a few. Here in New York City, new nonprofit news sources abound—New York Focus, the CITY, and Documented all do great work and have filled a huge void.
But a nonprofit newsroom can still replicate many of the issues of a for-profit venture, like having layers of foolish, misguided, or overpaid management—sometimes all three at once!—who get in the way of journalists doing their jobs. Journalists don't necessarily control their workplace at a nonprofit any more than they do at a corporate publication.
Another important reason for not replicating the nonprofit model is ecological: The prospect of a New York City news ecosystem increasingly reliant on the spigot of institutional philanthropy continuing to flow endlessly from the same handful of donors, sounds to us like a dangerously brittle and vulnerable arrangement. What happens if foundations pivot away from supporting journalism? Better in our mind to have a diversity of business models, with at least one outlet in New York running on a different power source, relying on a broad base of subscribers who are unlikely to pull the carpet out from us en masse.
Which brings us to the worker-owned model of journalism. Hell Gate is a limited-liability company, where workers share ownership, and the company is governed and run by those workers. We believe that the people who should be making the important decisions about journalism are the journalists, and that necessitates the worker-run structure on display at Hell Gate, Defector, and Racket.
How Much Hell Gate Costs
Journalism isn't cheap! It costs money—but not as much as C-suite executives might want you to think. Beyond paying your writers, editors, and freelancers, and covering the basic costs of running a news outlet (libel insurance!), there's not much else you need. At Hell Gate, we don't overspend on executive salaries (we don't even have executives), or splashy "thought leader" events, or (as much as we might want to do this) an office full of snacks and cold brew. Our main expense is paying journalists to produce journalism.
We have grown significantly since we launched last year, so instead of providing a snapshot of all of our expenses to date, we're sharing a breakdown of a typical recent month's expenses. Here are all of Hell Gate's costs in May of this year:
|May 2023 total operating expenses*||$46,283|
|Staff salaries and benefits||$31,500|
|Professional fees (accounting, insurance, etc.)||$1,425|
As you can see, our biggest expense is paying ourselves, the worker-owners and employees. We are compensating ourselves very modestly right now—just $4,000 a month, plus a $500-a-month stipend for health insurance. That makes sense for a fledgling start-up just trying to get off the ground, though it's still our biggest expense: $31,500 a month for the seven of us.
There are seven of us because we made the decision to grow this year. Hell Gate launched with five worker-owners. Last year, one of our founders moved on to focus on other projects, on the very best of terms, leaving us with a team of four to report, edit, commission stories, and run the business. This stretched us thin, and limited the amount of content we could actually publish. That became a problem, as we've observed a pretty direct relationship between the volume of (good) stories we publish and the growth of subscriptions.
So earlier this year, we brought on two more writer-editors. We also hired a business manager, in large part to help us experiment with ways to increase revenue. The new hires are making the same salary as everybody else, and will vest as full worker-owners in August. We've grown as a company and couldn't be happier about it.
As former underpaid freelancers (and underpaid staff writers!), it has always been important to us to compensate journalists as well as we can for their work. Right now, that means that we pay $350 to $400 for the average freelance assignment. That rate isn't where we'd like it to be in the long run, but it's what we can afford right now. (On the plus side, we pay extremely promptly, and our freelance contract—written in consultation with the Freelance Solidarity Project—is considerably better than what you'll find at better-funded publications.)
As it is, we spend about $2,500 to $5,000 a month on freelance writers and another $1,000 to $2,000 on freelance photographers and illustrators.
The Hell Gate Podcast
Then there are the costs of the Hell Gate Podcast. We launched the podcast early this year as part of our throw-things-at-the-wall-and-see-what-sticks approach. We brought on podcast genius Lauren Vespoli (who had already written a great piece on Benshonhurst's Punk Temple for us) to produce it, and quickly realized it's a lot of fun, and a different way to present stories to our audience.
Making a basic "bullshitting-with-your-bros-in-a-basement" podcast is neither difficult nor expensive, but that's not what we wanted to do. Once you start including produced pieces with ambient sound and field interviews and the like, a podcast becomes more labor-intensive and consequently more expensive. The feedback we've gotten on the podcast has been overwhelmingly positive, and the 16 episodes we've published so far have been downloaded more than 20,000 times.
The podcast is currently on summer hiatus, and we can't wait for it to return. The challenge ahead is to find a way for the podcast to pay for itself, with ads or sponsorships. (If you're interested in any of that, please get in touch!)
How Much Hell Gate Makes
Which brings us to our revenue. Here's a snapshot of all our of revenue sources in May 2023:
|May 2023 total revenue*||$35,384|
If you recall the number we tossed out for our May expenses, you'll note that there's a bit of a gap. It has always been, and continues to be, our intention that Hell Gate be funded predominantly by our readers—but after just one year, we're not there yet. Building a subscription base large enough to support a seven-person (or bigger!) operation takes time, and we aren't blessed with millions of dollars in start-up cash. (If you want to bless us with millions of dollars in start-up cash, hit us up.)
As a start-up that was born only one year ago, we knew from the beginning that we would need to find other sources of revenue to stay afloat until the day when our subscription revenue more closely matches our costs. And to date, we've succeeded in finding generous donors and foundations that have given us some much-needed runway to grow sustainably while building our subscriber base from scratch.
When we launched our paywall, we had zero paying subscribers. Today, a year later, we have 2,500.
The big number for subscription-based operations like ours is "monthly recurring revenue," or MRR, which means what it sounds like, and for our purposes is just the sum of our monthly subscriptions and one twelfth of the value of our annual subscriptions.
As of the time of this report, our MRR is $19,000, which means if we don't get any new subscribers over the next year and nobody cancels their subscription either, we'd be taking in about $230,000 in subscriptions over the next 12 months. (If you’re wondering why May’s subscription revenue figure is higher than our MRR, that’s because they’re two different metrics—to explain the difference would make your eyes glaze over but if you’re interested, you can email us at email@example.com.)
Fortunately for our prospects, we are getting new subscribers every month, and very few people are canceling their subscriptions. The share of subscribers who cancel their subscriptions is called "churn" in the biz, and ours is exceptionally low, at 0.66 percent. We expect that number to go up somewhat as our first wave of one-year-subscriptions come up for renewal. Meanwhile, our subscriber growth has held pretty steady so far, averaging a robust 10 percent month-over-month over the year.
Holy shit, you say, 10 percent month-over-month growth? Project that out into infinity and we're golden. In a few years, Hell Gate will have a 50-person newsroom, a company helicopter, and Beyoncé playing our holiday parties!
Well, we hope! Realistically, we don't expect that rate of growth to continue forever. Eventually, a lot of the people who have been thirsting for the sweet editorial nectar Hell Gate provides will have already subscribed, the rate of growth will start to slow, and we'll have to work harder to find new subscribers. (If you're a regular reader but you're not yet a subscriber, let this move you to action.)
In our planning for the future, we're being much more cautious, projecting that subscription growth might slow to an average of seven percent month-over-month for 2023 and to four percent and then three percent in subsequent years.
Altogether, worker-owners put up $28,000 to get Hell Gate off the ground. That was a lot of money for a bunch of marginally employed journalists, but it's not the kind of capitalization that can sustain an operation as it builds up momentum and revenue. As a point of reference: Semafor launched with $25 million. The CITY started with $8.5 million in the bank.
The good news is that our subscription revenue line continues to go up at a steady clip. Still, right now, our reader-generated revenue doesn't cover all of our expenses. So to keep the machine running while subscription revenue climbs to a point where it covers our costs, we've been accepting donations from foundations and generous individuals. To date, we've received just over $300,000 from donors. We're setting ourselves the goal of raising a similar amount next year, and we'll probably continue to need to rely on donations, at diminishing amounts, for at least the next three years.
We list everyone who's given us more than $5,000 on our website. (Though we're also grateful to the many donors who have given smaller donations and tips to Hell Gate!) We subscribe to the standard editorial firewall policies that prevent donors from influencing editorial content, and we are clear—bluntly, verging-on-rudely clear—with prospective donors that they are contributing to a journalist-led operation that has some sharp edges to it, and they're not going to necessarily like some of what we do, and they're going to have to be comfortable with that.
We'd like to thank the Harnisch Foundation, the Vital Projects Fund, craig newmark philanthropies, the Reznick Family Giving Fund, Rachael Bedard and Gideon Friedman, and Paul Ford for their generous donations during the past year. And Hell Gate is grateful to Investigative Reporters and Editors for acting as our fiscal sponsor for these donations, allowing donors to make their donations tax-deductible. In exchange for handling these donations for us, IRE takes three percent of donations.
If you would like to make a donation to Hell Gate, you can email us at firstname.lastname@example.org.
Significantly, there are other revenue knobs we haven't really started to fiddle with yet, because we've been very busy. Advertising is never going to be a main pillar of Hell Gate's business model—our traffic is solid and we've had millions of unique visitors to the site over the last year, but it's not enough to garner five-figure monthly ad campaigns. That's OK—our business model means we're focused on subscribers, not raw "eyeballs."
Despite what you may have heard, though, we're not too pure to run ads. Indeed, we've done it and we want to do more of it—on our website, in our newsletter, and on our podcast.
But selling ads takes time we haven't been able to spare so far. In the near future, we want to devote some resources to having dedicated ad sales capacity. One thing we do not want to do: throw up a chumbox, cluttering up your local news stories with pictures of toe fungus or reasons why trainers hate this one very buff man. It's not worth it.
We also have yet to experiment with spending money and time alerting the public to the good work we're doing. Spending a little money on marketing Hell Gate might yield bigger returns on subscriber growth—and so far we've spent nothing.
In 2024, we'd love to have a much bigger newsroom—think of the coverage we could bring you with a dozen reporters! But given that we're not beholden to investors demanding returns, we're not interested in scale for scale's sake. We're interested in creating sustainable journalism, and that means taking care of our existing staff first.
We live in one of the most expensive cities in the world—rents are skyrocketing, and the only way we're able to make this work so far is by all of us freelancing outside of our full-time work at Hell Gate. In practice, that's exhausting, and in principle, we don't want to build a company that relies for its solvency on exploiting ourselves. When we bring more people on, we want them to be able to feel good about their pay and benefits, not just the freedom and autonomy of a worker-run workplace.
For that reason, we're planning on increasing our annual salaries in January 2024 from $48,000 to $60,000. We're also going to provide health insurance through what's known as a PEO (a professional employer organization). These two decisions are going to increase our operating costs considerably, but they're necessary to put Hell Gate on a sustainable footing.
Looking into the future, we have already begun budgeting for the hiring of another editorial staffer and another business-focused employee, who would work on marketing and advertising sales. We also will be working on more investigative projects (we've published a bunch already, and we have more in the pipeline that we're really excited about), expanding our culture coverage, and diving into more multimedia projects. (Video! Photography! Metaverse? Probably not that one!) We also want to start producing more live events for our subscribers and readers—a benefit of being a local publication is getting to hang out with our readers IRL. And speaking of hanging out IRL: being able to afford a Hell Gate office would be a boost to our journalism (and let us see each other more often).
The fact that Hell Gate is still publishing and growing as we enter our second year is more than we dared to hope when we started. The consistently healthy subscriber growth reassures us that people like what we're doing and are willing to pay to support us. The challenges before us for the next year mostly involve keeping the trendlines of the past year going. We need to continue to attract more readers and convince more of our readers to become subscribers, and we need to find more institutional and individual donors.
And of course, our core mission will stay the same: to continue to publish as much sharp, insightful, outraged, and exuberant reporting and writing on the best, most infuriating, most wonderful city in the world. We always knew that the journalism was going to be the easy part. We hope you're now inspired to help us with everything else.