Private Investigations?

The Chris Cook Economics 3.0 column

I was interested to read last week in the Guardian the extract The Paywall is dead from Arianna Huffington’s testimony to the US Senate Commerce communications sub-committee.

She sees the need for:

“…a hybrid future (which) will include non-profit/for-profit hybrids, like the Investigative Fund the Huffington Post has launched. Backed by non-profit foundations, the fund provides staff reporters and freelance journalists who have lost their jobs with the opportunity to pursue important stories.”

I was well aware – having been a director of a “Not for Profit” futures exchange – of the difficulties in governance (it was like herding cats) and the financial restrictions arising out of the exchange’s strictly circumscribed ability to raise capital to invest in defending itself against Internet upstarts.

But when, after I left, the exchange duly de-mutualised, it was not long before the need to meet the demands of shareholders came into conflict with both the former members’ interests on the one hand, and the exchange’s regulatory responsibilities on the other.

Market 3.0

A couple of years after leaving, I set up a Dot Com company which provided paper-less confirmation of market transactions, whether executed on or off-exchange. I called the service Oil Clear, and the prototype was rapidly extended to MetalClear, BullionClear, AgriClear, and so on. Having spent inordinate amounts of money on professional services and on protecting intellectual property I found that I had created a utility which everyone wanted to own, because of the valuable data in relation to market transactions the system would capture.

The problem – which occurred in many Dot Coms at the time – was that there is a liquidity/neutrality paradox. If it’s neutral, it’s very difficult to get people to use it: if it’s liquid, because market participants set it up and use it, then other market participants will not use it, because it is not neutral.

After it was all over, I wrote an article in 2001 Market 3.0 which set out my conclusions and thoughts as to the next generation of Internet markets. It is pleasing to say not only that there isn’t a great deal I would change today, but also that it has been picked up more widely in recent years.

The point I am getting to is that it was towards the end of this article that I wrote for the first time in relation to the potential of the (then) newly introduced UK Limited Liability Partnership (LLP) as a legal and financial structure for the utility or monopoly “Market Corporation” I envisaged.

A Co-operative of Co-operatives

The enterprise model I had developed for a utility is well described as a Cooperative of Cooperatives. It essentially consists of a partnership – within an LLP framework – between a cooperative of service users on the one hand, and a cooperative of service providers on the other.

Any capital necessary could come from either or both constituency on the basis of proportional Equity Shares or redeemable Units in the revenues paid by service users to service providers.

In the intervening years I have observed the structure used in a commercial property transaction >£1bn, and have developed “proof of concept” LLPs in several fields with varying degrees of success. As a result I think I have identified a hybrid structure which offers a new synthesis between the conflicting models of proprietary commercial journalism and the anarchic “open” world of internet publishing of which this blog is one example.

Both Open and Closed

The solution I advocate is for intellectual property to be place into the ownership of a Custodian entity, which would both retain ownership in perpetuity, and could have certain veto rights of governance in relation to content use.

A cooperative or club of content providers would create content, and transfer it to the Custodian, while a cooperative or club of content users would access this content on a platform provided by a Manager consortium of service providers.

The Custodian and the three clubs/cooperatives would be members of a US LLC or UK LLP which acts as a framework agreement setting out the relationship between the stakeholder groups. Club rules cover the internal relationship between members of each group.

The outcome is an interactive and consensual enterprise model which is both open and closed. It is closed because only members can access content; but open because anyone who consents to the framework agreement may be a member.

Consequences

There is no longer a need for a distinction between freelance and staff writers: all would be content providers, and the agreement sets out the options available for remuneration.

Moreover, there is scope for a new approach to funding, whereby it could be possible for funding to be on the basis of a revenue share from a particular article funded, although that depends on whether or not any income was either received, or even asked for in the first place.

Here one could imagine that direct micro payments/investments could be made along the lines of the fascinating new site seed funded by Amazon Kickstarter.

For me, the most important aspect is the way that such an agreement aligns the interests of the various partner stakeholders. There is no organisation with its own agenda (usually that of the management): the partnership does not own anything, employ anyone, contract with anyone or do anything. It simply serves as a framework for the members to work together to achieve their common aim, in the case of the Investigative Fund, this would be the almost lost art of investigative journalism.