What is Zenger News Service?

Zenger is the world’s first verified news wire. Zenger edits and verifies news content from individual creators using its own proprietary software, and syndicates that content to thousands of news outlets as a newswire, earning a percentage of advertising revenue.

It is a business-to-business (B2B) service; its customers are the world’s newspapers, radio, television and online news providers.

Zenger’s main competitors are newswires, including Reuters, AFP, AP, Bloomberg, and Dow Jones. Our rivals charge high annual subscription fees, which are not linked to advertising revenue. Their content is largely produced by their costly, unionized employees. Their high fees and high internal costs create a market opportunity for a low-cost, high tech entrant like Zenger.

All Zenger content is original and not “aggregated” or rewritten from other news services or online sources. Zenger owns the copyright on all of the content it distributes. It also owns all ancillary rights (TV, film, translation, book and other rights) in all markets, in all media, worldwide. In all cases, it shares revenue with the creators of its content, no matter the source of that revenue.

Zenger uses proprietary software to verify facts such as quotes, interview subjects and reporter locations; the software also flags logical and mathematical fallacies, plagiarism, incomplete quotes, misuse of trademarks, use of clichés, and other kinds of journalistic malpractice. This produces news stories of uniquely high quality.

Since all quotes are recorded, all human sources are photographed, and all source documents hyperlinked, Zenger eliminates the elements of “fake news” that cause the public to mistrust media.

Zenger’s business model is as unique as its software. It uses a “contributor model,” along the lines of Forbes, Huffington Post and U.S. News & World Report, but on a much vaster scale.

Under a “contributor model,” our reporters, editors, photographers, graphics artists and data scientists (collectively “content creators”) are paid a percentage of the advertising revenue that their content earns across all media. Content creators are independent contractors (except for the Washington, D.C. bureau) and, as a result, are not paid salaries or offered benefits.

Since content creation costs are a percentage of ad revenue, these costs can never outpace total revenue—as too often occurs in legacy media.

Incorporated under the laws of Delaware as a “C corp” as Z News Service, Inc. (the holding company of Zenger News Service), the company has its headquarters in Arlington, Virginia and its back office (accounting, HR, and related functions) in Vero Beach, Florida.

What is the status of the market? Are you first to market? Who are your competitors? Have you conducted market tests?

The market is the global market for newswires. The market leaders are Reuters, AP, AFP, Bloomberg etc., and they are our competitors.

We are the first to use software to edit and verify news content. We are the first to pay most our reporters a percentage of ad revenue generated by their content, instead of a fixed salary. Our reporters, with a handful of exceptions, will be independent contractors and therefore non-unionized–a major cost saving over our rivals.

Forbes and Huffington Post use a contributor model (paying a share of ad revenue instead of salaries or fees), but they are not newswires. We would be the first to use the “contributor model” in the newswire industry.

We are about to launch a beta test, with some 900 participants. This will be a market test of our software.

Also, we are also distributing content to Apple News and Google News and receiving revenue for that content–another market test. The amount of revenue received is very small because the content is “test content” –not fresh, original or promoted in any way. But the test is working. We are receiving revenues from content through Zenger via Apple News and Google News.

Is Zenger secure? This is especially important as it will be electronically transferring money to tens of thousands of individual content creators.

Yes. The Zenger platform is as secure as any bank website. We conform our servers to CIS Level 2 standards (the highest). Therefore, we meet the standards for bank-level security, such as PCI-DSS compliance—the standard used by credit card companies worldwide. In addition, due our CIS Level 2 standards, we also meet the DoD NIST 800-73 and 800-171 standards for data security.

We also use advanced firewalling to prevent DDoS attacks.

Overall our network, server, and application security exceed all other news organizations standards and is equal or superior to that of bank or credit-card processing sites.

In addition, we perform a monthly security audit through a Certified Security Auditor, exceeding the level required for CIS Level 2. We perform log monitoring, and real-time security threat monitoring using Nessus Security Center.

Have you done a PEST or PESTLE Analysis? What were the results?

Here are the results of the PESTLE analysis (a list of outside factors that could affect business performance, positively or negatively):

Political: Piracy (theft of online content), content licenses and copyright, unionization or transformation of independent contractors into employees;

Economic: Unlimited market size, technology applicable to all countries, decline of legacy media means a large labor pool available to recruit;

Social: The “gig economy” is a major trend that could spur the recruitment of content creators, record levels of public distrust of legacy media (“fake news”) supports interest in “verified” news content;

Technology: Online news now eclipsing every other distribution channel (even broadcast television, for the first time, in 2017), high-speed Internet changes news delivery wherever it exists;

Legal: First Amendment safeguards our core business in the U.S., but Canada, UK and EU nations are enacting new restrictions on the press—producing higher insurance costs; Employment law, both in and outside the U.S., could present a challenge;

Environmental: No physical pollution is produced, and company foresees only two offices that house no more than a total of 35 people at peak. Little risk of high compliance costs given our light footprint.

Have you done a SWOT Analysis? What were the results?

Strengths: Experienced management team, data from users, disruptive technology, low operating costs, content costs and revenue march in lockstep—no risk of costs outrunning revenues. Zenger content available on all devices from smart phone, tablet, laptop and desktop;

Weaknesses: Dependent on ad sales as main revenue driver, strong competition from established players, low barriers for new entrant, difficulty raising content prices;

Opportunities: Canada, Mexico, EU, Australia, South America. Also, software and content subscriptions, partnerships with cable channels to distribute content and iTunes to sell content, radio and TV news 5-min newscasts, delivering 5-minute newscasts in movie theaters and 30-second newscasts in gas stations;

Threats: Falling ad revenue, competition reducing margins, international regulations.

Have you done a “Five Forces: Analysis? What were the results?

Threat of New Entrants: Medium (software development, patents, and distribution costs are low barriers to entry, not high hurdles. Still, no new entrant is on the horizon. Aside from Bloomberg, all news wires were started before the light bulb was invented; historically, this is not a field that has attracted new entrants, but our success may prompt others to enter the market.);’

Threat of Substitutes: High (AFP, AP, Reuters, Bloomberg…) But these are “unverified” and therefore not direct substitutes;

Bargaining Power of Customers: Medium (Today news outlets have other, more costly alternatives, not cheaper ones. Also, verification adds a quality dimension missing from the market);

Bargaining Power of Suppliers: Low (content creators are scattered, sole proprietors);

Intensity of Rivalry: High (traditional news wires will fight to stay alive) (low entry barriers, major players present);

Complementors (firms that add value to both their customers and ours): High (Apple News, Google News, Yahoo! News, major broadcast networks and print news outlets).

Capturing 50% of ad revenues seems very ambitious, given that ad revenues are essential to news outlets. What would be their incentives for letting such a big chunk go to Zenger?

Remember it is 50% of NEW ad revenue, not total revenue. By providing new content, we are providing opportunities for new ad revenue for our customers–growing both their top and bottom lines.

Fifty percent is the usual revenue share offered by Apple News, Google News, Yahoo! News and most other major online news outlets. It is the industry standard, not a stretch goal we hope to obtain. We are confident we can secure the same terms already offered to all other comers. Apple News and Google News already have given us these terms.

Regarding traditional print outlets, we will have to negotiate such terms. Again, we are confident because our competitors all charge far more.

Consider our biggest rival, AP. It charges a flat subscription fee of $9 per subscriber per year. So, a typical paper with an audience of 100,000 per year will pay $900,000 to AP, regardless of whether the AP content earns any ad revenue at all.

Unlike our competitors, we do not charge an upfront or fixed fee. And since, we are adding new content, we are also adding new revenue. (Every new story generates 3 ads per page or an average of 6 ads per story.) By adding content, we are adding new, topline revenue–and asking for half of that money. The news outlets would never see that revenue without the new, added content. We are not taking anything from their existing revenue, we are adding revenue and asking for half of the revenue that we are adding.

The anticipated 50% revenue share with news outlets sounds optimistic. How do we know that Zenger will earn a 50% revenue share?

Apple News, Google News, AOL News and Yahoo! News offer each of their news partners 50% of advertising revenue in exchange for providing their content. This is the standard deal they offer, and it requires no negotiation. Essentially any firm that they accept as a news partner gets these terms. Apple News alone has more than 100,000 news partners.

Regarding print and broadcast news websites, as far as we know, no one has ever negotiated revenue ad shares with them so there is no established model. 

How EXACTLY do you plan to persuade established news outlets to share advertising revenue with you, instead of paying a fixed subscription fee as they pay to other news wires like AP, AFP, Bloomberg, Reuters and so on?

Please see slide 14.

What is the current valuation of the company? How much money have you raised so far and who are your committed investors?

We have sold two tranches to investors: $2 million in shares to Patricio Slim, the son of Mexican billionaire Carlos Slim, and $2 million to a trio of investors who own Plus Re, a Mexico City-based reinsurance company. It is similar to Swiss Re or Munich Re.

In both cases, the shares were sold at $1.75 each. A total of $4.25 million has been pledged so far and we are awaiting disbursement.

With 20 million shares authorized, at a price of $1.75/ share, the current market valuation of the company is $29,750,000 or $29.75 million.

This valuation may change if the share prices paid by future investors changes.

We have meetings with potential investors scheduled –in the U.S., Europe and South America–and are expecting to raise a total of $10 million by the end of Q1 2019. Once that money is raised, we will close the round and cease to take on new investors.

At present, Zenger is ahead of schedule.

Please bear in mind, this is a brand-new business model and an untried technology and that there are many risks. We could fail to secure the distribution deals with news outlets, we could have software delays and failures, the writers could fail to come aboard in the numbers that we are projecting and many, many other execution and technical risks. Finally, this is not an offer to sell securities. Please see the Private Placement Memorandum for investment details.

Can investors be anonymous?

Yes. For the foreseeable future, Zenger is a privately held corporation and no U.S. law requires the disclosure of investor’s names. If Zenger were to “go public,” it would become subject to U.S. securities laws, and any investor holdings more than 5% of total shares outstanding must be disclosed in public filings. For public companies, investors who own fewer than 5% of outstanding shares may remain anonymous indefinitely.

What are the plans for a B-round of investment?

There are no such plans at this time. In fact, management would like to avoid a second round of fundraising. The company projects that it will be self-sustaining after the first 12 months of operation.

When and how will Zenger be self-sustaining?

Management projects that Zenger will be self-sustaining within 12 months of full operation. Projected profits will be reinvested into company growth. The Board of Directors will vote on the distribution of profits in the first scheduled meeting that follows the close of the books on Q4 earnings.

The slides refer to Apple News and Google News as “paying customers.” Can we understand the volumes of revenues earned to date following the launch of the website in July?

While Apple News and Google News are indeed paying customers, the revenue received is actually quite small–pennies per month.  While the payments show “proof of concept,” the revenues received are small because the content is not original (it is “test” content from American Media Institute) and not fresh (it was posted in July 2018 and has not been updated since). More importantly, content revenue generation is based on volume and there are very few news stories offered here. Finally, we did nothing to promote the content.

Our goal was to demonstrate that Apple News and Google News would take our content on a paying basis. With that goal in mind, our test was a complete success. 

Also, the distribution through Apple News and Google News show that the software–even in its current form–in operational and effective.

Can we see the Apple News and Google News contracts?

Apple News and Google News do not negotiate a formal contract for news providers. Since they have signed up more than 100,000 news sources from around the world, negotiating and signing individual contracts would not be a scalable solution for them. Instead, they offer an online user agreement with fixed (non-negotiable) terms. A news provider applies online and is accepted or rejected by software.  You can find a link to the Apple News application here and for the link to the Google News application, you must have a google account to sign up.

Is there an intention to pursue other news outlets in the US?

Yes! Please see slide 17, linked here, which lists our year-one distribution targets.

The numbers to the left of the slide are estimated monthly unique visitors. We anticipate capturing a percentage of that total audience. See financial projections for details regarding story volume, growth in total audience and projected revenue.

What is the proposed allocation of funding for the $10.2 million raise?

Please see slide 23.

Will the $10.2 million be sufficient for the model to reach profitability or will incremental capital be required over the next 24 months?

Management believes that no additional capital will be needed over the next 24 months–unless an acquisition target is identified. Indeed, we are standing by our conservative projections that we will reach break-even in the first 12 months of operation. Our projected annual “burn rate” is less than $4 million.

So why are we raising $10.2 million? Our market research tells us that key journalists will not leave established media powerhouses to work for us unless Zenger provides some assurance of security and stability. That assurance amounts to having at least three years of projected spending in the bank, according to interviews that we have conducted with top journalists and executives. What’s more, we know that software development costs often exceed time and budget. Distribution costs tend to do the same. Given these realities, we want management focused on business operations, not fundraising.

The Zenger brand is currently associated with an 18th century journalist, John Peter Zenger. This name may not resonate with customers today. You mentioned branding may change as a result. What’s planned around branding and marketing?

We share your concern. Once funding is received, management intends to conduct market research and test alternative names among our potential customer base. Some alternative names will also be tested including: Verified News Service, Z News Service, Folio News Service and others.

Media outlets will need to know that journalists are properly vetted, have a good reputation and are free of conflicts of interest or bias. What vetting procedures does Zenger apply in selecting journalists? 

Our model is based on both automated software driven verification and human editor verification. Each quote is recorded and automatically transcribed by our software.  Readers can click on the quote and hear the recording of the quote.  Unnamed sources are not permitted by our software and all named sources are photographed by the reporter. (For phone interviews, reporters are required to use the video component in Google or Skype to capture the interview subject’s image. That image is then verified using facial-recognition software, which accesses a proprietary database of more than 500,000,000 million faces.)

In addition, if journalist is reporting on the scene of a news event, their GPS device on their phone verifies that they were definitely where they said they were. 

So, each news story is fully vetted using our unique software.

As for vetting the journalist themselves, our online sign-up form requires a wealth of personal information which can be used for automated background checks.  Background checks will include a keyword search of their social media accounts going back ten years, an immigration status check using E-verify, a check of pending and past lawsuits and a credit check. 

You can access our user registration form here.

What Zenger’s philosophy and its goals?

Zenger believes that there is a trust deficit between the public that consumes news, and the industry, that produces it. Indeed, surveys show, what trust in the news media is at a record low in the United States, Western Europe and Australia.

The lack of trust has many sources: (1) A persistence balance in favor of the Establishment, which means center-left in all industrialized countries. Thus, journalists are primed to see economic and social problems as a lack of regulation or state control. At the same time, far-left intellectuals are unhappy with what they perceive as the media’s cautious and incremental approach social reform while the public has grown increasingly skeptical of all state interventions, which they tend to perceive as costly and ineffective. Thus, the media is increasingly isolated and left without a constituency to support it. (2) The development of the internet, especially blogging, has produced the practice of linking to online sources to buttress claims. Journalists have not generally employed this practice, leaving the skeptical reader with the belief that there is nothing to back up a reporter’s claims. (In fact, journalists are sticking to an old-fashioned model in which they expect the public to simply take them at their word. This no longer suffices in the Internet age. (3) A shockingly large number of news stories have turned out to be false or, at best, half-true.  Some are the work of fabulists like The New York Times’ Jayson Blair and The Washington Post’s Janet Cooke and most recently, Der Spiegel’s award-winning journalist Class Relotius. As a result, the public has lost faith in major news-outlets. (4) There is a grown belief among news consumers that journalists are reluctant or unwilling to report developments that may cast the anti-establishment right (i.e. President Donald J. Trump) and indeed the anti-establishment left (Bernie Sanders/Alexandria Ocasio Cortez), and others in a favorable light.

Zenger’s mission: Build public trust by providing real, verified news. Replace “fake news” — articles without evidence or on-the-record sources–with real news.

Is Zenger engaged in highly leveraged distribution activities?

Yes. Instead of starting a new outlet, we leverage the existing brands and established audiences of dominant news outlets (print, broadcast, online) to distribute our content. This has a multiplier effect.

Many start-ups claim to be “disruptive.” In what way does Zenger have the potential to create great change, such as a renewal in all of society?

We actually are disruptive. Zenger offers a new type of news, in which every element of every story is verified by software. This poses a direct challenge every single news provider on planet Earth. Existing news wires will have to adapt or lose market share.

It also challenges the “powers that be” –industries, interests, governments–to either tell the truth or be caught in a lie. Public opinion, measured in votes, donations or purchases, will shift against institutions that are caught misleading or mistreating the public.

We replace “fake news” — articles without evidence or on-the-record sources–with real news.

Zenger will also have the opportunity and capacity to create stories from writers of different experience and industry levels.  Similar to Uber, Zenger will encourage writers to contribute stories that are factual and relevant.  The game changer is that professional writers will have to step up their game as opportunities will be provided to those who are passionate about true investigate stories.

There is nothing more disruptive than that.

If this is such a good idea, is some other group already pursuing essentially the same goals with at least moderate effectiveness?

No. This is a completely new approach. No other entity, as far as we can tell anywhere on the globe, is offering news stories in which readers can hear the quotes and see the sources in every single news story.

When we succeed, others will follow.

To what degree can an investor monitor financial progress of the company?

To an extraordinary degree. We believe in a concept called “radical transparency.” In practice, radical transparency means that investors, directors, advisors and executives (even ones without financial responsibility) will have an individual password that allows each person real-time access to most parts of our financial control architecture. That means, investors and others can see our weekly, monthly, quarterly and yearly actual spending compared to budgeted amounts on a line-by-line basis and access our dashboards of key performance indicators, including revenue (projected versus actual).

This extraordinary degree of access to company’s books and records is offered in the hopes of providing investors (and others) with the tools to present thoughtful and constructive criticisms of management and company performance, which we believe will lead to stronger overall company performance.

We believe that alternative perspectives on ongoing operations are valuable and necessary. Indeed, it is gold. We hope our investors use their access to our internal records and help make Zenger stronger, better, and faster.

If Zenger goes public, this access to financial internals will be discontinued, due to regulatory disclosure requirements. Ironically, such an “open books philosophy” creates legal hazards of “insider trading.”

Are there other potential future funding sources for this effort?

We expect to be self-sustaining in the first year, based on advertising-revenue shares and subscriptions to our services. Management does not anticipate, at this stage, the need for another round of investment. Properly managed, this business should be able to sustain itself indefinitely on its earnings.

Is there a strategic plan with goals that are shared by board and staff?

Yes. A copy of this plan can be supplied upon request.

In addition to a strategic plan there are several contingency plans in place to react to competitive, industry, and regulatory pressures.  Many of these plans are part of the strategic vision of Zenger, but may be used to deal with the emerging technology and competitive pressures in the news industry. 

What would happen if the founder or current chief executive departed?

We have in place a succession plan, that the board will consider, amend and ratify at its first 2019 meeting. The plan includes the purchase of “key man” insurance, as soon as company revenues allow it, to ease the transition following the sudden loss of the founder, designates a temporary successor (acting CEO), designates an outside search firm, and outlines a search process for a full-time replacement CEO.

Are accounting and financial record-keeping systems in place?

Yes. All receipts, checks, payments, invoices and so on are digitized and tracked in a single, central system. We meet all GAAP standards, applicable to our size and industry. Our fiscal year begins January 1.

Our payroll and accounting systems are outsourced to major firms in their respective fields and monitored by management. Internal controls are benchmarked against best practices in the industry.

An outside auditor will conduct an annual audit of all financial records, starting in 2019. That audit, once approved by the board of directors’ audit committee, will be made available to all investors.

Can the effort serve as a model that can be replicated elsewhere?

Yes. In fact, we believe our success will inspire others to replicate our model and join as rivals and competitors.

How does Zenger use leverage to succeed?

Instead of starting a new outlet, we leverage the existing brands and established audiences of dominant news outlets (print, broadcast, online). Using this leverage, we reach large audiences through the outlets that they already know and trust.

What are the Risk Factors associated with investing in Zenger?

Please see the Private Placement Memorandum, which is linked here.

Who owns Zenger and who are the current investors?

Please see the Cap Table, which is linked here.

What are the company’s bylaws?

Please follow this link.

How many classes of stock are there and how are they defined?

Please see the Private Placement Memorandum, which is linked here.

Is there an Employee Handbook?

Yes. To review it, please follow this link.