Thursday, May 07, 2009

Why feds can’t – and shouldn’t – rescue press

Apart from whatever modest cathartic effect it may have provided participants and observers, the qvetch-in over the fate of the newspaper industry hosted by Sen. John Kerry was pointless.

Two days before the opening gavel struck Wednesday at the hearing called by the failed Democratic presidential candidate from Massachusetts, the outcome was presaged by White House spokesman Robert Gibbs, who observed succinctly: “I don't know what, in all honesty, government can do about it."

Gibbs is dead right. Government can’t, and shouldn’t, do anything about the stupendous – and lamentable – reversal of fortune that has scourged newsrooms, squeezed newsholes and shuttered such proud titles as the Rocky Mountain News and Seattle Post-Intelligencer.

There is no persuasive economic argument for the feds to bail out faltering newspapers in the same way they acted to shore up AIG, several banks, Fannie Mae and two of the three domestic automakers.

In the case of the financial institutions, government aid materialized because they were deemed, not withstanding their prior reckless behavior, to be essential to the over-all well being of the nation, given their power to fund economic activity ranging from business expansion to home mortgages.

In the admittedly less compelling case of the Motown duo, the argument for government support is that tens, and maybe hundreds, of thousands of jobs would be saved by enabling the companies to stumble along until the earlier of two outcomes: (a) they miraculously figure how to make cars people want to buy or (b) the economy is strong enough to absorb the workers displaced when the companies implode.

As previously discussed here in some detail, no similar argument can be made for newspapers, which collectively employ a mere 0.2% of the nation’s labor force and generate only 0.36% of the gross national product. In other words, newspapers, from an economic point of view, are not too big to be allowed to fail.

Apart from any other reason you could muster for federally funding hard-up publishers, there is the matter of how any handout could be reconciled with the First Amendment.

Grants, loans or other federal goodies properly would require oversight by the government and accountability on the part of the publishers. In that event, there would be no imaginable safeguard to keep politicians and government bureaucrats from gnawing away at the freedom of the press.

As chilling proof, look no further than the way the Bush administration not so long ago terrorized and politicized the Corporation for Public Broadcasting, which dispenses government-allocated funds to National Public Radio and the Public Broadcasting System.

Another clear and present danger to the separation of government from the press is inherent in the non-starter legislation proposed by Sen. Benjamin Cardin (D-MD) that would confer certain tax advantages on newspapers electing to be organized as non-profit organizations.

The catch in Cardin’s legislation is that non-profit papers would be prohibited from making political endorsements. But the provision is unenforceable, as well as unconstitutional.

While a newspaper could avoid saying “we endorse Senator X,” what would happen if it published a series of stories exposing fund-raising shenanigans by his opponent or a columnist excoriated the opponent day after day for everything from marital infidelity to bad breath?

Could a series of news articles or commentaries be construed as improperly favoring one candidate over another? Who would make the judgment— a senate committee, a federal bureaucrat or someone else?

Beyond those issues, Cardin’s bill fails to face up to the fundamental problem that threatens the financial viability of many newspapers: Advertising revenues are plunging faster than publishers can trim their considerable, fixed operating expenses.

If a newspaper is losing more money than it makes, changing its corporate structure won’t suddenly fix its problems. As demonstrated by the financial challenges faced by the St. Petersburg Times and the Christian Science Monitor, non-profit ownership won’t shield a paper from the harsh laws of economics.

Thanks but no thanks, Uncle Sam. Saving newspapers is a problem that has to be solved by publishers themselves.


Anonymous Anonymous said...

Uncle has already tried to save failing newspapers with the Newspaper Preservation Act of 1970. In my opinion, it was a miserable failure and two of the organizations that pushed and benefited from it -- Copley and Scripps -- now barely exist. Afternoon newspapers that only 30 years ago were the largest and most prosperous in U.S. cities, are now gone. The only way to "save" newspapers is to restore their local monopoly on advertisements, something I think is impossible with the advent of the Internet.

7:13 AM  
Blogger Erin said...

That non-profit idea is interesting to me. I think it could work, if the legislation specifically addressed what non-endorsement means--which would have to be limited to disallowing the management and editors to publish an editorial endorsing a certain candidate. However, the other hairy aspect of this possibility is that newspapers would have to acknowledge a certain level of opinion in their reporting.

7:53 AM  
Anonymous Anonymous said...

There's a big difference between the automakers and most of the newspaper publishers. The automakers were running huge losses. Most publishers aren't. Instead, most publishers are cutting staffs to the bone and beyond to preserve their high profit margins and stock prices. The publishers who are running losses were caught having taken on a lot of debt as the economy contracted - something they can work out in bankruptcy court. The last thing the government should do is to bail out the newspapers. Potentially even worse is an antitrust exemption that would allow them to negotiate deals to corner the advertising market, preventing Internet startups from challenging them.

8:51 AM  
Blogger Howard said...

It makes no sense to circumscribe your discussion to the notion of cash "bail-outs" or the notion of "too big to fail."

The fact that neither of those applies to news companies (a point on which we agree) certainly does not indicate that government policy has no role. Indeed, it has, it does, and it always will. Government policy influences all business, all the time; we're just exploring how to optimize that impact.

But it is altogether common for governments to help one industry or another transform itself to meet changed conditions. Internet commerce, for example, gets huge advantages from the government's decision to exempt e-commerce from local sales taxes. Government subsidies for broadband expansion (which can help news, too) are likely to be hugely beneficial to telecoms and cable companies.

Why would you take such a narrow, pessimistic posture on this? Because it fits you pre-existing thesis?

9:13 AM  
Anonymous Gerry Storch said...

Mr. Mutter discusses ably, as always, the business reasons why a government bailout of newspapers is an atrocious idea.

Forgive me for adding the extremely obvious journalistic ones.

If you're taking money from the government, you can't keep an eye on it.

Even if there were a screening mechanism ... a kind of buffer board in between to shield the journos from the politicos ... it doesn't take much imagination to envision a time when a congressperson or staffer or bureaucrat will put the pressure on behind the scenes to attain positive coverage or stave off negative coverage, using the threat of a curtailed subsidy.

Newspapers would forfeit whatever shred of public trust they have remaining.

In fact, there might be problems even in reporting the terms of a bailout, as the papers themselves might want to keep their financial information private and confidential. Talk about tying yourself in a knot ...

Consider also that many people ... including me, and I had 30-plus years' experience in the biz ... feel America's newspapers were basically in the tank for Obama with slanted coverage during last year's presidential election.

If papers were now to take a bailout from the Obama administration, wouldn't it have the look ... and smell ... of a payoff?

Worse yet, and this is reason No. 2 why a federal bailout would be terrible, with the hands-off arrangement removed, some secretly or not so secretly politically active reporters would welcome working in cahoots with their like-minded colleagues in government to achieve their pet social goals through planted articles or selective release of information.

The readers, and the editors, would be the last of know of any such clandestine arrangements.

Thus, a bailout would corrupt both sides ... the government and the newspapers.

10:52 AM  
Blogger Frank Holland said...

Alan, I'm curious about your thoughts on newspapers reorganizing as L3C entities. Of course, it doesn't solve the underlying business model problem, but perhaps it could provide a compelling forward path while we sort through the mess?

3:01 PM  
Anonymous Anonymous said...

Despite their best efforts, aren't newspapers non-profit already?

9:07 PM  
Blogger Donald Tydeman said...

Question: If the Federal Government had a controlling stake in the Washington Post in the early 1970s what do you think Woodward and Bernstein would have reported?

11:41 AM  
Anonymous Bob said...

Anonymous comment #1 pegs it correctly. The second-to-last time Congress acted to preserve newspapers - with the Newspaper Preservation Act of 1970 - they succeeded in killing off all but one newspaper in each American urban market of any size.

Then in 1996 they passed telecommunications law that, among many other things, allowed previously forbidden cross-ownership of broadcast/print media in the same market - just in case any real independent newspapers still were in operation.

As of a couple of years later, most weren't.

It's great that Congress is crying over the demise of the newspaper industry, but where were they 10 and 20 years ago when it really took place?

And now they apparently would consider bailing out the monopolists who lobbied for the aforementioned changes that enriched them for the past two decades.

12:07 PM  
Anonymous Anonymous said...

What about the BBC model? They get big subsidies from the British government, yet their news operations are completely independent. Or are they -- I freely admit I'm no expert.

Would also appreciate Alan examining the LLLC model(s)... any chance that California's state lege will allow LLLCs in the near future? That can't come soon enough for the poor S.F. Chron

2:43 PM  
Blogger Unknown said...

The Gov't should help newspapers

8:30 AM  

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