Public Subsidies and Policy Interventions

Recently, some of the nation's most venerable journalism brands have found themselves where they least expected to be: in bankruptcy court. The parent companies of the Los Angeles Times, Chicago Tribune, Chicago Sun-Times, Philadelphia Inquirer and Minneapolis Star Tribune are all bankrupt, and other major papers have either joined them or will do so soon. Some companies will re-emerge from bankruptcy, but it's almost certain that some properties will be sold off or shut down. It may seem counterintuitive, but bankruptcy could actually be an opportunity in disguise for failing newspapers, if handled correctly. Giant media companies will either have to reorganize or sell off parts of their holdings, giving local investors an opportunity to buy papers at reasonable rates, an opportunity that did not exist before this crisis.

One way of providing a soft landing that may benefit both tottering media giants and local communities is “prepackaged bankruptcies,” or “prepacks.” Prepackaged bankruptcies could provide incentives for media companies to restructure their newsrooms as L3Cs or 501(c)(3)s or to select other models that would emphasize public service and quality journalism (for more on these ownership models, click here).

For the many newspapers that are still profitable but are shackled to over-leveraged media conglomerates, prepacks could be a useful tool in providing debt relief or perhaps even forcing the parent company to divest itself of otherwise healthy individual newspapers. Bankruptcy law currently tends to privilege incumbent owners and creditors over workers and the public. If existing laws could be tweaked to build in protections — for example, to mandate pre-existing labor agreements and protect workers’ pensions — then there is a chance that newspaper bankruptcies could benefit all of the key actors, especially if a prerequisite is providing for a “social good.” Other options are providing tax benefits, such as relief from long-term capital gains taxes to businesses that sell their assets to nonprofits. These benefits could be combined with guaranteed loans to nonprofits or with giving nonprofits “bidding credits” for auctions of bankrupt newspapers.

Ultimately, managed bankruptcies could be a path toward giving ownership back to the local communities these newspapers are supposed to serve. But first, bankruptcy laws must be changed to reflect the common sense that greater public benefit comes from saving newsrooms rather than dismantling them.

Tax incentives are another possible way to encourage the sale of media properties to new local, diverse or nonprofit owners. Reinstating the so-called minority media tax certificate program would be a good start. The program, which was eliminated in 1995 as part of Congress’ assault on affirmative action policies, gave tax benefits to companies that sold media properties to people of color. In the 17 years that the tax credit was in place, the number of minority media owners increased from 40 to 330. Since the program was eliminated, however, that number has decreased precipitously.

Restoring and expanding the tax certificate would create incentives for the sale of local media to minority or local investors, who are more likely to be satisfied with lower profit margins because of their deeper ties to the community. And it would give these smaller players an important advantage in acquiring capital and making deals for properties that would otherwise likely be sold off to existing conglomerates.

Another set of proposals would put indirect subsidies in the hands of consumers. Economist Dean Baker has proposed that the government implement a new charitable giving structure called an “Artistic Freedom Voucher,” which would “allow each individual taxpayer to contribute a refundable tax credit of approximately $100 to a creative worker of their choice, or to an intermediary who passes funds along to creative workers.” This would be done via a check box on a yearly tax form. McChesney and Nichols have drawn from this proposal to advocate that taxpayers receive $200 in annual tax credits to spend on daily newspapers. Another proposal would allow people to write off their subscriptions to newspapers and magazines as a tax deduction, as they do with their college tuition.

Postal subsidies for newspapers and periodicals was the original U.S. media policy — though the early debates were over whether these important instruments of democracy should be heavily subsidized or mailed for free. In 2007, a drastic rate hike endangered the survival of many small and independent periodicals focused on political opinion and ideas. Despite the worsening economy, another postal rate hike went into effect in May 2009. Relief from the new rates would help support serious journalism and create a laboratory for new ideas.

Another huge expense for newspapers and magazines is printing costs. Rep. Mark Cohen of Philadelphia has suggested that the only “content-neutral” way to support newspapers and protect quality journalism is to subsidize newsprint. Allocating any substantial public subsidies would entail a political fight.

While the public's appetite for major bailouts of the media is unknown, several ambitious proposals have been put forward to prop up insolvent news organizations during the current recession. McChesney and Nichols, for example, call for an emergency stimulus for the next three years to buy time to transition to other models. They also advocate for directly subsidizing high school and college newspapers. Mark Cooper has also proposed such a fund, though he explicitly rejects the notion of helping existing newspapers.

The University of Pennsylvania’s C. Edwin Baker is calling for newspaper journalists’ salaries to be covered by government-guaranteed subsidies. He argues that quality reporting and investigative journalism are more valuable to the country than they are to advertisers. The fact that news organizations have had difficulty monetizing the most important aspects of the news is not a readership problem, Baker says, it is a revenue problem. Baker suggests that the government support newspaper journalists by offering companies a tax credit for half of their salaries (up to $45,000). His goal is to reverse the incentive for newspapers to lay off journalists and instead to encourage a new wave of investment in quality reporting.

International models provide some intriguing examples of alternative structures for journalism, in part because they have been less beholden to American-style market fundamentalism. The results offer some interesting lessons that are worth exploring in more detail, understanding full well that they may not map perfectly onto the American news ecosystem.

When Sweden faced a newspaper crisis 30 years ago, the government taxed newspaper ads to create revenue for a fund that was administered by an independent agency to support struggling newspapers. Based on the assumption that a plurality of voices is essential for a healthy democracy, the government introduced press subsidies to broaden news discourse by supporting smaller newspapers and staving off the increasing number of newspaper bankruptcies. Distributed by an administrative governmental body known as the “Press Subsidies Council,” money is automatically calculated according to circulation and revenue and then allocated to newspapers other than the dominant paper in a particular municipality or region. These subsidies have been most successful in preventing one-newspaper towns by helping smaller provincial newspapers, although they account for only about 3 percent of papers’ total revenue. Swedish newspapers are also financially supported by reduced taxes and direct distribution subsidies.

France is considering a similar program to Sweden’s right now. But the idea that has received the most press attention is France’s plan to give every 18-year-old a one-year subscription to one of the country’s major newspapers. French President Nicolas Sarkozy has also called for all high school students to receive free subscriptions to newspapers. Asking for a $780 million bailout package for France’s ailing newspaper industry, Sarkozy asserted that it is the state’s responsibility to provide for a free and independent press. Coming on the heels of a three-month study of how to remedy the ailing industry, Sarkozy also announced that the state would increase its annual support for newspaper and magazine deliveries to $90 million from $10.5 million, spend an additional $26.5 million per year for its advertisements in print publications, and suspend some publication fees.