Newspapers as charities, utilities, infrastructure

In the panic over the possible sale of Knight Ridder’s papers, some are grasping for new business models that aren’t business models at all: They are suggesting that newspapers should be taken over by charities or — this is new to me — even viewed as public infrastructure. I understand the nervousness and the need to seek alternatives — especially in the face of news that the dreaded Carlyle Group may be a buyer. Welcome to The Philadelphia Daily Fair & Balanced.

The Daily News’ Attytood blog has been lighting candles, crossing fingers, and blogging incantations in hopes that the local Pew Charitable Trust might take over the paper, following the example of the Poynter Institute’s benevolent ownership of the St. Petersburg Times. White Knights, indeed.

If that happened, it would be a fine thing for Philadelphia. But it is by no means the solution for the problems of newspapers today. Indeed, I think it is a dangerous dream, for it continues to separate newspapers from their publics, their markets, their real masters.

: Now see Editor & Publisher, which gives us what I think is a naive view of how to save papers: Turn them into charities, with legislation to give tax breaks, even.

Joe Mathewson, who, amazingly, teaches business journalism, dismisses those of us who argue that the marketplace matters.

But does “healthy” have to mean “profitable”?

Let’s dream for a moment about newspapering freed from the profit motive. Purists may argue that newspapers, like any other enterprise, should have to earn their way in the marketplace, and if they fail the market test, so be it.

But in fact newspapers, as important to the civic health of our society as public transportation, have a claim on public allegiance that goes beyond financial measure.

Newspapers as infrastructure? That’s a new one to me. We’ve seen them portrayed as everything up to religion. But newspapers as roads and buses? Sorry. I don’t buy it. News comes in many forms, in many media, and there is no law of nature or principle of democracy that says a paper is public infrastructure that should have public support. In fact, I’ll argue that is another dangerous dream, for it potentially puts journalism and free speech at the mercy of government support and thus government control, which should be the last thing we’d ever want.

Mathewson wants legislation to make it happen:

There are two tax-favored models before us: public broadcasting and real estate investment trusts. Some rather simple tax legislation would be required, available solely to newspapers, not to broadcasters or to companies that own both — which incidentally would free these papers to cover the federal government without fear of jeopardizing their corporations’ interests at the Federal Communications Commission. Such special legislation wouldn’t be novel, for Congress long ago recognized the importance of healthy newspapers when it authorized joint operating agreements as an exception to the antitrust laws.

A newspaper company, like a public broadcaster, could be organized as a not-for-profit, tax-exempt corporation. It could still sell papers and advertising, it could still develop new Internet revenues, it would still pay market wages and salaries (or maybe better), it could re-invest in improving its own staff and facilities and operations, it just couldn’t make a profit. And it wouldn’t pay taxes or dividends….

But if the owner is an otherwise-profitable company, a deductible gift might do more for the bottom line than a fire sale. Congress could encourage such donations by allowing the company to deduct the full value of the newspaper as a charitable contribution, creating a special exception to the current ceiling on corporate gift deductibility, which is 10% of taxable income.

Another possible transition from for-profit to not-for-profit might be a buyout and donation by civic-minded wealthy individuals or families, the same folks who give millions to build a new library or a new hospital wing…. Facilitating this, too, would require an amendment to the tax law, to waive for this purpose the 50-percent-of-adjusted-income ceiling for personal tax deductions — just as Congress did for 2005 contributions to Katrina relief, and all other 2005 charitable gifts.

Law enforcement might help in this. When Larry Ellison of Oracle was charged by the state of California with a securities-trading violation, he settled by agreeing to donate $100 million to charity. That would have been enough to buy a good-sized newspaper and donate it to a not-for-profit, maybe even endow it.

Mind you, these are still businesses with considerable margins, albeit margins that will be sure to shrink. And there are plenty of other means of providing news: online, radio, TV, magazines.

And I’ll fret again that newspapers are in the pickle they’re in because they have operated as isolated monopolies. Make them isolated charities or publicly supported utilities and you’ll have disasters.

: Note that the Carlyle Group is, at the same time, looking to buy a hunk of Dunkin Donuts. They’re just cash cows.

: Note also that Knight Ridder’s paper in Akron is running out of pencils. Maybe they should find a few and try selling them on streetcorners. New revenue streams.

  • Mike G

    Charities? Hell, let’s just have government take them over.

    And give tenure to reporters and columnists (I realize the latter basically already has it).

    Completely freed from the profit motive and thus accountability to their audience, newspapers should complete their natural transformation into academic journals. And have just as many readers.

  • Being a non-profit does NOT free you of market economy pressure. It does NOT eliminate the need for money. It does not free you from accountability to audience.

    In fact, counting upon your point of view, it does just the opposite of all these things.

    Sorry Jeff. I don’t pretend I have an answer – but being open to this as an idea sounds like a good thing to me. Dave Winer used to talk about something called “stop energy”. This post has it.

    This isn’t the time to be shooting down ideas. It is – however – about time people start trying new things – and the time is rapidly passing by. And if some newspapers go non-profit – maybe it will be a good thing to see how it works/doesn’t work.

    There are no silver bullets. One size does NOT fit all.

  • Very true Karl, I studied not-for-profits for my book. Not for profits have all the pressures of for profit enterprises, can be great innovators, and teach for-profits something about doing business better.

    But I see something else is missing. Before newspapers start “trying things” they should research the business model to see what’s wrong with the news “business.”

    Where are the client interviews? Where is the observation of the “long tail?” Where’s the solid data on customer satisfaction and dissatisfaction? Why aren’t these concerned journos listening to the voices of their customers telling their stories?

    I say quit asking “experts,” quit navel gazing, quit thinking you understand what been proven through your failure that you don’t understand, and do what Sam Walton advised retailers to do whenever they are confused.

    Sam Walton said whenever you are confused go to the store because that’s where the customers are. And the customers have all the answers and all the money.

  • Sure, the E&P piece goes too far, but isn’t the core issue really that newspapers face some of the financial problems they do because they are parts of publicly traded companies? If they were able to operate as non-profits, or even as privately held companies, they would probably be able to weather storms and react more deftly to marketplace changes. But when the Wall Street bean counters come calling, they have little short-term recourse but to cut costs, and that usually means jobs.

    As for the marketplace mattering, of course it does. But would the world be a better place if the marketplace was allowed to continue transforming newspapers into a&e sheets rather than news sources? Yes, you’ll argue that other media forms will fill the gap, and I’ll argue that nothing has surfaced thus far that adequately replaces all that newspapers can offer, but I doubt you’d argue that newspapers can be run more effectively than they are now, and I’d say their Wall Street masters are a big part of the problem.

  • Pardon but did you say “I doubt you’d argue that newspapers can be run more effectively than they are now”? Do you mean “more efficiently” ’cause there is a big difference.

    I won’t bore others with the details here (it’s a lot of “inside baseball” about marketing dollars and the trends of client spending over the last two decades) but yes I would argue. There are a lot of things that would make the “news business” more effective and it has nothing to do with becoming “a&e” sheets instead of news sources.

    I agree they have probably cut all the fat (and even some muscle) out of their budgets. But parsimony is not effectiveness. And you’re right about Wall Street versus privately held companies.

  • Joe I.

    Some people are absolutly living in some sort of fantasy land. Just because something does not make money does not mean it doesn’t need to break even. The problem is newpapers are LOSING money and it doesn’t matter what type of entity you are (or an individual) if you loose money too long you are GONE.

    The idea that newspapers have to be around forever is on its face an absolutly intellectually bankrupt position to take. I say fail and something else will fill the need if there is one.

    My brother open a coffee shop a block from another indie here in Seattle and guess what, the store closing signs went up on the other one. They were there first but I guess they weren’t needed when my brother opened his….Same goes for newspapers, the ones people LIKE will stay the others go, regardless.

    So instead of whining their asses off why don’t the people that want the status quo and people like minded get together and buy the papers themselves (my theory is there are just a few people who care)….Oh I forgot they just want to moan about it and do nothing, and then tell others what to do with it….Well guess what those that do want to do something are going to own things and their ideas will be the ones that prevail.

    To those who think government should control them well that just gives a huge incentive for those with power to control government and in turn limit speech.

    THE MORE POWER GOVERNMENT HAS THE MORE THE POWERFUL WANT TO GOVERN…..A global fact…Look everywhere. Scary thought. And usually they say the are for the little guy….

  • “…but I doubt you’d argue that newspapers can be run more effectively than they are now.”

    What I meant was that papers can be run much more effectively, and that I doubt Jeff would argue with that. So much for the journalist using his writing skill to make a point.

    That point is that the cries about the death of newspapers ignore the fact that a lot of their trouble stems from the balance sheet. Yes, people complain about the Judy Millers, etc., and blogs and other media are forcing papers to take a hard look at what they consider news and how they deliver it. But those problems become too much to bear at, say, Knight Ridder, when they affect quarterly profit margins. Left to their own devices, with the kind of staffing their revenues actually would support, papers would do a much better job of providing solid news coverage. Skeletal staffs continually cut to please Wall Street deliver the kind of superficial, slap-dash news that leads to further circulation and advertising losses, which lead to further cuts. You’ve gotta spend it to make it, as they say.

    To counter what Joe I. says above, newspapers are not losing money, they’re simply making less of a profit than in the past. I think that at least for the forseeable future, they could make a go of it by letting revenues cover expenses. It’s the expectation that those revenues must climb every quarter that is the problem. Ask any Fortune 500 CEO if he would be happy with the profit margin of almost any newspaper, and I guarantee he’d say yes.

    That said, papers do need to be more innovative in the way they deliver news to be more responsive to what the public wants and how they want it. But I’ve said it here before and will again, I would not trade a large-market daily for all of the bloggers in the world. I’m glad they’re there to augment and comment on what I get there, but they cannot yet replace it.

  • Karl:
    I say stright out that the Pew option is fine.
    what I object to is the attitude in the E&P essay that business and market pressure are bad for newspapers. That is exactly the kind of attitude and separation from reality that has put newspapers where they are. And I do object to the notion that tax breaks are how newspapers will survive.
    But I certainly believe many models are legit or mixes of them (e.g., charitably funded reporting in profitable news entities… community supported journalism supported by news entities… etc.).

  • Woah Joe… the newspapers we’re talking about are NOT “losing money”. Indeed, the Philadelphia one Jeff started his post with is making a healthy profit.

    Profit. Not just revenue. Profit.

    It’s just forecast to make less and less over time.

    Laurence and John – great thoughts and good points.

    Sorry if I’m misunderstood Jeff. From the way I read it, it sounded like a dismissal of the idea…. “yeah it’s ok for Philly… but otherwise… this is a bad idea – lets move on”.

    However… your post did spur this great conversation :) Isn’t getting tax breaks is part of being a non-profit?

  • That should have said: “Sorry if I misunderstood Jeff.”

  • Old Grouch

    Re: Investors and Profit Margins

    Newspaper managements have failed their duty to accurately characterize their business to their shareholders. Instead they have taken the quick-and-dirty route of milking profits by cheapening the product, and now they’re faced with the consequences.

    The public investors aren’t the sole cause of the problem. Grocery chains, companies with normal profits that are a small fraction of what’s currently “expected” from newspapers, are publicly traded. But newspaper managements have been unwilling to level with their investors and say, “This far but no farther. Any more cuts will kill the franchise.”

    Investors can understand that when FedEx says “absolutely, positively, get there overnight,” that may mean, on occasion, paying somebody overtime to drive a $35 package 400 miles, because connections got missed. Sure you lose money, but you maintain the standard. (Just don’t let it happen too often!) Those same investors should be able to understand that it takes X reporters to cover a market of Y size. But management has to make the case! It’s always easier to make another cut (or just rely on retirements), and ignore the consequences for another quarter. But now that merry-go-round is coming to a stop. Will any management finally step up? And, given the dire state of the business, would such a management have any credibility?

  • Picture a small valley. In the valley is a stream. Halfway down the valley the stream goes over small falls. Falls popular as a scenic location. Those falls are being eroded arway by the stream. Inside a century or so the falls will have given way to a set of rapids.

    People don’t want this to happen. But how to prevent it? How to preserve the falls? Nobody can agree. But none of them will not entertain the thought of letting it happen as it would without intervention.

    Time passes, conditions change. What is becomes what was. What had once been a natural situation becomes artificial as good-intentioned people erect constructs designed to maintain the ‘natural’. For some will not accept change.

  • If they become tax-exempt non-profit charities, then under current law they would not be permitted to engage in politicking.

    And how do they retain First-Amendment independence from government interference when they’re being directly funded by the government?

  • I’m inclined to favor the capitalist model for newspapering. But I deliver newspapers all day long every Thursday. I listen to commercial talk radio for three hours, then NPR news and “To the Point” for two hours, then commercial talk radio again until “All Things Considered” comes on.

    Man, what a difference. From commercial radio I get a few carefully selected facts leavened with hours of pomposity and bombast. From NPR I get a wide and eclectic range of opinions and facts, sometimes on topics I didn’t even know I cared about.

    If capitalism is supposed to deliver the news in print, how come it doesn’t work on radio?

  • Luke

    “Newspapers as infrastructure? That’s a new one to me. We’ve seen them portrayed as everything up to religion. But newspapers as roads and buses? Sorry. I don’t buy it. News comes in many forms, in many media, and there is no law of nature or principle of democracy that says a paper is public infrastructure that should have public support.”

    If you buy into the fact that a society cannot operate, let alone flourish, without a well-connected and informed population (which you should), then you should absolutely put newspapers on the same pedestal as you would roads and buses.

    Furthermore, state-supported media is by no means a new idea. Look to the Canadians and Brits for examples of that. The CBC is a sacred cow here in Canada, and for good reason. Its a quality broadcaster which puts good programming above profit. US media resorts to conflict, sensationalism, and reporting non-issues because that is what attracts viewers. While this may be true, it is not healthy for US citizens to be informed by that sort of media machine.

    Furthermore, the argument that free speech and journalism would suffer if state-owned media is introduced seems rather silly, as there are dozens of cases of this absolutely not happening. If assuring a free market for media outlets means that quality of journalism rises, than journalism in the United States should be top-notch, the best in the world, no? I think we can agree that’s far from true. When you have massive corporations running media outlets, and media outlets relying on advertisers to survive, then their freedom of speech seems quite limited to whatever doesn’t affect the financial interests of the shareholders and of advertisers. Any mature democracy can certainly handle publicly funded media, and many do.