The Uncle Sam Solution

Can the government help the press? Should it?
September 27, 2007

This past spring, the Columbia Journalism Review convened a panel of top editors and a media investor to discuss the somewhat tiresome topic of the future of newspapers. The situation is undeniably bleak. One need merely consult Romenesko, the media-news aggregator, to witness the freefall in circulation, the unending editorial cutbacks, and the closure of foreign bureaus at so many major metropolitan papers. The panelists—Robert Kuttner, the founding co-editor of The American Prospect; Jim Brady, the executive editor of washingtonpost.com; Amanda Bennett, the executive editor for enterprise at Bloomberg News and the former editor of The Philadelphia Inquirer; Jill Abramson, a managing editor of The New York Times; and Steven Rattner, a managing principal of Quadrangle Group LLC, a media investment firm—focused mainly on the need for a new business model, one that would address the rise of the Internet and its negative impact on subscription revenue and advertising, particularly classified. But halfway through the evening, Nicholas Lemann, the dean of Columbia’s journalism school and the panel’s moderator, asked Rattner a surprising question: “What policy interventions would you take to keep institutions like The New York Times and The Washington Post alive if they can’t keep themselves alive in the market?” As the emerging suggestions for mitigating the problems of the publicly traded newspaper—private equity (the Minneapolis Star Tribune), billionaire patronage (Santa Barbara News-Press), and even nonprofit ownership (see Louis Hau’s December 2006 Forbes column on the problems of The St. Petersburg Times)—are proving to have their own unique challenges, the role of government in supporting the press is just beginning to enter the debate. Kuttner, whose March/April cover story in cjr inspired the panel, was somewhat optimistic about the future of the newspaper business. But Rattner, a former journalist, was far less hopeful in his answer to Lemann’s question: “What I do know after the last ten years of people coming up and saying, ‘Why can’t newspaper business models work?’ is that it’s not obvious that the conventional for-profit, public-company model alone is really going to provide the quality of journalism that needs to exist in society.” While Rattner acknowledged that “there are real obvious questions about journalistic independence and government involvement,” he unequivocally supported the notion that government should play a role in ensuring the future of journalism: “To the extent that the for-profit business model doesn’t provide the level of information that we think society should have, that’s what government is for, and I believe that.”

Journalism is a rare business in that its product—news—has a public-service function, but unlike other public-service activities, like public education or scientific research, it is not protected from market forces by government support. So when the financial viability of the news business is threatened, so too is the press’s role as the fourth estate. “I don’t think there’s any question, legally or constitutionally or theoretically, that journalism is a necessary public good for our constitutional system to work,” says Robert McChesney, a professor of communication at the University of Illinois at Urbana-Champaign and the founder and president of Free Press, a media-reform organization. “That’s the very understanding of Jefferson and Madison, all the founders, from the beginning. This was not something optional.” As many journalists and scholars point out, it is no accident that the press is the only business explicitly protected by the Constitution. By the 1970s—thanks to an explosion in print advertising after World War II, as well as new labor-saving technologies and the development of monopolies within urban circulation areas—newspapers had become enormously profitable. “They were one of the most profitable investments around, so Wall Street got in on the action and started buying up papers,” says Robert Picard, a media business consultant and the director of the Media Management and Transformation Centre in Jönköping, Sweden. “If we look at the 1970s and the 1980s, we had pretty damn good newspapers. There were a lot of resources, a lot of money in the news operations.” But the market has changed. “Now we don’t like the market,” says Picard. “But we liked it then.”

Picard, who also edits the Journal of Media Business Studies, framed the problem well in a report in the magazine titled, “The Challenges of Public Functions and Commercial Media”:

We expect a great deal of media companies. We expect them to inform us about our communities, the nation, and the world. We expect them to serve public interests by creating the means for the aspirations and concerns of citizens to be conveyed and acted upon in society. We expect them to self-finance their operations through commercial activities. We expect them to behave without self-interest. We expect them not to disappoint us. They often do. The roots of that disappointment can be found in…an all-too-often uncritical belief that the market system will produce the media products and services society wants and needs. This belief emanates from a general satisfaction with competitive markets for other goods and services and from the underlying conviction that too much government involvement in society—especially in the media—is undesirable and harmful…

The conflict between public functions and private media creates a paradox because commercially funded media cannot pursue economic self-interest without harming their public-service roles. Market-based media face levels of competition never before experienced and their markets are more unstable than in the past century, and because they operate in a system in which the primary driver is self-interest and heavy commercialization of content, the movement away from serving public functions is clearly evident and is breeding discontent among social observers and citizens.

In addition to its public-service role, the press is distinctive in another way that only aggravates the current crisis. As Edwin Baker notes in his book, Media, Markets, and Democracy, “Media products are unusual in that often two very different purchasers pay for the transfer of media content to its audience.” In other words, the media enterprise sells products to audiences and then sells audiences to advertisers. The free-content model of most online news sources has meant that consumers are less willing than ever to pay subscription fees, making the press—both in print and online—more reliant than ever on advertising. The result: media have often been forced to sell audiences to advertisers rather than journalism to consumers. This is an underappreciated point. There are those who argue that the rise of infotainment, commentary, and lifestyle journalism simply reflects what readers want. More likely, however, those trends represent an attempt to cut content production costs and recruit the demographics that advertisers find most desirable.

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But whether or not this argument holds up is beside the point. Citizens need news even if they’re not willing to pay for it, and newsgathering is expensive. “Clearly, journalism’s role of informing citizens is crucial to democracy,” says McChesney. “The mandate we have today is really the same mandate Jefferson and Madison faced when they were the first two secretaries of state. They instituted a policy to support three newspapers in each state of the country with subsidies from State Department memoranda notices, because they knew that unless there was that subsidy, there would be places with no newspapers.” If market forces have become unfavorable to the press, the question becomes, how do we support this essential institution of democracy? And why do journalists categorically reject the idea that government could help?

When Geneva Overholser, the veteran editor and a professor of journalism at the University of Missouri, brought up the role of government in her 2006 report, “On Behalf of Journalism: A Manifesto for Change,” she encountered substantial opposition. “I honestly can’t believe how many people just look at me as if I can’t possibly be taken seriously when I say we need to think carefully about the role of government,” says Overholser. Timothy Karr, the campaign director for Free Press, attributes journalists’ “knee-jerk” libertarianism to an absolutist interpretation of the First Amendment. “We’re rooted in this idea…that any form of government intervention or government assistance strikes us as a violation of our First Amendment rights,” says Karr, who has worked for both The New York Times and Time.

What Overholser, Karr, and a handful of other journalists and academics point out is that government has always played a role in American journalism. Major government subsidies include reduced postal rates, copyright protection, state sales-tax exemptions, government advertising, and the Newspaper Preservation Act, which allowed regional newspapers with distinct editorial staffs to merge business operations. The Freedom of Information Act, government press officers, and public education and libraries (which promote literacy and distribute content) have also been cited as examples of government support for the press. And certainly, nonprofit-owned media should be considered government-subsidized given that their parent organizations are tax exempt.

Government plays an even more significant role in subsidizing broadcast media, a role that has important implications for how Uncle Sam might help the flailing industry of print journalism. Moreover, many newspapers and magazines are controlled by companies that also own television and radio stations and, as such, indirectly benefit from broadcast subsidies. In an essay on the role of government in the press for the 2004 Breaux Symposium, Lawrence Grossman, a former president of NBC News and PBS, recalls an argument he once had with Abe Rosenthal, then the editor of The New York Times, over the premiere of The MacNeil/Lehrer Report: “Abe launched into a passionate attack against the very idea that public television, a government-created institution, should report the news and practice journalism, insisting that it could not do so without kowtowing to the government.” Grossman “responded rather mischievously” that the Times’s radio and television stations received their broadcast licenses free from the government, a subsidy worth millions of dollars. “Did Abe think the Times’s radio and television stations also should refrain from reporting the news?” asks Grossman. As he and others note, the enormous profits of network television and radio companies are in no small part due to their free access to the public airwaves. (The print press, on the other hand, receives no such subsidy for its equivalent—paper and printing costs.)

Meanwhile, the Corporation for Public Broadcasting, a private nonprofit established in 1967, receives money from Congress every two years to support public radio and television programming. Though it no longer provides the majority of support to PBS or National Public Radio, the corporation was responsible for the formation and early financial viability of these outlets. As Steven Rattner noted during the CJR panel, radio news “was a classic case of market failure. There was a latent demand for it…If you hadn’t had government subsidizing it, demonstrating that there was an audience, we wouldn’t have NPR.” The explosive growth of NPR—a roughly 100 percent increase in listenership over the last decade—has also shown that consumer demand does not always guarantee profitability. Some products and services need more time to develop into something consumers are willing to pay for. (Listener contributions now make up one third of NPR’s revenue.)

Of course, the Corporation for Public Broadcasting has had its problems. The fact that its board members are presidential appointees makes it vulnerable to political influence. Both the Nixon and the current administrations have attempted to censor or influence programming. But, says Karr, “We have a system in place right now that generates four to five hundred million dollars for public media. We can’t just destroy it. We have to build upon it.”

Another government media subsidy, which has thus far been more harmful than helpful to traditional print media (though arguably helpful to democracy), is the Internet. Similar to the development of the telegraph, which was subsidized by the government, the Internet began as a Defense Department initiative that later received significant funding from the National Science Foundation before being turned over to the commercial sector. “Without government subsidies, there would be no Internet,” writes Grossman. “No for-profit company or entrepreneur would have taken the risk.”

By clinging to the idea that they work in a profession free of government involvement, journalists are perpetuating a myth that may impede the future of their profession. As Overholser says, “Government is already playing all kinds of roles for good and for ill. And we ignore that at our peril. We’re just ignorant about it.” Still, in the last few years, as the traditional business model has fallen apart, a number of journalists and scholars have begun to discuss possible solutions, including the once-taboo subject of government support. “People are feeling so unsettled,” says Overholser. “The good news is we’re in such a crisis that you can’t just sleepwalk through it anymore.”

Before we begin a discussion of the ways in which government might do more to ensure a healthy future for journalism, it is important to address a basic question that lies at the heart of the debate on solutions to the problems of the press: Given the rise of information on the Internet, what, exactly, is worth saving? The answer: ground-level reporting.

Daniel Hallin, chairman of the Department of Communication at the University of California, San Diego, points out what he calls “one of the greatest ironies” of today’s vast media landscape: “In this so-called information age, we actually have fewer reporters now gathering the basic information on which the whole information society operates.” According to Hallin, the proliferation of media outlets and programming is largely occurring in two domains: commentary and entertainment. “The amount of serious information-gathering is actually going down,” he says. “Dramatically so.” Few Web sites independent of newspapers are doing serious newsgathering.

Yet with the business model for news in transition, mainstream media owners are cutting staff and reducing content, particularly hard-news coverage, in order to maintain the high profit margins newspapers have historically enjoyed. “The editorial costs of the average newspaper run from about nine to twelve percent,” says Robert Picard. “That’s nothing in comparison to the total costs of the newspaper, yet they’ve been bearing the brunt more and more.” Certainly the news industry needs to think about different business models (Tom Rosenstiel, director of the Project for Excellence in Journalism, is a proponent of one in which consumers would pay for news as part of their monthly Internet subscription). But it would also be wise to consider the many ways that government could simply protect journalism from market pressures. I’d like to present some of them—not by way of endorsing one idea over another, but to spark a necessary discussion.

Let’s begin with Europe, where most countries have been subsidizing the press, both directly and indirectly, for decades. In Scandinavia and a few central European countries, some newspapers receive lump sums from the government. Sweden has a particularly streamlined subsidy system that was implemented in 1971. Karl Erik Gustafsson, a professor of media economics at Jönköping International Business School, created the system, which was designed to preserve newspaper pluralism by allocating money to all papers except the dominant paper in a given region or city. Since these subsidies have been in place, there has been a substantial reduction in newspaper closures, and Sweden has avoided the inevitable effect of the free market on the daily press: the one-newspaper town. The subsidies are distributed by The Press Subsidies Council, an administrative governmental body, and are based on circulation and revenue data. “The rules are automatic,” explains Gustafsson. “They are in no way subjective. It’s an open system and every newspaper knows exactly what the subsidy will be this year and the coming year. I think the newspapers have become stronger in their criticism of the political parties due to the state subsidies. Earlier, they were more partisan, more dependent on the money from the parties.” (Historically, newspapers in Europe received substantial funding from political parties, as they once did in the U.S.) “Now they can say, ‘We don’t care. We get our money from the state.’” Hallin, who specializes in comparative media systems, observed that when the press subsidies were introduced, it was “exactly in that period that there was a shift in Scandinavia toward a more adversarial press. It is actually very strong evidence that press subsidies don’t lead journalists to be timid.”

Newspapers in most European countries also benefit from a reduction in or an exemption from the Value Added Tax, which ranges from approximately 15 to 25 percent. Other press subsidies in Europe include corporate tax exemptions, grants for start-up ventures or technological innovations, state loans, grants for journalism research and training, and regulations requiring that government advertising appear in multiple publications. (In France, individual journalists enjoy a substantial income-tax deduction.)

In addition, all European countries have robust and well-funded public broadcasting systems that dwarf America’s. The U.K. spends nearly $7 billion a year on public broadcasting—the money comes from an annual television tax—while the U.S. Congress allocates roughly $480 million. Certainly, the BBC has had its problems, most notably during the Thatcher era, but the value of the BBC’s news and investigative programming surely outweighs the harm from the handful of instances in which government tried to influence or censor content. “The BBC is at least as independent politically if not perhaps somewhat more independent than the commercial networks in the U.S.,” says Hallin. “People assume that if the government pays for it, it will control it, and so the media will be less free. The truth is that the experience of European countries suggests that’s not actually the case.”

In addition to the valuable models of press support in Europe, there are scholars and journalists in the United States who are devising governmental solutions of their own. Free Press has been developing a new model of funding for public broadcasting and public-service journalism that would reduce political influence by eliminating the congressional appropriations process and politically appointed leadership. It proposes establishing an independent trust, funded by a ten-year tax on broadcast advertising revenue. Many European countries raise funds for media subsidies through a tax on advertisers. (In the U.S., the government does not tax advertisers or advertising revenue but does allow businesses to deduct all advertising expenses.)

Another interesting—and quite radical—idea for how government could support the press comes from Dean Baker, the co-director and co-founder of the Center for Economic and Policy Research, a nonpartisan think tank in Washington. He proposes a tax-credit system in which every citizen would be allowed a $100 donation to any creative outlet, including journalism. Creative organizations, such as museums and symphonies as well as media outlets, could register for eligibility to receive those donations on the condition that they forgo copyright. Such a tax credit would provide a funding mechanism for creative pursuits, particularly beneficial to start-ups, small organizations, and individuals. And taxpayers would reap an obvious reward: anything funded by the system would be available at zero cost.

Baker’s tax-credit system—or any direct subsidy, for that matter—is unlikely to be politically popular or even logistically feasible in the U.S. Part of the problem is that the First Amendment forbids Congress from “abridging the freedom of the press.” As such, direct subsidies targeted to specific press outlets might be construed as an abridgement on the freedom of those that don’t qualify for them. Free Press’s trust model is also likely to encounter substantial opposition because of its proposal to tax advertising revenue. According to Picard, an advertising tax would be nearly impossible to get through Congress. However, it’s worth noting that tax incentives are already used in a variety of industries, such as agriculture and manufacturing, and that they might also represent the best way to address the problems the press currently faces since they could be designed to promote specific general outcomes, such as hiring more reporters and editors or opening new bureaus.

Tax incentives could also be useful in promoting less commercial models of news-media ownership. The tax on the profit from the sale of news organizations could be eliminated or reduced when they are sold to a nonprofit, a foundation, or a small, media-only company—three models that are sheltered from market pressures either because they are dedicated to the mission of journalism or do not have to answer to shareholders. A reduction or exemption from the estate tax for family-owned newspapers could also encourage this longstanding and generally successful ownership model. At a 2004 symposium, “News in the Public Interest: A Free and Subsidized Press,” Frank Blethen, the publisher of the family-owned Seattle Times, suggested a tax plan to encourage family ownership that involved eliminating the estate tax and instituting a capital-gains penalty for selling the publication, among other things.

Picard also suggests one-time subsidies for research and development of media technologies. With the historical precedents of the telegraph and the Internet, government funding for the development of electronic paper—portable, refreshable, and paper-like display mediums that are said to be in development—would drastically reduce the enormous production costs of newspapers, would be politically feasible, and could be secured from existing government agencies like the National Science Foundation. “More than half of newspaper costs are distribution and production,” says Picard. “And another twenty-five percent is the administration of these functions.” If the government were to subsidize the development of electronic paper, Picard argues, it could then give it away to press outlets, much like it gives away public airwaves to network television stations. In turn, newspapers could distribute electronic paper to consumers as part of their subscription.

To survive, journalism and journalists need to let go of their aversion to Uncle Sam. “The founders never held the view that if rich guys can’t make money off journalism, then we just won’t have journalism,” says Robert McChesney. “The nation was built on the idea that we have to put into place policies that guarantee journalism no matter what.” As Overholser puts it, “There are clearly roles that the government’s going to play, and I think we need to be smart about how we stand up to the ones we don’t want them to play and also how we can think creatively about constructive roles.”

But we have a long way to go. When I called Tom Rosenstiel and said I was writing about ways government could support the press, he responded brusquely, “Well, I’m not a big fan of government support.” I explained that I just wanted to put the possibility on the table. “Well, I’d take it off the table,” he said. Hallin believes it will “take another decade or two of newsroom cutbacks” before the idea of government support for the press is taken seriously. “You have to think of something like the analogy of the environmental movement,” says Hallin. “At a certain point people say, ‘You know, we’re letting market forces take their course, and it’s really causing a lot of harm. We have to intervene in some way.’ And I think it’s going to happen with culture and information at a certain point as well. There’s going to come a time when people say, ‘We really shouldn’t go on this way, there’s too much harm being done.’”

Yet two more decades of newsroom and reporting cutbacks could result in the journalistic equivalent of a scorched earth. Can we really afford to wait that long? 

Bree Nordenson a former assistant editor of CJR.