Tuesday, May 12, 2009

Not-For-Profit Newspapers?

Congressman Ben Cardin (D - Maryland) has introduced the Newspaper Revitalization Act to allow newspapers to become 501(c)3 non-profit corporations. He explains his motivations in this op-ed in the Washington Post.

This not-for-profit model is something I have thought a lot about before, and though I really don't know if it will work, I think it is worth a try. This bill confuses me a little bit, however. For starters, I am not sure why an existing newspaper cannot become a 501(c)3 corporation already, one of the categories is education and it seems pretty easy to argue that newspapers are educational. The other thing that confuses me is that political endorsements would be prohibited, but "they would be able to editorialize and take positions on issues affecting their communities." This seems like a hair-splitting argument. For instance, if the Sam Adams lies came out before the election, could The Oregonian editorialize that he should not get elected? Could it say it would be better to vote for the opponent?

I have explained the economics of the newspapers role in our democracy before - it is a public good, and a vital one, and thus the public has an interest in supporting it. Others have pointed out that it might be hard for newspapers to be a watchdog if they are beholden to the pubic purse controlled by politicians. This might be true, when Ken Tomlinson became the head of the Corp for Public Broadcasting, NPR was threatened. Though in the end NPR does not seem to have suffered too badly. This economics argument is distinct from the economics of the newspaper business by the way - that is another story.

So is non-profit status the answer? This legislation is designed to community newspapers not big city dailies, and yet it is the big city dailies that I am worried about. Could an OPB-like model of memberships, foundation and corporate support work for such large newspapers? I don't know, what are your thoughts?


MPPBrian said...

I am skeptical about a non-profit model for newspapers. To get there, the existing boards of directors and shareholders would essentially have to give up on their investments, as they would be completely wiped out. I suspect they will try absolutely everything to be successful as private, for profit businesses before considering any such conversion.

Second, it is not clear to me that there is the donation capacity to support all of these newspapers. NPR is struggling, laying off employees and cancelling shows. And at what expense would these donations come? It is not like foundations and individual donors have infinite amounts of money to give, and there are great needs in our society for charity, educational institutions, etc.

Finally, I don't feel that newspapers have exhausted the possibilities to charge for their content. Unlike public radio, which has no way to charge for content, online news sites could require people to pay to read their stories. The current method for charging, where each newspaper requires a separate subscription is unworkable, as people want to read many news sources and are not going to subscribe to a dozen papers. I am also skeptical about micropayments; I think the transaction costs are prohbitive and it would result in suboptimal consumption of news, because people would be wary of buying an article they are not entirely sure they are interested in.

I think the best solution would be for online news sites to enter into revenue sharing agreements. They would have to get an anti-trust waiver to do this, but similar waivers have been granted to the airlines to integrate their marketing operations. Online newspapers could sell an all-access pass and then share the revenue based on usage. So if I spend half my time reading the Oregonian online and half the time at nytimes.com, those two sites would split the revenue equally.

Right now, I pay $37/month plus tip to get the paper verison of the Oregonian at home in Corvallis. That is not a sustainable model; the printed paper is expensive to produce and deliever. The news industry would be much better off charging $25/month for total access to US newspapers online, trying to generate millions of customers, eliminating their manufacturing costs and sharing the revenue.

Frage said...

My understanding is that a 501(c)(3)cannot, in any way intervene in politics:

"(h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."

Obviously, it would be difficult for a newspaper to defend itself continuously against this claim in court.

Please refer to this Cornell Law School page that (I believe) quotes the IRC: http://www.law.cornell.edu/uscode/26/501(c)(4)(A).html
I found it as a citation link on the wikipedia article on 501's.

Maybe it could be a 501(c)(4)?