Newspaper Saved! Newspaper Saved! Read All About It!

By: Joe Mathewson Before the Tribune Co. discharges any more journalists, and before Wall Street kills any papers, let's look at the economics of newspapers. Must they be at the mercy of executives seeking bonuses and stock appreciation rather than nourishing a force for civic good?

Although the obit-writers are greatly exaggerating the death of American newspapers, we've seen enough advertising and circulation stagnation to realize that if we don't think imaginatively now about how to preserve them, we'll have to think very imaginatively later about how we'll get along without them, both as individuals and as a nation, and that's not pretty to contemplate.

In fact, in spite of Knight Ridder's abject surrender to a shareholder's demand to break up the company, newspaper publishers aren't hurting. Yes, print circulation is off, but the companies' online revenues are ballooning, and consultant John Morton computes an industry profit margin of 20%.

But while family owners, like the Paddocks of Arlington Heights, Ill., who elevated the Daily Herald from a country weekly into Illinois' third-largest daily with a still-growing circulation of 150,000 in 28 editions, consider newspapering a mission rather than an investment, Wall Street will always prod publicly-owned newspapers to improve their return on investment.

So if the aggressive investors and financiers don't get the high return they want, and if it can't be achieved by revenue breakthroughs, that means cutting costs -- i.e., reporters, editors, photographers, and newsprint, the sad story that inevitably undermines the quality and the societal value of newspapers.

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. Does anyone believe that our society is better, our civic virtue enhanced, by the failure of the Washington Star and the New York Herald Tribune and the Chicago Daily News and all the other fine dailies that have perished for purely financial reasons?

To be sure, if advertisers continue to pare their commitment to newspapers, they may become less interesting to read and less useful. But if their professional staffs can be preserved, perhaps even augmented as their companies capitalize better on the Internet, newspapers' freedom and opportunity to report the news, especially the sensitive, prickly news, can only be enhanced, freed of any concern about offending advertisers.

Again, market devotees will resist, contending that lack of competition and the profit motive will give rise to journalistic sloth. But in fact competition for the news consumer will continue to be rife, especially for the younger folk who tend to look to broadcasting and the Internet rather than picking up a newspaper. To survive and prosper in the face of this vibrant competition, newspapers will have to be very good indeed.

HOW TO DO IT

So how could newspapers be liberated from the for-profit world to concentrate on their mission?

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.

Of course, this is quite possible now, but the question is how to make the transition. If a newspaper is struggling and likely to be closed, it probably has little market value, so its owner, like the owner of an old car that costs too much to keep up, could simply donate it to a not-for-profit like an existing civic organization, or create one for the sole purpose of operating the paper. The owner could still run it and draw a reasonable salary. But no stock options.

If the newspaper is making money but not enough to satisfy Wall Street expectations, it might have enough residual value for the owner to shop it around. 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. Especially if their local newspaper is declining, they might see buying it as a signal contribution to the vitality and quality of their community. Such a generous civic act just possibly could be more appealing to the super-wealthy than merely taking another position in a hedge fund. 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.

The other tax-favored model is that of real estate investment trusts. Alone among for-profit industries, REITs pay no federal income taxes. Congress bestowed this special privilege on real estate companies that distribute 95% of their profits to their shareholders. So REITs are for-profit, and to be attractive to investors, they must actually produce profits and pay them out as dividends.

To assist publicly held newspaper companies, Congress could extend this tax-free privilege to them -- again, not to broadcasters or to media conglomerates that own both. It would mean that if the newspaper makes a profit (after necessary expenditures to strengthen and improve the operation), it can avoid federal income tax by distributing virtually all of it.

Such a favored status would appeal to investors, though they might not be typical investors, perhaps those with a measure of civic pride and spirit that would find gratification in such an unorthodox position.

Proof that converting to such a tax-free trust form would be attractive to for-profit companies is seen in Canada, where a similar status is available to all public companies and many large ones have made the switch.

For a newspaper company whose expenses vary with the vagaries of news coverage, a tax-free form has obvious advantages. For instance, if responding to the expensive exigencies of covering a Katrina-like story means little or no profit, the company would have no obligation to pay a dividend, and of course no income tax.

If all of this sounds like a substantial re-thinking of the economics of American newspapers, that's what it is. And it's time.

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CORRECTION

An earlier version of this column mentioned that the St. Petersburg Times is a non-profit company. However, Andrew P. Corty, VP and secretary with the paper's parent company, Times Publishing, explained that this is not the case. "The St. Petersburg Times is owned by the Times Publishing Company, which is a for-profit company that pays all required federal, state, and local taxes," Corty wrote via e-mail. "The Times does not receive any governmental subsidies or special breaks.

"Mr. Mathewson may have been confused because the Times Publishing Company is owned by a non-profit educational institution, the Poynter Institute for Media Studies. After the Times pays all of its taxes, it then declares a dividend as is typical of many for-profit companies. As the owner, the Poynter Institute receives those after-tax dividends and uses the proceeds to support its programs in journalism education.

"Other owners may use their dividends to purchase more material goods -- our owner's choice is to teach writing, reporting, graphic design, and ethics."


READER COMMENTS

If you want to have your reactions to this article included below, e-mail us at letters@editorandpublisher.com.

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Newspaper Saved!

Joe Mathewson's great idea for non-profit newspapers -- given present day problems -- may be the best new idea this year. However, surely he must know that there have been non-profit magazines for a long time now. Some have membership bases like American Craft Magazine, American Folk Art Magazine, and Sculpture, but many do not (i.e. GLASS, which I edited for 7 years as a program of the non-profit art facility called UrbanGlass in Brooklyn). All are available on the newsstand (unlike AARP magazine, probably the biggest member-based nonprofit of all) and take ads to cover costs. As non-profit publications they are eligible for foundation and government grants and for tax-deductible donations and, not a small thing, they do not pay taxes. It is in my opinion a small step from quarterly or monthly glossies to newsprint weeklies or dailies. First step: a mission statement, a board, and registration as a non-profit 501-C3 organization.

John Perreault
Founder, Artopia
www.artsjournal.com/artopia

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I want to endorse Joe's positions and hope that you will put me in touch with others, too. During the 1990s I wrote a sequence of Op-eds for the Philadelphia Inquirer and Philadelphia Daily News. Since 2000 I've been heading up a US-Cuba people-to-people coalition. And so I have been face-to-face with the power of public information -- unconstrained and constrained.

Rick Shnitzler
Lead Organizer
TailLight Diplomacy
Philadelphia, Pa.

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Saving Newspapers

Thinkers make a country great. Thanks to Joe Mathewson for thinking this one through. Now, if moderate thinking citizens could just get their radical representatives in government to agree to change the rules to help citizen founded non-profit newspapers to start up and thrive. Sadly, the way our country is headed, I think our governors would prefer to support propaganda, rather than information.

Mary Hooper
Bakersville, N.C.

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Non-profit Possible in San Diego

The LA Times reported that David Copley, who recently had a heart transplant, has looked at the idea of turning the San Diego Union-Tribune into a non-profit when the day comes that he passes away.

Gary Warner
Travel Editor
The Orange County Register

Ed's Note: In his Sept. 29 profile of the Copley legacy in The Los Angeles Times, James Rainey writes: "Several former Copley executives said they thought that the publisher would leave his empire to a foundation, with the proceeds going to benefit charity or perhaps a journalism school."

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REIT Clarification of Joe Mathewson's Story

Just to clarify the REIT rules, which were somewhat mischaracterized by Joe Mathewson (Newspaper Saved! Newspaper Saved! Read All About It!, Dec. 8), REITs are required to distribute at least 90% of their taxable income to shareholders each year in the form of dividends. In exchange for doing so, a REIT is granted a dollar-dollar deduction from corporate taxation. So, if the XYZ REIT chooses to distribute 96% of its taxable income to shareholders, it is subject to taxation only on the 4% it retains. It is not a blanket exemption from taxation, however, and the tradeoff is that REITs are left with less cash on hand than non-REITs.

Jay Hyde
Vice President, Communications
National Association of Real Estate Investment Trusts (NAREIT)

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Regarding Joe Mathewson's Article

Why can't more people with Joe Mathewson's outlook on newspapers be among the ranks of our government and among those with the financial resources (i.e. ownership of newspapers) needed to make the important and valuable changes he suggests for newspapers.

The pundits say newspapers are dinosaurs, but they don't have to be. Many newspapers that have managed to keep running have lost much of their influence because they are subject to corporate, late-capitalist greed in the form of the desire to maximize profits at the expense of quality journalism that serves readers and the greater public good. Economics in this country have progressed to the level at which big business is no longer serving customers, but bending at the will of stockholders. Newspapers should not be subjected to this marketplace.

Non-profit papers like the Christian Science Monitor have managed to retain extensive quality coverage because they are not held to the behest of stockholders who worry that their portfolios might lose value. While for-profit papers cut their newsroom staffs and eliminate foreign bureaus, non-profit papers refuse to give into the tendency to rely extensively on wire services for coverage that is best produced by staffers at individual newspapers who preserve diversity in news coverage.

The difference in quality is clear. While important issues go uncovered in for-profit papers, non-profit papers haven't abandoned quality journalism and are performing their civic duties. They are giving voice to those who otherwise wouldn't be represented and are bringing attention to the issues that otherwise would go unnoticed.

Mathewson's proposal is realistic and needs implementation now more than ever. Members of Congress and corporate owners need to be pressured to allow for this revolution.

Matthew Stone
St. Paul, Minn.

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Journalism for Profit or Not?

I've read several articles and editorials lately about newspapers and their falling circulation figures. Blaming the Internet seems to be the popular thing to do. Your idea of a non-profit model is unique, at least to me. That way, you say, you can publish what you want without fear of reprisal or outside control being exerted. That solution alludes to the real problem, and it is what you write. It's the product itself, just as it usually is when a company has revenue issues.

Do editors ever pay attention to the letters that are written complaining about biased or inaccurate coverage of the news? I see such letters regularly. Editor's replies are predictable. 'We' are right or 'we' have justification for what we printed. That letter writers frequently predict coverage, and do so accurately, because of the biases in journalism doesn't seem to ever hit home. Sometimes an event is mischaracterized. Sometimes coverage is unbalanced. Readers keep score, and for many readers, the two go together.

The times are changing and despite readers telling editors what they want, the papers are not going along. They persist in following an old model that worked when they were the only game in town, just as GM and Ford and Chrysler did when the Japanese started marketing products here. There are other sources of news now, but the papers have not responded by changing the way they do business. The semiconductor makers changed when Japan showed up and they prospered. Detroit didn't change anything except paint schemes and is having trouble except when they give away their product.

If you think customer service consists of getting the paper delivered on time, continue to ignore letters from readers, but do some market research and see what comes out of it. There are a lot of people who have canceled subscriptions because they are tired of the bias in the news. Lately, that subject has been spoken of more and more openly, and critically. Who wants news that can't be trusted? Verify stories when you find them. Who wants news that can't be trusted?

There's a message here.

Joe Dantone
Austin, Texas

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Question for Joe Mathewson

About foundations owning newspapers: Is there not some issue about their doing this, that led the Jesse Jones foundation (Houston Endowment) to have to sell off the Houston Chronicle?

David Sullivan

Ed's Note: If there is, we're not aware of it. Those in the know can e-mail us at letters@editorandpublisher.com.