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A Senate subcommittee contemplates the 501c(3) newspaper.


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In Citizen Kane, the millionaire protagonist based on William Randolph Hearst shrugs off a warning that his newspaper is losing a million dollars a year. “At the rate of a million dollars a year, I’ll have to close this place in . . . 60 years,” he says.

Times have certainly changed. In late March, the Chicago Sun-Times faced annual operating losses greater than $300 million. Facing an additional half-billion dollars in tax debt, the paper’s owners filed for bankruptcy.

For newspapers, there is no good news. Craigslist is destroying the classifieds section. The bad economy is destroying advertising revenue, with some newspapers expecting downturns of up to 30 percent. Online readership of news, which Nielsen says is up 10 percent this quarter, is destroying newsprint circulation, which was already slipping before the birth of the Internet.

One reaction to this trend, newsroom layoffs and buy-outs, are destroying the quality and breadth of coverage. That in turn hurts circulation, which hurts ad rates, which causes papers to increase newsstand prices, which further hurts circulation. This death spiral has brought about the end of the Rocky Mountain News. The companies that own the Minneapolis Star-Tribune, the Los Angeles Times, the Chicago Tribune, the Philadelphia Inquirer, and the Philadelphia Daily News are all in bankruptcy court.  

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Last week’s report from the Audit Bureau of Circulation found that of the top 25 newspapers, only the Wall Street Journal posted a true gain in circulation (the Denver Post only gained because it inherited subscribers to the Rocky Mountain News). The New York Times was down 3.6 percent year over year; with advertising revenues down 27 percent, the paper has raised its newsstand price from $1.50 to $2. The Boston Globe, also a subsidiary of the New York Times Company, lost 13.6 percent of its circulation. The Globe is on pace to lose $85 million this year. The Times Company, as a whole, lost $74 million in just the first quarter of 2009.

Newspapers are in bad shape — really bad shape.

So with everyone else getting a bailout in today’s bad economy, Sen. John Kerry (D., Mass.) held a hearing yesterday on how government can save the newspaper industry. “Is there any government role at all?” Kerry asked. “I don’t know the answer to that.”

At yesterday’s hearing of the Communications, Technology, and Internet Commerce Subcommittee, Kerry called Sen. Ben Cardin (D., Md.) to discuss a bill the latter has proposed, which would allow distressed newspapers and magazines to restructure themselves as 501c(3) non-profits. Strictly speaking, this is not a bailout — it calls for no direct expenditure by the government, no checks being cut to Gannett or the New York Times. But the bill does represent a form of subsidy — a tax loophole, if you will. It would not only exempt participating newspapers from taxation (an inexpensive proposition when few are making a profit anyway), but it would more importantly create tax deductions for those who donate to them.

“My legislation uses the 501(c)3 model, similar to what a church would use or what an educational institution would use,” said Cardin. “What it doesn’t do, and what I do not support, is government interference in the free press.”

But tax-free status comes with a price under Cardin’s bill. For one thing, it means an end to the editorial board as we know it. Not only would newspapers in this new non-profit category be forbidden from endorsing or urging votes against political candidates, they would be forbidden to advocate for or against specific legislation. Just as churches have received threats against their non-profit status during recent elections, so could newsrooms be threatened — challenged as to their nonpartisanship, or even as to whether, as the Cardin bill demands, “the distribution of such newspaper is necessary or valuable in achieving an educational purpose.”

The bill has other strings as well, dictating certain aspects of a publication’s day-to-day operations. In order to keep its non-profit status, a newspaper would have to carry “local, national, and international news stories of interest to the general public.” Your average charming neighborhood or community newspaper, lacking any national or international focus, might not qualify.

A non-profit newspaper’s advertising revenues would only count as tax-free if “the space allotted to all such advertisements in such newspaper does not exceed the space allotted to fulfilling the educational purpose of such qualified newspaper corporation.” This is an intrusive requirement. Do the comics count as “educational?” The Sudoku puzzle? “Dear Abby”? What about the ad inserts and coupon sections that are delivered with the paper?

David Simon, the creator of the acclaimed television series The Wire, sat on the hearing’s second witness panel with Arianna Huffington. He spent most of the hearing being irked by her contention that bloggers from such sites as hers can replace high-level reporting — especially local reporting — at an institution such as the Baltimore Sun, where he once worked.

He also expressed his interest in the non-profit model for a newspaper. “A non-profit model intrigues,” he said. “Anything the government can do to create tax incentives for bankrupt or near-bankrupt newspapers to be donated to local nonprofits should also be contemplated.”

But even as Simon denounced the Wall Street model for ownership of newspapers and its demand for short-term profits at the expense of quality, his testimony revolved around a critical free-market principle. A news organization must produce and sell news coverage that succeeds on the retail-business level. Today’s newspapers, he strongly hinted, are failing to do that, and even the ones that are succeeding err in giving away their content for free.

“Unless it’s a product — unless the news is treated like a product — it’s over,” he said. “This whole thing is over except for the shouting.”

– David Freddoso is an NRO staff reporter.



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