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Non-Profit: Not Going To Save Newspapers

Tony Romm

Posted: Mar 25th 2009 2:17AM

Filed under: Advise & Dissent, American University

Animated disagreement between coworkers is a venerable tradition often denied to Bright Hall's far-flung, break room-less staff. Advise & Dissent is an attempt to fix that. Click here for past debates, and click here to read Matt Negrin's first post on non-profit newspapers.

Perhaps some journalists will head to work tomorrow (assuming they still have a job) rather relieved: A new bill, introduced on Tuesday by Sen. Benjamin Cardin, D-Md, would allow struggling broadsides to declare themselves as "non-profit," pursuant to the U.S. Tax Code's guidelines for 501(c)(3) organizations.

In English: Newspapers could take the form of universities, as proposed on The New York Times' op-ed page in January, and similarly sustain their enterprises through endowments.

The analyses that have accompanied the news of Cardin's proposal have accurately attributed to the new business model one important downside: Newspapers who self-declare as "non-profit" cannot endorse political candidates for office, among other political activities. Unfortunately, that is hardly the only side effect of such a switch. Non-profit status, which has served some media outlets rather well, could actually prove quite harmful to newspapers in the long term. Here are two reasons why:

1. Investment incentives? -
- If Zachary Seward's estimates are correct, it will require at least $114 billion to guarantee the short-term survival of every struggling American newspaper -- approximately one-seventh of what the United States conferred to homeowners in its recent stimulus package. Of course, the non-profit model proposes that private investors, not the federal government, would provide the funding to endow journalistic enterprise writ large.

But therein lies the problem.

Even if it's true that a cadre of news enthusiasts anticipate the opportunity to sustain the sagging "fourth estate," their philanthropy will hardly be even handed. The Times' tested college endowment analogy explains why: Despite a manifest concern for the future of higher education, philanthropists most commonly offer their coveted cash to colleges likely to produce notable successes and breakthroughs. In those academic settings, innovation underpins investment; investors have the greatest incentives to donate only to the best.

Applied to the news industry, however, it is hardly "the best" who require dire financial assistance. Both the Rocky Mountain News and the Seattle Post-Intelligencer's collapse this year elucidate that it is the lack of innovation, not the incidence of it, contributing to the medium's decline. Therefore, if money flows in the direction of those most capable of evolving, small, local papers will still stand to suffer (a truth to which the American university system can also well attest). And that's the exact scenario Cardin designed his bill to reverse.

2. Whither political ads? --
The recession may diminish the ability of corporations to advertise their products, further compounding print media's financial dilemma, but one revenue source is always bound to be booming: national politics. Contrary to economic pressures at the time, The Washington Post reported in 2004 that news Web sites expected to earn over $1 billion in election advertisements that year -- money they, of course, intended to share with their print counterparts. And by 2008, even $1 billion seemed minuscule. That year, Politico alone (which has a moderately successful print edition) captured $146,000 in direct ad buys from the Obama campaign; WashingtonPost.com, similarly, raked in $100,000 over the same period. Although both estimates included neither Sen. John McCain's, R-Ariz., advertising figures -- the campaign did not file Web-itemized FEC reports -- nor the ads either site sold via third-party firms, the numbers still convey the importance of political advertisements to newspaper publishers.

Non-profit status would likely erase those net financial benefits. According to the IRS tax code, "Section 501(c)(3) organizations" -- newspapers, in this case -- "are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office." That could include political ads, which could be construed as "indirect participation" in the election. However, the new business model would permit publishers to claim other advertisement revenue as "tax exempt." How much this would save newspapers -- and, additionally, how much it would cost the federal government -- still remains unclear.

Then again, maybe it is the mindset -- not the method -- that is flawed here. Conventional wisdom (and a cultural meme to boot) suggest that the demise of newspapers corresponds with a demise in understanding, knowledge and curiosity. Yet, that's hardly true. Formats determine the most effective means by which a message is transmitted, to be sure, but good journalism exists irrespective of its aesthetic. The "fourth estate" is thus likely to keep its title, regardless of whether its audience learns about the world from a dead tree or a flickering laptop screen. For that reason, even if Cardin's bill passes -- and it is unclear, at this stage, whether it will -- it is unlikely non-profit status will save the dying newspaper industry. Indeed, only ingenuity (and, perhaps, a better conceptualization of what "journalism" is) can do that.

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