Public Policy and Funding the News

Center on Communication Leadership & Policy

Research Series: January 2010

Public Policy and Funding the News

by Geoffrey Cowan and David Westphal

© 2010 University of Southern California

About the Authors

Geoffrey Cowan, director of the Center on Communication Leadership & Policy, dean emeritus of theUSC Annenberg School and USC University Professor, holds the Annenberg Family Chair inCommunication Leadership. Cowan served under President Clinton as the director of Voice of Americaand director of the International Broadcasting Bureau. In other public service roles, he served on theboard of the Corporation of Public Broadcasting, chaired the Los Angeles commission that drafted thecity’s ethics and campaign finance law, and chaired the California Bipartisan Commission on InternetPolitical Practices.

Cowan is the Walter Lippmann Fellow of the American Academy of Political and Social Scienceand an elected member of the American Academy of Arts and Sciences. He chairs the CaliforniaHealthcare Foundation board of directors and serves on the Human Rights Watch board, where he co-chairs the communication committee. He previously was a fellow of the Shorenstein Center on thePress, Politics, and Public Policy at Harvard’s Kennedy School of Government. A graduate of HarvardCollege and Yale Law School, Cowan is an award-winning author, playwright and television producer.

David Westphal, senior fellow with the Center on Communication Leadership & Policy, is executivein residence at the USC Annenberg School. Until joining USC in fall 2008 he was Washington editorof McClatchy Newspapers, the nation’s third largest newspaper company. Westphal joined McClatchyin 1995 as deputy bureau chief and was named bureau chief in 1998. With McClatchy’s purchase ofKnight Ridder in 2006, he became editor of the combined Washington bureaus and the McClatchyTribune News Service. Previously, he was managing editor of The Des Moines Register in Iowa for almostseven years. His newspaper career spanned nearly four decades.

This project is made possible in part by a grant from Carnegie Corporation of New York.The statements made and views expressed are solely the responsibility of the authors.

Geoffrey Cowan David Westphal

Introduction

by Geoffrey Cowan

At a time when the financial model for newsis facing the greatest crisis in decades,

the level of government funding for news organ-izations has been declining sharply. Unless a newapproach is created, that decline is likely toaccelerate. Yet most commentators, includingmembers of the press, seem unaware of the levelof government support that journalism hasenjoyed throughout our nation’s history, or of theways in which it is now disappearing. This reportbegins the process of documenting the cutbacksand presenting a possible policy framework forthe future.

The sharpest cuts have come in the level ofpostal subsidies for news, which have beenreduced by more than 80 percent over the lastfour decades. Thanks to the visionary leadershipof George Washington and James Madison,mailing costs were heavily subsidized by thegovernment for the first 180 years of our nation’shistory – from the Postal Act of 1792 to thePostal Reorganization Act of 1970. In 1970, thePostal Service subsidized 75 percent of the cost ofperiodical mailings. Today, the subsidy has fallento just 11 percent. In today’s dollars, that’s adecline from nearly $2 billion in 1970 to $288million today. Magazines that would still beprofitable under the arrangement established byour founders are now closing at a precipitous rate.

Public and legal notices have also been animportant source of revenue for the publishingindustry throughout American history. Thanks tolegislation and regulations adopted at every levelof government, they remain a huge source ofrevenue today. They provide hundreds of millionsof dollars to periodicals ranging from local dailyand weekly papers to national publications such

as The Wall Street Journal. But inevitably they willbe reduced and eliminated, superseded byadvances in new technology. Cash-strappedgovernment agencies are asking courts andlegislative bodies to allow them to make theswitch to the Internet. Legislation to allow atransition to the Internet has been introduced inat least 40 states, and in some the switch to theWeb is under way. Arizona school districts, forexample, are now free to publish their yearlybudgets on their own Web sites, avoiding costlyplacement in local newspapers. PresidentObama’s Department of Justice recently proposeda similar transition. While lobbyists and lawyersfor some media companies are trying to blockthese changes, a day of reckoning is clearly on thehorizon. The loss in revenue will be substantial.

Print publications of all kinds also benefitfrom a wide range of tax breaks that have beenspecifically designed to help news outlets. Thereare special tax provisions in the federal tax codeand in most states. Collectively, they account forhundreds of millions in lost tax revenues. Forexample, the federal tax code has provisions forthe special treatment of publishers’ circulationexpenditures as well as special rules for magazinereturns. Those two sections of the code accountfor a loss of $150 million in taxes – or a subsidy of$150 million for the industry. Tax breaks at thestate level, including favorable treatment ofnewsprint and ink, amount to at least $750million. The actual amount is probably muchhigher because many states don’t report separatedata for publishers. How long thosepreferences will persist is anyone’s guess.

In a variety of ways, the government has alsohelped to assure the financial stability of broad-casting, cable and the Internet. Broadcasters weregiven their licenses for free; part of the trade-offfor a free license, however, was the explicitrequirement that the station use some of its

Public Policy and Funding the News 1

resources to provide news and information to theaudiences it served. Cable news channels are thedirect beneficiaries of FCC rules that allow cableoperators to bundle services, requiring every cablesubscriber to pay a fee to MSNBC,CNN and FoxNews – whether they want them or not. Thosesubscriber fees are more important than adver-tisements in funding the bottom line of all threecable news outlets. Until recently, none of theover-the-air broadcasters (including publicbroadcasting stations) received a single dollarfrom cable subscriber revenue. If the FCC hadfollowed the suggestion of former ChairmanKevin Martin, it would have adopted so-called ala carte cable rules that would have allowed eachcable subscriber to decide whether to pay for Foxor for MSNBC or for CNN. That change wouldhave had a dramatic impact on the businessmodel for cable news. As news migrates to broad-band, it seems inevitable that the business modelfor those news outlets – and the assured stream ofsubscriber revenue – will change.

Internet entrepreneurs have benefited fromthe huge federal investment in creating theInternet, and are about to benefit from billions inthe stimulus package that will be spent on broad-band. By extending high-speed Internet to con-sumers who do not yet have it, the governmentwill be helping consumers migrate online at theexpense of conventional print and broadcast out-lets. In addition, new-media entrepreneurs,including many bloggers and news providers,benefit from the Internet Tax Moratorium, afederal law that, according to some estimates,reduces taxes by $3 billion a year. At some point,it seems likely that Congress will decide to tax theInternet.

There are scores of other ways in which thegovernment helps to support the gathering anddissemination of news. The best-known forms ofsupport are the financing of public broadcasting

in the United States and of Voice of America,Radio Free Europe/Radio Liberty and otheroutlets for audiences abroad. According to theCorporation for Public Broadcasting, about $1.14billion of the $2.85 billion spent on publicbroadcasting (or about 40 percent of the totalfunding for public broadcasting) comes from fed-eral and state government sources. Much of thefunding for the major PBS news programs –“NewsHour” and “Frontline” – comes from thegovernment, through the Corporation for PublicBroadcasting. The Corporation for PublicBroadcasting also provides special funds forprograms on urgent and controversial topics, suchas NPR’s coverage of the Iraq war.

Some who read this report will feel that thegovernment does too much to support news andthat it should start at once to end those forms ofsupport that already exist. That group mayinclude people who are concerned about federaland state deficits, those who think the newsmedia are biased, and those who think that as amatter of principle and practice there should be afirm wall between the government and the newsmedia, much as there is a wall between churchand state.

Cable news channels are thedirect beneficiaries of FCC rulesthat allow cable operators tobundle services, requiring everycable subscriber to pay a fee toMSNBC, CNN and Fox News– whether they want them or not.

2 Public Policy and Funding the News

While the authors of this report respect thesepoints of view, we have a different perspective.We think the press is vital to democracy.Washington and Madison were right when theyinsisted that the government fund a robust postalsystem, partly to deliver news to the nation’s far-flung population, and they were right tocreate postal subsidies to assure that the publicwas informed. The authors of the FirstAmendment were right when they created adocument that banned any law “respecting”freedom of religion, but only banned laws that“abridge” freedom of the press. The foundersbelieved in laws that would enhance the press,including those providing for postal subsidies,public notices and other devices that would helpto ensure financial stability. The authors of theFederal Communications Act and the earlymembers of the FCC were right to require thatstations provide news and public affairs coveragein return for receiving a federal license to broad-cast. Those who wrote the Public BroadcastingAct were correct when they found a way to fundpublic broadcasting, and the credibility of govern-ment-funded news on public radio and publictelevision stands as a testament to their wisdom.

We live in an era of profound technologicalchange that threatens many forms of news media.We do not favor government policies that keepdying media alive. But we do believe thatduring this transition period, government shouldexplore new and enhanced ways to support theproduction of news and information, as it hasthroughout our nation’s history.

When possible, we also think that:1. The government should find ways to make

sure that reporters, news organizations and othercontent creators are paid for work that mightotherwise be used without permission or compen-sation (which is one reason why the foundersprovided for copyright laws in the Constitution).

2. Most government funding should beindirect, rather than direct (as it is through theCorporation for Public Broadcasting and throughparticipating public radio and television stations).

3. Where possible government fundingshould be distributed according to a formularather than as a direct subsidy for particular newsoutlets (as is the case with tax breaks and postalsubsidies).

4. The government can play an importantrole by investing in technology and otherinnovations, as it did when it supported researchon transistors, on satellite technology and on theInternet.

Above all, we urge an honest debate thatrecognizes the vital role that the governmenthas played throughout our history and that itcontinues to play today. It would be a publictragedy to wake up one day and discover thatnews outlets are in even deeper trouble becausehundreds of millions of dollars of public supporthad disappeared while no one was watching.

Government should explorenew and enhanced ways tosupport the production of newsand information, as it hasthroughout our nation’s history.


Some public agencies that have provideddirect or indirect support to news organizations


NewsMedia in Crisis

M ost people did not see the tidal wavecoming. In June 2006 McClatchy

purchased Knight Ridder for $4.5 billion plus$2 billion in debt.1 It promptly sold off some ofKnight-Ridder’s biggest papers (Philadelphia,San Jose, St. Paul and Akron) to investors whoalso didn’t see it coming. The following year SamZell took his own ill-fated leap, acquiring TribuneCo. in a $13 billion deal financed almost entirelyby borrowed money. It would take only 12months for Zell to take Tribune into Chapter 11bankruptcy court.2 The hometown owners of thePhiladelphia Inquirer would make the same choicenot quite three months later.3 At about the sametime, a private equity firm, Avista CapitalPartners, which purchased the Minneapolis StarTribune from McClatchy, took that newspaperinto Chapter 11. (It emerged from bankruptcycourt eight months later.)4

The speed with which these blockbusterdeals came back to haunt their buyers suggeststhe nightmarish conditions that have swampedthe newspaper industry in the last few years, andwreaked havoc as well at many magazines andbroadcast outlets. More than 100 newspapersshut down in 2009.5 Most were small, but somebig newspapers shuttered as well, including theRocky Mountain News and the Seattle Post-Intelligencer. The casualty list is almost certain togrow.

News businesses have always been susceptibleto the ups and downs of the economic cycle, sothe violent downturn of 2008 and 2009 wascertain to knock them for a loop. But that wasonly part of what was sending their stock prices,

revenues and earnings into a tailspin. All legacymedia were buffeted by the rapid advance ofWeb-based and other digital technology thatincreasingly pulled consumers from traditionalmedia. In the case of newspapers, the Web’simpact was particularly brutal because it robbedthem of most of their classified ads, which wereby far their most profitable form of revenue.Jeffrey Klein, a former top executive at the LosAngeles Times, has said that in some years classi-fied ads provided all of the Times’ profit margin.

These are among the numbers that haverocked the news business and eliminated tens ofthousands of jobs:

Research Findingsby David Westphal

Bad times for ad revenues

Newspaper advertising revenue is in afree fall, down 27 percent between 2005and 2008—and the results from the firstnine months of 2009 are even worse.

Source: Newspaper Association of America

2005: $46.7 billion

2006: $46.6 billion

2007: $42.2 billion

2008: $34.7 billion

2009: $17.9 billion (thru 9/30)


• Newspaper advertising revenue, down 9.4percent in 2007, dropped a dramatic 17.7 percentin 2008. The picture grew even worse in 2009,with ad revenue down 28 percent through thefirst three quarters.6

• The decline of newspaper circulation alsoaccelerated, with the number of subscribersfalling below pre-World War II totals, when thecountry’s population was half that of today.7

• Audiences for network evening news showsalso continued to slide, even in a robust presidentialelection year. The broadcast networks averaged 23million viewers in 2008. Less than two decadesearlier, the networks had double that audience,even with an overall population that was 20percent smaller.8

• The major weekly news magazines alsoexperienced falling circulation, though not at thesteep levels of many newspapers. Newsweek wasdown 25 percent, and Time was off 18 percent,between 2002 and 2009. U.S. News & WorldReport discontinued weekly publication and shiftedits traditional news operations to the Web.9

Economic recessions have often resulted innewsroom staff reductions, but this one took agigantic toll. Editors made round after round ofnewsroom cuts. Many who survived enduredwage freezes, or cuts, or mandatory furloughs, orall of the above. Vacations were reduced. Pensionswere eliminated; company matches on 401(k)plans were terminated. According to the Web sitePaper Cuts, newspapers eliminated nearly 15,000jobs in 2009.10 Not atypical was the experience ofthe Los Angeles Times, whose newsroom in 2009was less than half its size a decade earlier.

Most publications also drastically reducednews pages. Editors trimmed stock listings andTV books years ago, but now they were forced toreduce or eliminate many of their prizedsections – books, arts, business, local news. Mostalso took a mighty whack at state, national and

foreign bureaus. Newhouse, Copley, MediaGeneral and Cox all shut down their Washingtonbureaus.11 Cox closed its foreign bureaus as well.Virtually every news organization that main-tained a state capital presence pulled back.Statehouses like those in Denver and DesMoines, which once housed 25 to 35 reporterseach, were down to five or six.

If this were the end of the story, some sort ofemergency federal response might be in order.But it is not. New news sources are emerging at arapid pace, from local community news sites toFacebook news groups to national investigativenonprofits. It is possible to imagine a future newsecology that will be much, much richer than theone we are leaving behind. Yet it is unclearwhether that vision will really emerge, or if itdoes, how long it will take to happen. In the shortrun, as news resources in legacy media continue toshrink, there are questions about Americans’ability to get critical news about the governmentand the world, and, at this moment of uncertainty,what role the government should play.


It is possible to imagine a futurenews ecology that will be much,much richer than the one we areleaving behind. Yet it is unclearwhether that vision will reallyemerge, or if it does, how long itwill take to happen.

The Government and the NewsMedia

T hroughout American history, the federalgovernment has worn many hats in its

relationship with the press and the news industry:watchdog of power among news business owners;consumer advocate championing the news andinformation needs of underserved or neglectedcommunities; affirmative action catalyst forextending employment and ownership opportu-nities to minorities and women; regulator of thepublic airwaves; and provider of both direct andindirect subsidies that have been important piecesof the news industry’s economic health.

State and local governments have also beenbenefactors of the news business. Often theyhave provided subsidies such as income taxdeductions and credits. Local municipalities haveallowed newspaper vendor boxes on city side-walks, often charging no fee. In other cases thebenefits have been indirect. One example: Nearlyall states have enacted shield-law protectionfor reporters against prosecutors’ subpoenas,something the federal government has so fardeclined to replicate.

This rich menu of news media policies,statutes and regulations has fluctuated significantlyover the course of the nation’s history, followingthe swings of political sentiment and technology

development. The ups and downs of local radionews are a case in point. For decades the FederalCommunications Commission required broad-casters to carry news programs as part of theirpublic-interest obligation, including programs aboutimportant local issues. But those requirementshave long since been eliminated.Today local radionews is a rare occurrence. All-news stations arepresent in most large metropolitan areas, but inmany small to midsize cities, talk-radio programs,most of them syndicated national shows, are theonly remnant of the heyday of radio news.

The government has had impact of thatmagnitude across a wide swath of Americanmedia, from the granting of licenses for radio andtelevision broadcasts worth billions of dollars, toinvestments in infrastructure and technology thathave expanded, and helped create, mass audiencesfor the news. A new burst of infrastructuredevelopment is currently under way, with thefederal government spending at least $7 billion toexpand and upgrade high-speed Internet acrossthe country. This massive bet on new media maywell be a smart investment that will producelong-term benefits for the nation’s news andinformation needs. But in the short run, at least, itwill work to the disadvantage of print publishersand broadcasters, who need time to make thetransition to digital platforms.


“Take money from the government?I don’t like to let anyone else pick upthe check.”

—Mizell Stewart III, editor of theEvansville (Ind.) Courier & Press,in a Jan. 11, 2009, editorial titled“Newspaper Bailout? No Thanks”

Often journalists themselves aren’t aware ofhow much the legacy news businesses havebenefited – and continue to benefit – from thesupport of government at all levels. “Take moneyfrom the government?” wrote Mizell Stewart III,editor of the Evansville (Ind.) Courier & Press. “Idon’t like to let anyone else pick up the check.”12

Similarly, Thomas Pounds, president andpublisher of the Toledo Free Press, wrote of agovernment bailout for the news media: “Not 1cent of government money should be spent.”13

It’s true that the United States governmenthas never supported newsgathering to the extentsome countries have. Government support forAmerican public broadcasting, for example,amounts to cents on the dollar compared to manyEuropean and Asian countries. The same is truefor government support of newspapers. In 2009,for example, French President Nicolas Sarkozyannounced that free, one-year newspapersubscriptions would be given to those reachingtheir 18th birthdays – an initiative that is close tounthinkable in the United States. France also isweighing a proposal to tax Internet portals likeGoogle to even the playing field between Internetaggregators and news content providers.

At the same time, it’s not true that the U.S.government doesn’t spend money supporting theAmerican news business. It has always providedsignificant financial support. What’s salient nowis that those investments are in decline.

As the news industry wavers,government support declines

The late 1960s marked a high-water mark forthe government’s financial support for the

news business. At the time, the postal service wassubsidizing about three-fourths of the mailingcosts of newspapers and news magazines, at a costof about $400 million a year (nearly $2 billion in

today’s dollars).This benefit, in combination withother government supports such as tax breaks andpaid public notices, amounted to a substantialfinancial boon for American news publishers.ThePostal Reorganization Act of 1970 marked a turningpoint. The landmark legislation immediatelyreduced publishers’ mailing subsidy by about half,and ever since, government’s financial support forthe commercial news business has been falling.Today, as many newspapers struggle for survival,the government appears certain to reduce itssupport still further by moving public notices tothe Web.

These declines have not been a result of aconcerted policy to reduce government subsidiesand other financial support for the newsbusiness. Rather, they emerged from governmentfunding problems and from the development oftechnology that paved the way for reduced


Postal subsidies plummet

As Postal Service subsidies for mailednewspapers and magazines decline …

1967: $1.97 billion

2006: $288 millionSources: U.S. Postal Service, Congressional Research Service(Note: Figures expressed in 2009 dollars.)

… publishers now shoulder nearly all costsof mailing newspapers and magazines.

Subsidy level

1971: 75 percent

2006: 11 percentSource: U.S. Government Printing Office

support. Nevertheless, the impact is clear. At atime when news businesses are fighting tosurvive, the government has been reducing long-standing forms of support. Unless it changescourse, that support is likely to continue declining.

Postal rates

Long before the United States was founded,the Postal Service was subsidizing the news

business. It was in good measure the free-mailingprivileges conferred by many postmasters thatallowed a robust network of colonial newspapersto emerge. George Washington wanted all news-papers, in fact, to have 100 percent subsidizedmailing costs. The Postal Act of 1792 rejectedthe idea of a total subsidy, but it codified highlysubsidized and extremely low rates.

What brought a halt to publishers’ receiving75 percent discounts on their mailed newsproducts was the financial crisis that engulfed thePostal Service in the late 1960s. Congresseventually decided to turn the post office into aquasi-private enterprise, to reduce the level ofgovernment support and to get out of the rate-making business. Thus was the Postal Regulatory

Commission created in 1970, charged withensuring that periodicals, along with all otherclasses of mail, cover the “direct and indirectpostal costs attributable to that class or type.”Over the next four decades that principle wouldeat deeper and deeper into the historical subsi-dies enjoyed by news publishers. In one recentround of rate increases, small news magazineswere particularly hard-hit. Former publisherVictor Navasky said The Nation’s mailing costsshot up $500,000 in a single year – and came ata time when the magazine was already losingmore than $300,000 a year.

Today, publishers’ discounts for their printednews products are down to 11 percent – less thanone-sixth of the level four decades earlier. Almostall of this benefit today goes to magazines.Meanwhile, newspapers’ total-market-coverageadvertising products are charged at rates thatexceed postal service costs by $300 million. Withthe Postal Service facing a 2010 deficitestimated at $7 billion, prospects appear high thatnewspaper and news magazines will continue toexperience increasingly higher rates.

Public notices

Like postal subsidies, paid public notices tracetheir American origins to colonial days. And

like postal subsidies, public notices mandated bythe government have been a critical component ofeconomic stability for newspapers. Yet they arealmost certain to shrink drastically as a source ofhigh-margin revenue for the commercial media.Governments at all levels are beginning to switchtheir public notices to the Web, a move that atbest means sharply reduced billings for publishers,and at worst means they could lose the businessaltogether.

Public notices are government-required


Legal notices have beenespecially important to weeklyand other community news-papers. Their trade association,the National NewspaperAssociation, estimated in 2000that public notices accounted for5 percent to 10 percent of allcommunity newspaper revenue.

announcements that give citizens informationabout important activities. In most cases govern-ment mandates these notices of itself or ofsubordinate governments; in other cases theyestablish publication requirements for private-sector concerns. Typical public-notice laws applyto public budgets, public hearings, governmentcontracts open for bidding, unclaimed property,and court actions such as probating wills andnotification of unknown creditors. Public agencieshave required paid publication of this kind ofinformation for decades as a way to ensure thatcitizens are informed of critical actions.

Historically, these fine-print notices havebeen a lucrative business for newspaper publishers,and have touched off heated bidding wars forgovernment contracts. Legal notices have beenespecially important to weekly and othercommunity newspapers. Their trade association,the National Newspaper Association, estimatedin 2000 that public notices accounted for 5 percentto 10 percent of all community newspaper revenue.

While other forms of advertising haveplummeted, public notices have been a bright spotfor publishers. Although small newspapers are thechief beneficiaries of public notices, nearly allnewspapers benefit to some extent. The Wall StreetJournal, for example, has a contract with thegovernment to print seized-property notices. In afour-week study, we discovered that thegovernment was the top purchaser, by columninches, of ad space in the Journal. It’s a business thenewspaper would like to expand. In 2009 it wasbattling with Virginia-area papers to get its regionaledition certified to print local legal notices.

But the era of big money in public noticeswill almost certainly fade away. Proposals havebeen introduced in 40 states to allow local andstate agencies to shift publication to the Web, insome cases to the government’s own Web sites.Responding to The Wall Street Journal’s efforts to

get a share of the public-notice revenue inVirginia, a circuit court judge in Norfolk said it“may be an opportune time for the GeneralAssembly to revisit the issue of notice bypublication in light of the variety of electronicmeans of mass communication available.” Themedia industry has beaten down many of theseinitiatives so far, but in a clear indication of futuretrends, the shift is beginning to happen. TheObama administration’s Justice Departmentannounced in 2009 that it would move federalasset forfeiture notices to the Web, saving $6.7million over five years.

State and federal tax breaks

A lso likely to decline are some of the taxbreaks given to news publishers, particularly

those tied to sales and use tax breaks fornewsprint, ink and other print-related expensesthat are becoming a smaller part of the publishingbusiness. All told, federal and state tax lawsforgive more than $900 million annually in taxesrelated to newspapers and magazines. Print pub-lications received about $150 million in federal taxbreaks in the 2008 fiscal year – favorable rules forexpensing circulation expenditures (worth about$100 million) and special treatment of magazinereturns (worth about $50 million).

Most of the money from tax breaks comes atthe state level. An analysis of tax data publishedin 37 of the 50 states showed that newspapers andmagazines received state tax breaks of nearly $800million in 2008.The largest amount, $625 million,is for a tax exemption on the sales of newspapersand magazines, and in some states from the saleof advertising services. The other tax break, total-ing $165 million annually, comes from exemptingsales and use taxes on newsprint, ink, machineryand related manufacturing equipment. Eleven


states did not report or tabulate industry-specificdata, so the actual total of state tax breaks fornewspapers and magazines could well exceed$1 billion annually. Some of these tax breaks aremore valuable to the news business than others.For example, only a portion of the tax exemptionon newspaper and magazine sales represents amonetary benefit. However, these tax preferencesstill provide a tangible subsidy, and all result inrevenue losses for the government.

At least one state has recently taken action toincrease its tax subsidies to newspapers. In 2009,with one of its largest newspapers (the SeattlePost-Intelligencer) about to cease publication,Washington state enacted a $1.3 million taxbreak for the state’s newspapers. Gov. ChristineGregoire, signing the legislation, acknowledgedthat it amounted to a token subsidy for astatewide industry with hundreds of millions inrevenue. “The industry has to right itself, andgovernment can’t and won’t be a part of it right-ing itself,” she told the Associated Press. “But Idon’t want government to be part of the reasonthat this industry can’t make it.” David Zeeck,publisher of the NewsTribune of Tacoma, said thelegislation would save his newspaper about$100,000 – enough to save the jobs of tworeporters.

The cumulative effect of reduced governmentsupport is not the primary problem afflictingnews businesses today. Newspapers alone havelost more than $20 billion in revenue in the lastthree years; at most the reduction in governmentassistance amounts to a few billion dollars. Yetthis funding provides building blocks for economicsurvival, and the cutbacks land harder on somethan others. Small businesses have been particulartargets. Reductions in postal subsidies and,prospectively, public notices fall particularly hardon weekly newspapers and small magazines.

Further, they raise this question for policy-makers: If two centuries of government assistancefor the news business are disappearing, anddisappearing at a particularly difficult time forpublishers, are there steps government shouldnow take to make certain democracy’s informationneeds continue to be met?

Digital media to the rescue?

The Internet is both an existential threat to thesurvival of mainstream media, particularly the

printed sheet, and a powerful reason to be hopefulabout the future of news and information. TheWeb’s promise of being the electronic connectorfor all humanity means it may evolve into asuperlative vehicle for providing the informationcitizens need. Instead of a few publishers, thereare millions. Instead of one-way communicationthere is two-way, and multiple-way. Instead of asingle medium there are many – text, audio, stillimages, video, animation. Instead of regularlyscheduled broadcasts and newspaper and maildelivery, there is never-ending information. Intheory at least, no voice need be unheard in anabsolutely wired world. As Clay Shirky soeloquently put it in the title of his book, HereComes Everybody.


Federal and state tax lawsforgive more than $900 millionannually in taxes related tonewspapers and magazines.Print publications received about$150 million in federal taxbreaks in the 2008 fiscal year.

While the World Wide Web is not yet 20years old, it has quickly shown what cyberspacecan do to the quality of news and informationAmericans receive. Today, a user almost anywherein the world can have instant access to tens ofthousands of information sources. With fewexceptions, all of the journalism of big globalnews organizations is available, from The NewYork Times to the BBC to China Daily. But thatonly scratches the surface. Most small to medium-size news organizations are present on the Webas well. And even that is dwarfed, in size, bymillions of bloggers who have joined the ranks ofpublishers. While some are adding little to thestore of global knowledge, many others arecontributing important morsels that add up togiant storehouses. Two cases in point: It wasbloggers contributing information to TalkingPoints Memo that helped it report on the firing ofnine U.S. attorneys in the Bush administration.14

And it was bloggers who discovered that CBS’“60 Minutes” had relied on bogus information inquestioning the National Guard service of formerPresident George W. Bush.15

The digital revolution has added or enrichednew forms of journalism: fact-checking sites thatlet citizens go to trusted sources to sort outcompeting claims; micro-local reporting oncommunities and neighborhoods that had beentoo small to be served by traditional media; vastsource material, including Wikipedia and originaltranscripts; historical data from governments andother institutions.

All of these riches are flooding into anetworked world that is only starting todemonstrate what can happen when individualsand groups are in touch with everyone else. The2009 public rallies and protests in Iran illustratethe power of individual witnesses to tell stories ifonly they were attached to the grid with a Twitteror Facebook account. The gripping video showing

the death of Neda, who was a mere observer of theIranian protest, went from a passerby’s cellphoneto tens of millions of viewers in a flash.

Even some of the reporting arenas that haveseemed most threatened because of cutbacks inmainstream news organizations have shownstrength in the digital space. Foremost is the fieldof investigative reporting, an expensive but vitalendeavor that newspapers and broadcast outletshave abandoned in large numbers in recent years.To the surprise of many, investigative work hasbeen taken up by a growing number of nonprofitsat national, state and local levels. Also of somesurprise, foundations have provided increasingfunding for nonprofit Web sites that are fillingsome of the gaps left by a shrinking mainstreammedia. These developments have led DanGillmor, a visionary in the digital news world, todeclare that there’s no longer any doubt about thesuccess of new media. “I’m completely sure we’regoing to make this transition just fine,” Gillmortold a journalism educators conference in Boston.

Should the future be as bright as Gillmorbelieves, there may not be a need for governmentto play a role in slowing down or blocking themeltdown of newspapers, news magazines andother players in the news business. Someday wemay look back and wonder why anyone worriedabout losing a news industry that proved to besignificantly inferior to the one that replaced it.For now, though, it’s too early to know whetherthe digital world’s potential will be fulfilled, andwhether as-yet unobserved problems could derailthis movement. If everybody is coming, as Shirkysays, we don’t yet know when they’ll arrive orwhat will happen when they do. Shirky, amongothers, believes we’re entering a period whenaccountability reporting has been severelyreduced, and government corruption could runrampant. At a minimum, our society needs a goodcontingency plan.


Government’s challenge

P olicymakers at every level of governmentface a challenge that has taxed anyone who

has sought to understand the revolutionarychanges affecting the news business. Theemergence of digital news and broadbandconnectedness has turned longstanding principlesand assumptions on their head. What does it doto antitrust regulation when news disseminationis distributed among millions of online producers?What happens to the body of regulationsformulated by the Federal CommunicationsCommission when a cellphone video can havewider viewership than the evening newscast?What does the Federal Trade Commission dowhen confronted with an overwhelming volumeof publicly available messages that run the gamutfrom fact to fabrication? Who is a journalist?Who is not?

A body of laws and regulations governing thenews industry has grown up at the JusticeDepartment, the Federal CommunicationsCommission and the Federal Trade Commissionover many decades; much of it is outdated. Whatapplied to an industry with a relatively smallnumber of players is no longer good policy for anews ecology with millions of publishers. Thereare, for example, questions about the validity ofcross-ownership rules designed to ensure multiplenews voices in communities. Technology ismaking some old statutes simply unworkable.

For years, many governmental regulatorswere in a status-quo mode with respect to thenews business because this “mature” industry wasundergoing little fundamental change. Printingpressess and TV broadcasts were the unrivaledpurveyors of the news. Now, though, federal, stateand local governments are being forced to revisittheir policies toward the news industry becausethe industry is being transformed.

More fundamental: Is a new form of govern-ment intervention prudent, and necessary, toensure that Americans have access to the kind ofinformation they need in a democracy? There’s asecond, potentially trickier question: If there issuch a need, is government capable, amid suchoverwhelming change in the news business, ofmaking choices that will make things better?

There are few obvious guiding stars, but twoseem clear. First, government has an extremelyimportant interest in what is now transpiring in thenews revolution. American government doesn’twork if citizens don’t have a robust supply ofreliable news and information. What’s playing outin the news business, then, is really in the realm ofa vital national interest. Our society can’t afford tolet policymakers be mere spectators while theseremarkable changes flash by. Second, policymakersshould not shy away from considering new invest-ments in news and information. Government hassupported the news industry for more than 200years, but is now reducing much of its aid even asthe news business is fighting for survival. It’sentirely appropriate and prudent, then, for govern-ment to consider new forms of assistance.

Many ideas have been thrown into thehopper: establishment of a WPA program forout-of-work journalists; revision of tax laws toallow newspapers to become nonprofits; taxcredits for taxpayers who subscribe to newspapers;


What happens to the body ofregulations formulated by theFederal CommunicationsCommission when a cellphonevideo can have wider viewer-ship than the evening newscast?

an antitrust-law timeout to allow publishers toform a common strategy; new federal investmentin digital research.

Congress and the administration should alsothink anew about its public broadcasting andinternational broadcasting policies. Here are twoideas worthy of consideration:

• Increase government funding of publicbroadcasting. News coverage on public radio andTV has the highest trust ratings of any Americanmedia. At the same time, U.S. tax support forpublic broadcasting is minuscule compared tomany European and Asian countries. In short,policymakers have in public broadcasting analmost sure-fire bet for strengthening the qualityand scope of news and information.

• Relax restrictions on domestic consumptionof news reports by Voice of America, RadioFree Europe/Radio Free Liberty and othergovernment-funded international broadcasters.These broadcasters have talented journalists inbureaus around the world, and the United Statesspends half again as much on international broad-

casts aimed at foreign audiences as it spends onpublic broadcasting. Yet these entities are barredby law from distributing their news reports to anAmerican audience.

Case in point: A Minnesota radio stationwanted to run broadcasts by the VOA’s Somaliservice so that its audience – mainly Somalis whowere getting news from other entities broadcastingin the Somalian language – would hear reports by areliable source of news. Adhering to a law adopted60 years ago, the VOA was forced to say no. In anera when all Americans, including expatriatepopulations, have access to both outstanding newssources and propaganda from around the world, itmakes little sense to deny them excellent reportsfunded by the United States.Technology is makingthis prohibition mostly obsolete. It’s no longerpossible to quarantine newscasts by VOA,RFE/RL, Alhurra and others, which are gaining abig domestic audience on the Web. A recognitionof that reality would make this nearly $700 millionannual investment in news coverage more useful tothe American public.


Framework for government action

As policymakers debate how to respond to the fast decline of the news business,we offer the following principles as guidance:

• First and foremost, do no harm. A cycle of powerful innovation is under way. Tothe extent possible, government should avoid retarding the emergence of new modelsof newsgathering.

• Second, the government should help promote innovation, as it did when theDepartment of Defense funded the research that created the Internet or when NASAfunded the creation of satellites that made cable TV and direct radio and TV possible.

• Third, for commercial media, government-supported mechanisms that are content-neutral – such as copyright protections, postal subsidies and taxes – are preferable to thosethat call upon the government to fund specific news outlets, publications or programs.

However policymakers proceed, they should do so based on facts rather thanmyths. The government has always supported the commercial news business. It doesso today. Unless the government takes affirmative action, though, the level of supportis almost certain to decline at this important time in the history of journalism.

NOTES

1 David Lieberman, “McClatchy to buy KnightRidder for $4.5 billion,” USA Today, March 13,2006. http://bit.ly/5DUldV2 James Rainey and Michael A. Hiltzik, “Ownerof L.A. Times files for bankruptcy,” Los AngelesTimes, Dec. 9, 2008. http://bit.ly/IpMup3 Robert MacMillan, “Philadelphia papers’ ownerfiles for bankruptcy protection,” Reuters, Feb. 23,2009. http://bit.ly/8xsFDI4 David Phelps, “Star Tribune files for Chapter 11bankruptcy,” Minneapolis Star Tribune, Jan. 16,2009. http://bit.ly/7GeJ0G5 Paper Cuts Web site. http://bit.ly/7UsDQH6 “U.S. newspaper ad revenue down 28 percent,”Agence France Press, Nov. 20, 2009.7 Alan Mutter, “Record plunge: newspaper circ atpre-WWI level,” Reflections of a Newsosaur,Oct. 26, 2009. http://bit.ly/3OrYu5

8 The State of the News Media, March 2009.http://bit.ly/IHBVX9 Erik Sass, “Weeklies Suffer Big Declines in PaidCirc,” Media Daily News, Sept. 9, 2009.http://bit.ly/5T3cvS10 Paper Cuts Web site. http://bit.ly/7UsDQH11 Howard Kurtz, “As Mainstream Exits D.C.,Niche Media Tide Rises,” The Washington Post,Feb. 11, 2009. http://bit.ly/4dkX12 Mizell Stewart III, “Newspaper Bailout? NoThanks,” Evansville Courier & Press, Jan. 11,2009. http://bit.ly/8o3pbG13 Thomas F. Pounds, “No Bailouts,” Toledo FreePress, May 7, 2009. http://bit.ly/5wTGar14 Noam Cohen, “Blogger, Sans Pajamas, RakesMuck and a Prize,” The New York Times, Feb. 25,2008. http://bit.ly/4OXkBH15 John Borland, “Bloggers Drive Hoax ProbeInto Bush Memos,” CNET, Sept. 10, 2004.http://bit.ly/4n5rYE


A complete copy of this report is available online at www.fundingthenews.org.

The website also features supplemental research into eight specific areas: postalrate subsidies, tax policy, broadband expansion, international broadcasting, publicbroadcasting, public notice requirements, copyright laws and antitrust regulations.

In addition, the website includes links to current proposals for governmentintervention and links to public hearings and other action on these issues.

ACKNOWLEDGMENTS

The authors wish to recognize researchers fromthe University of Southern California whosework formed the heart of this report.

Ariel Fox described how copyright and otherintellectual property policies inform the debateover monetizing digital news.

Rahul Nilakantan investigated tax policy at bothfederal and state levels and also researched thehistory of postal subsidies granted to publishers.

Shawn Powers researched three areas of Americandomestic policy: public broadcasting, inter-national broadcasting and U.S. broadband policy.

MatthewWeber developed a history of antitrustpolicy with respect to the news industry, andwrote about public-notice mandates.

Readers will find their work informed andilluminating. All eight of their working paperscan be found at the project Web site,www.fundingthenews.org.


About the Center on Communication Leadership & Policy

Based at the USC Annenberg School for Communication & Journalism, the Center onCommunication Leadership and Policy conducts research and organizes courses, programs,

seminars and symposia for scholars, students, policymakers and working professionals to prepare futureleaders in journalism, communication and other related fields. CCLP focuses its activities in two areas:1) The Role of Media in Democracy and 2) Communication Leadership. Current projects include:Public Policy and the Future of News; New Models for News; The Constitution and the Press; Mediaand Political Discourse; Children’s Media and Ethics; Women and Communication Leadership; andPhotographic Empowerment..

Staff

Geoffrey Cowan, directorGeoffrey Baum, managing directorKelsey Browne, project specialist

Fellows

Distinguished FellowWarren Bennis

Senior FellowsNeal BaerJeremy CurtinDan GlickmanCinny KennardAdam Clayton Powell IIIKit RachlisRichard ReevesOrville SchellDerek ShearerDavid WestphalNarda Zacchino

Faculty FellowsSasha Anawalt, journalismTom Hollihan, communicationChristopher Holmes Smith, communicationMichael Parks, journalismPhil Seib, journalism/public diplomacyStacy Smith, communicationRoberto Suro, journalism

Law FellowAriel Fox

Junior FellowsMonica AlbaRebecca Shapiro

734 W. Adams BoulevardLos Angeles, California 90089-7725www.communicationleadership.org

Business

Public Policy and Funding the News