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

Geoffrey Cowan David Westphal

About the Authors

Geoffrey Cowan, director of the Center on Communication Leadership & Policy, dean emeritus of the
USC Annenberg School and USC University Professor, holds the Annenberg Family Chair in
Communication Leadership. Cowan served under President Clinton as the director of the Voice of
America and director of the International Broadcasting Bureau. In other public service roles, he served
on the board of the Corporation of Public Broadcasting, chaired the Los Angeles commission that
drafted the city’s ethics and campaign finance law, and chaired the California Bipartisan Commission
on Internet Political Practices.
Cowan is the Walter Lippmann Fellow of the American Academy of Political and Social Science
and an elected member of the American Academy of Arts and Sciences. He chairs the California
Healthcare 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 the
Press, Politics, and Public Policy at Harvard’s Kennedy School of Government. A graduate of Harvard
College 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 executive
in residence at the USC Annenberg School. Until joining USC in fall 2008 he was Washington editor
of McClatchy Newspapers, the nation’s third largest newspaper company. Westphal joined McClatchy
in 1995 as deputy bureau chief and was named bureau chief in 1998. With McClatchy’s purchase of
Knight Ridder in 2006, he became editor of the combined Washington bureaus and the McClatchy
Tribune News Service. Previously, he was managing editor of The Des Moines Register in Iowa for almost
seven 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.
 Public Policy and Funding the News 1

Introduction as The Wall Street Journal. But inevitably they will

be reduced and eliminated, superseded by
by Geoffrey Cowan advances in new technology. Cash-strapped
government agencies are asking courts and

A t a time when the financial model for news

is facing the greatest crisis in decades,
the level of government funding for news organ-
legislative bodies to allow them to make the
switch to the Internet. Legislation to allow a
transition to the Internet has been introduced in
izations has been declining sharply. Unless a new at least 40 states, and in some the switch to the
approach is created, that decline is likely to Web is under way. Arizona school districts, for
accelerate. Yet most commentators, including example, are now free to publish their yearly
members of the press, seem unaware of the level budgets on their own Web sites, avoiding costly
of government support that journalism has placement in local newspapers. President
enjoyed throughout our nation’s history, or of the Obama’s Department of Justice recently proposed
ways in which it is now disappearing. This report a similar transition. While lobbyists and lawyers
begins the process of documenting the cutbacks for some media companies are trying to block
and presenting a possible policy framework for these changes, a day of reckoning is clearly on the
the future. horizon. The loss in revenue will be substantial.
The sharpest cuts have come in the level of Print publications of all kinds also benefit
postal subsidies for news which have been from a wide range of tax breaks that have been
reduced by more than 80 percent over the last specifically designed to help news outlets. There
four decades. Thanks to the visionary leadership are special tax provisions in the federal tax code
of George Washington and James Madison, and in most states. Collectively, they account for
mailing costs were heavily subsidized by the hundreds of millions in lost tax revenues. For
government for the first 180 years of our nation’s example, the federal tax code has provisions for
history – from the Postal Act of 1792 to the the special treatment of publishers’ circulation
Postal Reorganization Act of 1970. In 1970, the expenditures as well as special rules for magazine
Postal Service subsidized 75 percent of the cost of returns. Those two sections of the code account
periodical mailings. Today, the subsidy has fallen for a loss of $150 million in taxes – or a subsidy of
to just 11 percent. In today’s dollars, that’s a $150 million for the industry. Tax breaks at the
decline from nearly $2 billion in 1970 to $288 state level, including favorable treatment of
million today. Magazines that would still be newsprint and ink, amount to at least $750
profitable under the arrangement established by million. The actual amount is probably much
our founders are now closing at a precipitous rate. higher because many states don’t report separate
Public and legal notices have also been an data for publishers. How long those
important source of revenue for the publishing preferences will persist is anyone’s guess.
industry throughout American history. Thanks to In a variety of ways, the government has also
legislation and regulations adopted at every level helped to assure the financial stability of broad-
of government, they remain a huge source of casting, cable and the Internet. Broadcasters were
revenue today. They provide hundreds of millions given their licenses for free; part of the trade-off
of dollars to periodicals ranging from local daily for a free license, however, was the explicit
and weekly papers to national publications such requirement that the station use some of its
2 Public Policy and Funding the News

resources to provide news and information to the

audiences it served. Cable news channels are the Cable news channels are the
direct beneficiaries of FCC rules that allow cable
operators to bundle services, requiring every cable
direct beneficiaries of FCC rules
subscriber to pay a fee to MSNBC, CNN and Fox that allow cable operators to
News – whether they want them or not. Those bundle services, requiring every
subscriber fees are more important than adver- cable subscriber to pay a fee to
tisements in funding the bottom line of all three MSNBC, CNN and Fox News
cable news outlets. Until recently, none of the
over-the-air broadcasters (including public
– whether they want them or not.
broadcasting stations) received a single dollar
from cable subscriber revenue. If the FCC had
followed the suggestion of former Chairman
Kevin Martin, it would have adopted so-called a
la carte cable rules that would have allowed each in the United States and of the Voice of America,
cable subscriber to decide whether to pay for Fox Radio Free Europe/Radio Liberty and other
or for MSNBC or for CNN. That change would outlets for audiences abroad. According to the
have had a dramatic impact on the business Corporation for Public Broadcasting, about $1.14
model for cable news. As news migrates to broad- billion of the $2.85 billion spent on public
band, it seems inevitable that the business model broadcasting (or about 40 percent of the total
for those news outlets – and the assured stream of funding for public broadcasting) comes from fed-
subscriber revenue – will change. eral and state government sources. Much of the
Internet entrepreneurs have benefited from funding for the major PBS news programs – the
the huge federal investment in creating the “NewsHour” and “Frontline” – comes from the
Internet, and are about to benefit from billions in government, through the Corporation for Public
the stimulus package that will be spent on broad- Broadcasting. The Corporation for Public
band. By extending high-speed Internet to con- Broadcasting also provides special funds for
sumers who do not yet have it, the government programs on urgent and controversial topics, such
will be helping consumers migrate online at the as NPR’s coverage of the Iraq war.
expense of conventional print and broadcast out- Some who read this report will feel that the
lets. In addition, new media entrepreneurs, government does too much to support news and
including many bloggers and news providers, that it should start at once to end those forms of
benefit from the Internet Tax Moratorium, a support that already exist. That group may
federal law that, according to some estimates, include people who are concerned about federal
reduces taxes by $3 billion a year.1 At some point, and state deficits, those who think the news
it seems likely that Congress will decide to tax the media is biased, and those who think that as a
Internet. matter of principle and practice there should be a
There are scores of other ways in which the firm wall between the government and the news
government helps to support the gathering and media, much as there is a wall between church
dissemination of news. The best-known forms of and state.
support are the financing of public broadcasting
 Public Policy and Funding the News 3

While the authors of this report respect these

points of view, we have a different perspective.
We think the press is vital to democracy.
Government should explore
Washington and Madison were right when they new and enhanced ways to
insisted that the government fund a robust postal support the production of news
system, partly to deliver news to the nation’s far- and information, as it has
flung population, and they were right to
create postal subsidies to assure that the public
throughout our nation’s history.
was informed. The authors of the First
Amendment were right when they created a
document that banned any law “respecting”
freedom of religion, but only banned laws that
“abridge” freedom of the press. The founders 2. Most government funding should be
believed in laws that would enhance the press, indirect, rather than direct (as it is through the
including those providing for postal subsidies, Corporation for Public Broadcasting and through
public notices and other devices that would help participating public radio and television stations).
to ensure financial stability. The authors of the 3. Where possible it should be distributed
Federal Communications Act and the early according to a formula rather than as a direct
members of the FCC were right to require that subsidy for particular news outlets (as is the case
stations provide news and public affairs coverage with tax breaks and postal subsidies).
in return for receiving a federal license to broad- 4. The government can play an important
cast. Those who wrote the Public Broadcasting role by investing in technology and other
Act were correct when they found a way to fund innovations, as it did when it supported research
public broadcasting, and the credibility of govern- on transistors, on satellite technology, and on the
ment-funded news on public radio and public Internet.
television stands as a testament to their wisdom. Above all, we urge an honest debate that
We live in an era of profound technological recognizes the vital role that the government
change that threatens many forms of news media. has played throughout our history and that it
We do not favor government policies that keep continues to play today. It would be a public
dying media alive. But we do believe that tragedy to wake up one day and discover that
during this transition period, government should news outlets are in even deeper trouble because
explore new and enhanced ways to support the billions of dollars of public support had
production of news and information, as it has disappeared while no one was watching.
throughout our nation’s history.
When possible, we also think that:
1. The government should find ways to
make sure that reporters, news organizations and
other content creators are compensated for work
that might otherwise be stolen (which is one
reason why the founders provided for copyright
laws in the Constitution).
4 Public Policy and Funding the News

Some public agencies which have provided

direct or indirect support to news organizations
 Public Policy and Funding the News 5

Research Findings
by David Westphal

News Media in Crisis

Bad times for ad revenues

M ost people did not see the tidal wave

coming. In June 2006 McClatchy
purchased Knight Ridder for $4.5 billion plus
Newspaper advertising revenue is in a
free fall, down 27 percent between 2005
and 2008—and the results from the first
$2 billion in debt.2 It promptly sold off some of nine months of 2009 are even worse.
Knight-Ridder’s biggest papers (Philadelphia,
San Jose, St. Paul and Akron) to investors who 2005: $46.7 billion
also didn’t see it coming. The following year Sam
Zell took his own ill-fated leap, acquiring Tribune
Co. in a $13 billion deal financed almost entirely 2006: $46.6 billion
by borrowed money. It would take only 12
months for Zell to take Tribune into Chapter 11 2007: $42.2 billion
bankruptcy court.3 The hometown owners of the
Philadelphia Inquirer would make the same choice
not quite three months later.4 About the same 2008: $34.7 billion
time a private equity firm, Avista Capital
Partners, which purchased the Minneapolis Star 2009: $17.9 billion (thru 9/30)
Tribune from McClatchy, took that newspaper
into Chapter 11. (It emerged from bankruptcy Source: Newspaper Association of America
court eight months later.)5
The speed with which these blockbuster
deals came back to haunt their buyers suggests
the nightmarish conditions that have swamped revenues and earnings into a tailspin. All legacy
the newspaper industry in the last few years, and media were buffeted by the rapid advance of
wreaked havoc as well at many magazines and Web-based and other digital technology that
broadcast outlets. More than 100 newspapers increasingly pulled consumers from traditional
shut down in 2009.6 Most were small, but some media. In the case of newspapers, the Web’s
big newspapers shuttered as well, including the impact was particularly brutal because it robbed
Rocky Mountain News and the Seattle Post- them of most of their classified ads, which by far
Intelligencer. The casualty list is almost certain to were their most profitable form of revenue. Jeffrey
grow. Klein, a former top executive at the Los Angeles
News businesses have always been susceptible Times, has said that in some years classified ads
to the ups and downs of the economic cycle, so provided all of the Times’ profit margin.
the violent downturn of 2008 and 2009 was These are among the numbers that have
certain to knock them for a loop. But that was rocked the news business and eliminated tens of
only part of what was sending their stock prices, thousands of jobs:
6 Public Policy and Funding the News

• Newspaper advertising revenue, down 9.4

percent in 2007, dropped a dramatic 17.7 percent
in 2008. The picture grew even worse in 2009,
It is possible to imagine a future
with ad revenue down 28 percent through the news ecology that will be much,
first three quarters.7 much richer than the one we are
• The decline of newspaper circulation also leaving behind. Yet it is unclear
accelerated, with the number of subscribers
falling below pre-World War II totals, when the
whether that vision will really
country’s population was half that of today’s.8 emerge, or if it does, how long it
• Audiences for network evening news shows will take to happen.
also continued to slide, even in a robust presidential
election year. The broadcast networks averaged 23
million viewers in 2008. Less than two decades
earlier, the networks had double that audience,
even with an overall population that was 20 foreign bureaus. Newhouse, Copley, Media
percent smaller.9 General and Cox all shut down their Washington
• The major weekly news magazines also bureaus.12 Cox closed its foreign bureaus as well.
experienced falling circulation, though not at the Virtually every news organization that main-
steep levels of many newspapers. Newsweek was tained a state capital presence pulled back.
down 25 percent, and Time was off 18 percent, Statehouses like those in Denver and Des
between 2002 and 2009. U.S. News & World Moines, which once housed 25 to 35 reporters
Report discontinued weekly publication and shifted each, were down to five or six.
its traditional news operations to the Web.10 If this were the end of the story, some sort of
Economic recessions have often resulted in emergency federal response might be in order.
newsroom staff reductions, but this one took a But it is not. New news sources are emerging at a
gigantic toll. Editors made round after round of rapid pace, from local community news sites to
newsroom cuts. Many who survived endured Facebook news groups to national investigative
wage freezes, or cuts, or mandatory furloughs, or nonprofits. It is possible to imagine a future news
all of the above. Vacations were reduced. Pensions ecology that will be much, much richer than the
were eliminated; company matches on 401(k) one we are leaving behind. Yet it is unclear
plans were terminated. According to the Web site whether that vision will really emerge, or if it
Paper Cuts, newspapers eliminated nearly 15,000 does, how long it will take to happen. In the short
jobs in 2009.11 Not atypical was the experience of run, as news resources in legacy media continue to
the Los Angeles Times, whose newsroom in 2009 shrink, there are questions about Americans’
was less than half its size a decade earlier. ability to get critical news about the government
Most publications also drastically reduced and the world, and, at this moment of uncertainty,
news pages. Editors trimmed stock listings and what role the government should play.
TV books years ago, but now they were forced to
reduce or eliminate many of their prized
sections – books, arts, business, local news. Most
also took a mighty whack at state, national and
 Public Policy and Funding the News 7

The Government and the News Media development. The ups and downs of local radio
news are a case in point. For decades the Federal

T hroughout American history, the federal

government has worn many hats in its
relationship with the press and the news industry:
Communications Commission required broad-
casters to carry news programs as part of their
public-interest obligation, including programs about
watchdog of power among news business owners; important local issues. But those requirements
consumer advocate championing the news and have long since been eliminated. Today local radio
information needs of underserved or neglected news is a rare occurrence. All-news stations are
communities; affirmative action catalyst for present in most large metropolitan areas, but in
extending employment and ownership opportu- many small to mid-size cities, talk-radio programs,
nities to minorities and women; regulator of the most of them syndicated national shows, are the
public airwaves; and provider of both direct and only remnant of the heyday of radio news.
indirect subsidies that have been important pieces The government has had impact of that
of the news industry’s economic health. magnitude across a wide swath of American
State and local governments have also had media, from the granting of licenses for radio and
been benefactors of the news business. Often television broadcasts worth billions of dollars, to
they have provided subsidies such as income tax investments in infrastructure and technology that
deductions and credits. Local municipalities have have expanded, and helped create, mass audiences
allowed newspaper vendor boxes on city side- for the news. A new burst of infrastructure
walks, often charging no fee. In other cases the development is currently under way, with the
benefits have been indirect. One example: Nearly federal government spending at least $7 billion to
all states have enacted shield-law protection expand and upgrade high-speed Internet across
for reporters against prosecutors’ subpoenas, the country. This massive bet on new media may
something the federal government has so far well be a smart investment that will produce
declined to replicate. long-term benefits for the nation’s news and
This rich menu of news media policies, information needs. But in the short run, at least, it
statutes and regulations has fluctuated significantly will work to the disadvantage of print publishers
over the course of the nation’s history, following and broadcasters, who need time to make the
the swings of political sentiment and technology transition to digital platforms.

“Take money from the government?

I don’t like to let anyone else pick up
the check.”

—Mizell Stewart III, editor of the

Evansville (Ind.) Courier & Press,
in a Jan. 11, 2009, editorial titled
“Newspaper Bailout? No Thanks”
8 Public Policy and Funding the News

Often journalists themselves aren’t aware of

Postal subsidies plummet
how much the legacy news businesses have
benefited – and continue to benefit – from the
As Postal Service subsidies for mailed
support of government at all levels. “Take money newspapers and magazines decline …
from the government?” wrote Mizell Stewart III,
editor of the Evansville (Ind.) Courier & Press. “I
don’t like to let anyone else pick up the check.”13 1967: $1.97 billion
Similarly, Thomas Pounds, president and
2006: $288 million
publisher of the Toledo Free Press, wrote of a
Sources: U.S. Postal Service, Congressional Research Service
government bailout for the news media: “Not 1 (Note: Figures expressed in 2009 dollars.)
cent of government money should be spent.”14
It’s true that the United States government … publishers now shoulder nearly all costs
of mailing newspapers and magazines.
has never supported news-gathering to the extent
some countries have. Government support for
Subsidy level
American public broadcasting, for example,
amounts to cents on the dollar compared to many 1971: 75 percent
European and Asian countries. The same is true
for government support of newspapers. In 2009, 2006: 11 percent
for example, French President Nicolas Sarkozy Source: U.S. Government Printing Office

announced that free, one-year newspaper

subscriptions would be given to those reaching
their 18th birthdays – an initiative that is close to
unthinkable in the United States. France also is today’s dollars). This benefit, in combination with
weighing a proposal to tax Internet portals like other government supports such as tax breaks and
Google to even the playing field between Internet paid public notices, amounted to a substantial
aggregators and news content providers. financial boon for American news publishers. The
At the same time, it’s not true that the U.S. Postal Reorganization Act of 1970 marked a turning
government doesn’t spend money supporting point. The landmark legislation immediately
American news business. It has always provided reduced publishers’ mailing subsidy by about half,
significant financial support. What’s salient now and ever since, government’s financial support for
is that those investments are in decline. the commercial news business has been falling.
Today, as many newspapers struggle for survival,
As the news industry wavers, the government appears certain to reduce its
government support declines support still further by moving public notices to
the Web.

T he late 1960s marked a high-water mark for

the government’s financial support for the
news business. At the time, the postal service was
These declines have not been a result of a
concerted policy to reduce government subsidies
and other financial support for the news
subsidizing about three-fourths of the mailing business. Rather, they emerged from government
costs of newspapers and news magazines, at a cost funding problems and from the development of
of about $400 million a year (nearly $2 billion in technology that paved the way for reduced
 Public Policy and Funding the News 9

support. Nevertheless, the impact is clear. At a Commission created in 1970, charged with
time when news businesses are fighting to ensuring that periodicals, along with all other
survive, the government has been reducing long- classes of mail, cover the “direct and indirect
standing forms of support. Unless it changes postal costs attributable to that class or type.”
course, that support is likely to continue declining. Over the next four decades that principle would
eat deeper and deeper into the historical subsi-
dies enjoyed by news publishers. In one recent
Postal rates round of rate increases, small news magazines
were particularly hard-hit. Former publisher

L ong before the United States was founded,

the Postal Service was subsidizing the news
business. It was in good measure the free-mailing
Victor Navasky said The Nation’s mailing costs
shot up $500,000 in a single year – and came at
a time when the magazine was already losing
privileges conferred by many postmasters that more than $300,000 a year.
allowed a robust network of colonial newspapers Today, publishers’ discounts for their printed
to emerge. George Washington wanted all news- news products are down to 11 percent – less than
papers, in fact, to have 100 percent subsidized one-sixth of the level four decades earlier. Almost
mailing costs. The Postal Act of 1792 rejected all of this benefit today goes to magazines.
the idea of a total subsidy, but it codified highly Meanwhile, newspapers’ total-market-coverage
subsidized and extremely low rates. advertising products are charged at rates that
What brought a halt to publishers’ receiving exceed postal service costs by $300 million. With
75 percent discounts on their mailed news the Postal Service facing a 2010 deficit
products was the financial crisis that engulfed the estimated at $7 billion, prospects appear high that
Postal Service in the late 1960s. Congress newspaper and news magazines will continue to
eventually decided to turn the post office into a experience increasingly higher rates.
quasi-private enterprise, to reduce the level of
government support and to get out of the rate-
making business. Thus was the Postal Regulatory Public notices

Legal notices have been L ike postal subsidies, paid public notices trace
their American origins to colonial days. And
like postal subsidies, public notices mandated by
especially important to weekly the government have been a critical component of
and other community news- economic stability for newspapers. Yet they are
papers. Their trade association, almost certain to shrink drastically as a source of
high-margin revenue for the commercial media.
the National Newspaper
Governments at all levels are beginning to switch
Association, estimated in 2000 their public notices to the Web, a move that at
that public notices accounted for best means sharply reduced billings for publishers,
5 to 10 percent of all community and at worst means they could lose the business
newspaper revenue. altogether.
Public notices are government-required
10 Public Policy and Funding the News

announcements that give citizens information get a share of the public-notice revenue in
about important activities. In most cases govern- Virginia, a circuit court judge in Norfolk said it
ment mandates these notices of itself or of “may be an opportune time for the General
subordinate governments; in other cases they Assembly to revisit the issue of notice by
establish publication requirements for private- publication in light of the variety of electronic
sector concerns. Typical public-notice laws apply means of mass communication available.” The
to public budgets, public hearings, government media industry has beaten down many of these
contracts open for bidding, unclaimed property, initiatives so far, but in a clear indication of future
and court actions such as probating wills and trends, the shift is beginning to happen. The
notification of unknown creditors. Public agencies Obama administration’s Justice Department
have required paid publication of this kind of announced in 2009 that it would move federal
information for decades as a way to ensure that asset forfeiture notices to the Web, saving $6.7
citizens are informed of critical actions. million over five years.
Historically, these fine-print notices have
been a lucrative business for newspaper publishers,
and have touched off heated bidding wars for State and federal tax breaks
government contracts. Legal notices have been
especially important to weekly and other
community newspapers. Their trade association,
the National Newspaper Association, estimated
A lso likely to decline are some of the tax
breaks given to news publishers, particularly
those tied to sales and use tax breaks for
in 2000 that public notices accounted for 5 to 10 newsprint, ink and other print-related expenses
percent of all community newspaper revenue. that are becoming a smaller part of the publishing
While other forms of advertising have business. All told, federal and state tax laws
plummeted, public notices have been a bright spot forgive more than $900 million annually in taxes
for publishers. Although small newspapers are the related to newspapers and magazines. Print pub-
chief beneficiaries of public notices, nearly all lications received about $150 million in federal tax
newspapers benefit to some extent. The Wall Street breaks in the 2008 fiscal year – favorable rules for
Journal, for example, has a contract with the expensing circulation expenditures (worth about
government to print seized-property notices. In a $100 million) and special treatment of magazine
four-week study, we discovered that the returns (worth about $50 million).
government was the top purchaser, by column Most of the money from tax breaks comes at
inches, of ad space in the Journal. It’s a business the the state level. An analysis of tax data published
newspaper would like to expand. In 2009 it was in 37 of the 50 states showed that newspapers and
battling with Virginia-area papers to get its regional magazines received state tax breaks of nearly $800
edition certified to print local legal notices. million in 2008. The largest amount, $625 million,
But the era of big money in public notices is for a tax exemption on the sales of newspapers
will almost certainly fade away. Proposals have and magazines, and in some states from the sale
been introduced in 40 states to allow local and of advertising services. The other tax break, total-
state agencies to shift publication to the Web, in ing $165 million annually, comes from exempting
some cases to the government’s own Web sites. sales and use taxes on newsprint, ink, machinery
Responding to The Wall Street Journal’s efforts to and related manufacturing equipment. Eleven
 Public Policy and Funding the News 11

states did not report or tabulate industry-specific The cumulative effect of reduced government
data, so the actual total of state tax breaks for support is not the primary problem afflicting
newspapers and magazines could well exceed news businesses today. Newspapers alone have
$1 billion annually. Some of these tax breaks are lost more than $20 billion in revenue in the last
more valuable to the news business than others. three years; at most the reduction in government
For example, only a portion of the tax exemption assistance amounts to a few billion dollars. Yet
on newspaper and magazine sales represents a they represent building blocks for economic
monetary benefit. However, these tax preferences survival, and the cutbacks land harder on some
still provide a tangible subsidy, and all result in than others. Small businesses have been particular
revenue losses for the government. targets. Reductions in postal subsidies and,
prospectively, public notices fall particularly hard
on weekly newspapers and small magazines.
Further, they raise this question for policy-
Federal and state tax laws makers: If two centuries of government assistance
forgive more than $900 million for the news business are disappearing, and
annually in taxes related to disappearing at a particularly difficult time for
newspapers and magazines. publishers, are there steps government should
now take to make certain democracy’s information
Print publications received about
needs continue to be met?
$150 million in federal tax
breaks in the 2008 fiscal year.
Digital media to the rescue?

At least one state has recently taken action to

increase its tax subsidies to newspapers. In 2009,
with one of its largest newspapers (the Seattle
T he Internet is both an existential threat to the
survival of mainstream media, particularly the
printed sheet, and a powerful reason to be hopeful
Post-Intelligencer) about to cease publication, about the future of news and information. The
Washington state enacted a $1.3 million tax Web’s promise of being the electronic connector
break for the state’s newspapers. Gov. Christine for all humanity means it may evolve into a
Gregoire, signing the legislation, acknowledged superlative vehicle for providing the information
that it amounted to a token subsidy for a citizens need. Instead of a few publishers, there
statewide industry with hundreds of millions in are millions. Instead of one-way communication
revenue. “The industry has to right itself, and there is two-way, and multiple-way. Instead of a
government can’t and won’t be a part of it right- single medium there are many – text, audio, still
ing itself,” she told the Associated Press. “But I images, video, animation. Instead of regularly
don’t want government to be part of the reason scheduled broadcasts and newspaper and mail
that this industry can’t make it.” David Zeeck, delivery there is never-ending information. In
publisher of the News Tribune of Tacoma, said the theory at least, no voice need be unheard in an
legislation would save his newspaper about absolutely wired world. As Clay Shirky so
$100,000 – enough to save the jobs of two eloquently described in the title of his book, Here
reporters. Comes Everybody.
12 Public Policy and Funding the News

While the World Wide Web is not yet 20 the death of Neda, who was a mere observer of the
years old, it has quickly shown what cyberspace Iranian protest, went from a passerby’s cellphone
can do to the quality of news and information to tens of millions of viewers in a flash.
Americans receive. Today, a user almost anywhere Even some of the reporting arenas that have
in the world can have instant access to tens of seemed most threatened because of cutbacks in
thousands of information sources. With few mainstream news organizations have shown
exceptions, all of the journalism of big global strength in the digital space. Foremost is the field
news organizations is available, from The New of investigative reporting, an expensive but vital
York Times to the BBC to China Daily. But that endeavor that newspapers and broadcast outlets
only scratches the surface. Most small to medium- have abandoned in large numbers in recent years.
size news organizations are present on the Web To the surprise of many, investigative work has
as well. And even that is dwarfed, in size, by been taken up by a growing number of nonprofits
millions of bloggers who have joined the ranks of at national, state and local levels. Also of some
publishers. While some are adding little to the surprise, foundations have provided increasing
store of global knowledge, many others are funding for nonprofit Web sites that are filling
contributing important morsels that add up to some of the gaps left by a shrinking mainstream
giant storehouses. Two cases in point: It was media. These developments have led Dan
bloggers contributing information to Talking Gillmor, a visionary in the digital news world, to
Points Memo that helped it report on the firing of declare that there’s no longer any doubt about the
nine U.S. attorneys in the Bush administration.15 success of new media. “I’m completely sure we’re
And it was bloggers who discovered that CBS’ going to make this transition just fine,” Gillmor
“60 Minutes” had relied on bogus information in told a journalism educators conference in Boston.
questioning the National Guard service of former Should the future be as bright as Gillmor
President George W. Bush.16 believes, there may not be a need for government
The digital revolution has added or enriched to play a role in slowing down or blocking the
new forms of journalism: fact-checking sites that meltdown of newspapers, news magazines and
let citizens go to trusted sources to sort out other players in the news business. Someday we
competing claims; microlocal reporting on may look back and wonder why anyone worried
communities and neighborhoods that had been about losing a news industry that proved to be
too small to be served by traditional media; vast significantly inferior to the one that replaced it.
source material, including Wikipedia and original For now, though, it’s too early to know whether
transcripts; historical data from governments and the digital world’s potential will be fulfilled, and
other institutions. whether as-yet unobserved problems could derail
All of these riches are flooding into a this movement. If everybody is coming, as Shirky
networked world that is only starting to says, we don’t yet know when they’ll arrive or
demonstrate what can happen when individuals what will happen when they do. Shirky, among
and groups are in touch with everyone else. The others, believes we’re entering a period when
2009 public rallies and protests in Iran illustrate accountability reporting has been severely
the power of individual witnesses to tell stories if reduced, and government corruption could run
only they were attached to the grid with a Twitter rampant. At a minimum, our society needs a good
or Facebook account. The gripping video showing contingency plan.
 Public Policy and Funding the News 13

Government’s challenge
What happens to the body of
P olicymakers at every level of government
face a challenge that has taxed anyone who
has sought to understand the revolutionary
regulations formulated by the
Federal Communications
changes affecting the news business. The Commission when a cellphone
emergence of digital news and broadband
video can have wider viewer-
connectedness has turned longstanding principles
and assumptions on their head. What does it do
ship than the evening newscast?
to antitrust regulation when news dissemination
is distributed among millions of online producers?
What happens to the body of regulations More fundamental: Is a new form of govern-
formulated by the Federal Communications ment intervention prudent, and necessary, to
Commission when a cellphone video can have ensure that Americans have access to the kind of
wider viewership than the evening newscast? information they need in a democracy? There’s a
What does the Federal Trade Commission do second, potentially trickier question: If there is
when confronted with an overwhelming volume such a need, is government capable, amid such
of publicly available messages that run the gamut overwhelming change in the news business, of
from fact to fabrication? Who is a journalist? making choices that will make things better?
Who is not? There are few obvious guiding stars, but two
A body of laws and regulations governing the seem clear. First, government has an extremely
news industry has grown up at the Justice important interest in what is now transpiring in the
Department, the Federal Communications news revolution. American government doesn’t
Commission and the Federal Trade Commission work if citizens don’t have a robust supply of
over many decades; much of it is outdated. What reliable news and information. What’s playing out
applied to an industry with a relatively small in the news business, then, is really in the realm of
number of players is no longer good policy for a a vital national interest. Our society can’t afford to
news ecology with millions of publishers. There let policymakers be mere spectators while these
are, for example, questions about the validity of remarkable changes flash by. Second, policymakers
cross-ownership rules designed to ensure multiple should not shy away from considering new invest-
news voices in communities. Technology is ments in news and information. Government has
making some old statutes simply unworkable. supported the news industry for more than 200
For years, many governmental regulators years, but is now reducing much of its aid even as
were in a status-quo mode with respect to the the news business is fighting for survival. It’s
news business because this “mature” industry was entirely appropriate and prudent, then, for govern-
undergoing little fundamental change. Printing ment to consider new forms of assistance.
pressess and TV broadcasts were the unrivaled Many ideas have been thrown into the
purveyors of the news. Now, though, federal, state hopper: establishment of a WPA program for
and local governments are being forced to revisit out-of-work journalists; revision of tax laws to
their policies toward the news industry because allow newspapers to become nonprofits; tax
the industry is being transformed. credits for taxpayers who subscribe to newspapers;
14 Public Policy and Funding the News

an antitrust-law timeout to allow publishers to casts aimed at foreign audiences as it spends on

form a common strategy; new federal investment public broadcasting. Yet these entities are barred
in digital research. by law from distributing their news reports to an
Congress and the administration should also American audience.
think anew about its public broadcasting and Case in point: A Minnesota radio station
international broadcasting policies. Here are two wanted to run broadcasts by the VOA’s Somali
ideas worthy of consideration: service so that its audience – mainly Somalis who
• Increase government funding of public were getting news from other entities broadcasting
broadcasting. News coverage on public radio and in the Somalian language – would hear reports by a
TV has the highest trust ratings of any American reliable source of news. Adhering to a law adopted
media. At the same time, U.S. tax support for 60 years ago, the VOA was forced to say no. In an
public broadcasting is minuscule compared to era when all Americans, including expatriate
many European and Asian countries. In short, populations, have access to both outstanding news
policymakers have in public broadcasting an sources and propaganda from around the world, it
almost sure-fire bet for strengthening the quality makes little sense to deny them excellent reports
and scope of news and information. funded by the United States. Technology is making
• Relax restrictions on domestic consumption this prohibition mostly obsolete. It’s no longer
of news reports by the Voice of America, Radio possible to quarantine newscasts by VOA,
Free Europe/Radio Free Liberty and other RFE/RL, Alhurra and others, which are gaining a
government-funded international broadcasters. big domestic audience on the Web. A recognition
These broadcasters have talented journalists in of that reality would make this nearly $700 million
bureaus around the world, and the United States annual investment in news coverage more useful to
spends half again as much on international broad- the American public.

Framework for government action

A s 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. To
the extent possible, government should avoid retarding the emergence of new models
of news-gathering.
• Second, the government should help promote innovation, as it did when the
Department of Defense funded the research that created the Internet or when NASA
funded 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 those
that call upon the government to fund specific news outlets, publications or programs.
However policymakers proceed, they should do so based on facts rather than
myths. The government has always supported the commercial news business. It does
so today. Unless the government takes affirmative action, though, the level of support
is almost certain to decline at this important time in the history of journalism.
 Public Policy and Funding the News 15

NOTES 9 The State of the News Media, March 2009,

http://bit.ly/IHBVX
1 Former Senator Fred Thompson, “Keep the 10 Erik Sass, “Weeklies Suffer Big Declines in

Internet Free,” Real Clear Politics, Oct. 17, 2007. Paid Circ,” Media Daily News, Sept. 9, 2009.
2 David Lieberman, “McClatchy to buy Knight http://bit.ly/5T3cvS
Ridder for $4.5 billion,” USA Today, March 13, 11 Paper Cuts Web site. http://bit.ly/7UsDQH

2006. http://bit.ly/5DUldV 12 Howard Kurtz, “As Mainstream Exits D.C.,

3 James Rainey and Michael A. Hiltzik, “Owner Niche Media Tide Rises,” The Washington Post,
of LA Times files for bankruptcy,” Los Angeles Feb. 11, 2009. http://bit.ly/4dkX
Times, Dec. 9, 2008. http://bit.ly/IpMup 13 Mizell Stewart III, “Newspaper Bailout? No
4 Robert MacMillan, “Philadelphia papers owner Thanks,” Evansville Courier & Press, Jan. 11,
files for bankruptcy protection,” Reuters, Feb. 23, 2009. http://bit.ly/8o3pbG
2009. http://bit.ly/8xsFDI 14 Thomas F. Pounds, “No Bailouts,” Toledo Free
5 David Phelps, “Star Tribune files for Chapter 11 Press, May 7, 2009. http://bit.ly/5wTGar
bankruptcy,” Minneapolis Star Tribune, Jan. 16, 15 Noam Cohen, “Blogger, Sans Pajamas, Rakes

2009. http://bit.ly/7GeJ0G Muck and a Prize,” The New York Times, Feb. 25,
6 Paper Cuts Web site. http://bit.ly/7UsDQH 2008. http://bit.ly/4OXkBH
7 “U.S. newspaper ad revenue down 28 percent,” 16 John Borland, “Bloggers Drive Hoax Probe

Agence France Press, Nov. 20, 2009. into Bush Memos,” CNET, Sept. 10, 2004.
8 Alan Mutter, “Record plunge: newspaper circ at http://bit.ly/4n5rYE
pre-WWI level,” Reflections of a Newsosaur,
Oct. 26, 2009. http://bit.ly/3OrYu5

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

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

In addition, the website includes links to current proposals for government

intervention and links to public hearings and other action on these issues.
About the Center on Communication Leadership & Policy

B ased at the USC Annenberg School for Communication & Journalism, the Center on
Communication Leadership and Policy conducts research and organizes courses, programs,
seminars and symposia for scholars, students, policymakers and working professionals to prepare future
leaders 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; Media
and Political Discourse; Children’s Media and Ethics; Women and Communication Leadership; and
Photographic Empowerment..

Staff Fellows

Geoffrey Cowan, director Distinguished Fellow

Geoffrey Baum, managing director Warren Bennis
Kelsey Browne, project specialist
Senior Fellows
Neal Baer
Jeremy Curtin
Dan Glickman
Cinny Kennard
Adam Clayton Powell III
Kit Rachlis
Richard Reeves
Orville Schell
Derek Shearer
David Westphal
Narda Zacchino

Faculty Fellows
Sasha Anawalt, journalism
Tom Hollihan, communication
Christopher Holmes Smith, communication
Michael Parks, journalism
Phil Seib, journalism/public diplomacy
Stacy Smith, communication
Roberto Suro, journalism

Junior Fellows
Monica Alba
Rebecca Shapiro
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