Subsidizing the Press

It is time for news organizations to begin making greater use of the nonprofit form

By David M. Schizer*

Fall 2011

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*A fuller version of this argument is available in the Spring 2011 issue of the Journal of Legal Analysis. Download the full article as a PDF.

Through beat reporting and investigative journalism, reporters monitor the foundational institutions of our society. This reporting has value even to those who never buy a newspaper or read a website. For example, subscribers and nonsubscribers alike benefit when government officials respond to a critical news story by eliminating an abusive practice. 

Yet, unfortunately, the professional press is experiencing a severe economic crisis. With the advent of the Internet, Craigslist and a host of other sites now compete with newspapers for classified and other ads. Revenue from print ads fell by 23 percent industry-wide from 2006 to 2008 and by another 30 percent in 2009. This is a body blow to the newspaper industry, since even the diminished total still represents 90 percent of all newspaper revenue. In addition, the proliferation of online content is not helping; only 8 percent of the industry’s advertising revenue comes from online ads, and the percentage has stopped growing. Unfortunately, subscription revenue has plummeted as well. The percentage of Americans who buy a daily newspaper is half of what it was in 1945, declining from 38 percent in 2006 to 30 percent in 2008.  According to the “Paper Cuts” blog, approximately 16,000 journalists lost their jobs in 2008, and another 17,000 in 2009. The newsroom was reduced by half at the Los Angeles Times, by 45 percent at The Star-Ledger, from 450 to 150 at The Baltimore Sun, and from 500 to 200 at the San Francisco Chronicle.

Distributing news online is much cheaper and dramatically lowers barriers to entry. Anyone can create a blog. Yet, unfortunately, the contribution of these new players to investigative and beat reporting has been limited. Relatively few Internet sites engage in original reporting; between 85 percent and 95 percent of all professionally reported news still originates with daily newspapers.

In response to this crisis, many commentators have called for government subsidies for the press. Yet if the press becomes financially dependent on the government, would they be deterred from monitoring and criticizing the government? If so, the subsidy would undercut some of the social benefits it is meant to preserve.

The answer to this conundrum is for news organizations to make greater use of the nonprofit form. This way, donors can make tax-deductible contributions to news organizations. The deduction for charitable contributions is a way of privatizing the allocation of funding for public goods, so the government piggybacks on the judgments of private philanthropists. This model is especially appealing when it is problematic for the government to allocate funds. In order to safeguard the separation of church and state, for example, we do not want the government to decide which religious organizations to fund. Instead, we delegate to individuals the ability to make tax-deductible contributions to their religious organization of choice. The same approach can be used to safeguard the “separation of press and state.” A nonprofit news organization is not owned by the government, and it does not have to ask the government for funding. As long as it can attract private donations, government funding comes indirectly and automatically. Because Congress plays no role in allocating this money, reporters and editors should not be deterred from investigating or criticizing the government.

Admittedly, this subsidy model presents a different concern about independence: the risk that private donors will influence which stories are covered and which viewpoints are expressed. Yet there is nothing new about the risk that private funders might seek to influence editorial matters. For-profit news organizations have controlling shareholders (e.g., the Sulzberger family, Rupert Murdoch), as well as advertisers, all of whom can try to use their financial leverage to influence editorial decisions. It is not clear why philanthropic donors pose a risk that is more significant or, indeed, particularly different than owners and advertisers. The main change is that a third class of financial supporters (donors) is added to the other two (owners and advertisers). If we judge the risk to independence as increasing with the number of players who provide financial support, then this is a step in the wrong direction. Yet this analysis is oversimplified, since increasing the number of financial supporters can lend diversification to the news organization, reducing the leverage of any individual and thus her ability to influence editorial matters.

Will tax-deductible contributions find their way to the highest quality news outlets? To determine which organizations receive government funding, this model relies on donors, instead of on readers, government officials, or a government-appointed board of experts. Although donors will vary in their sophistication, the fact that they are investing their own money will focus their minds, motivating them to think carefully about which organization deserves their support. 

It is worth noting that a number of successful nonprofit news organizations are already in existence. National Public Radio attracts 40 percent of its budget from foundation and corporate sponsors. The nonprofit independent newsroom Pro Publica recently became the first online news organization to win a Pulitzer Prize. Other well-known news nonprofits include Harper’s Magazine, Foreign Affairs, Foreign Policy, Washington Monthly, Ms. Magazine, Mother Jones, Consumer Reports, and National Geographic

These familiar organizations highlight a further advantage of using the nonprofit form for news: The subsidy for nonprofit news already is available, to a significant extent, under current law. The fact that no change in law is needed in order for this approach to come into wider use means that there is no need to sell the public on public support for news organizations. Unlike with other subsidy models, it is not necessary to single out news organizations for special treatment or to authorize a separate budget line for subsidizing them. The relevant tax benefit exists under current law and is offered to a broad class of institutions, from religious organizations and universities to orchestras and museums. News organizations should follow their lead as a way to safeguard their essential position within our democratic society.

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Illustration by Keith Negley