Public Policy and Funding the News

A Project of the USC Annenberg Center on Communication Leadership & Policy

Introduction

money
by Geoffrey Cowan

At a time when the financial model for news is facing the greatest crisis in decades, the level of government funding for news organizations has been declining sharply. Unless a new approach is created, that decline is likely to accelerate. Yet most commentators, including members of the press, seem unaware of the level of government support that journalism has enjoyed throughout our nation’s history, or of the ways in which it is now disappearing. This report begins the process of documenting the cutbacks and presenting a possible policy framework for the future.

The sharpest cuts have come in the level of postal subsidies for news, which have been┬áreduced by more than 80 percent over the last four decades. Thanks to the visionary leadership of George Washington and James Madison, mailing costs were heavily subsidized by the government for the first 180 years of our nation’s history – from the Postal Act of 1792 to the Postal Reorganization Act of 1970. In 1970, the Postal Service subsidized 75 percent of the cost of periodical mailings. Today, the subsidy has fallen to just 11 percent. In today’s dollars, that’s a decline from nearly $2 billion in 1970 to $288 million today. Magazines that would still be profitable under the arrangement established by our founders are now closing at a precipitous rate.

Public and legal notices have also been an important source of revenue for the publishing industry throughout American history. Thanks to legislation and regulations adopted at every level of government, they remain a huge source of revenue today.They provide hundreds of millions of dollars to periodicals ranging from local daily and weekly papers to national publications such as The Wall Street Journal. But inevitably they will be reduced and eliminated, superseded by advances in new technology. Cash-strapped government agencies are asking courts and legislative bodies to allow them to make the switch to the Internet. Legislation to allow a transition to the Internet has been introduced in at least 40 states, and in some the switch to the Web is under way. Arizona school districts, for example, are now free to publish their yearly budgets on their own Web sites, avoiding costly placement in local newspapers. President Obama’s Department of Justice recently proposed a similar transition. While lobbyists and lawyers for some media companies are trying to block these changes, a day of reckoning is clearly on the horizon. The loss in revenue will be substantial.

Print publications of all kinds also benefit from a wide range of tax breaks that have been specifically designed to help news outlets. There are special tax provisions in the federal tax code and in most states. Collectively, they account for hundreds of millions in lost tax revenues. For example, the federal tax code has provisions for the special treatment of publishers’ circulation expenditures as well as special rules for magazine returns. Those two sections of the code account for a loss of $150 million in taxes – or a subsidy of $150 million for the industry. Tax breaks at the state level, including favorable treatment of newsprint and ink, amount to at least $750 million. The actual amount is probably much higher because many states don’t report separate data for publishers. How long those preferences will persist is anyone’s guess.

In a variety of ways, the government has also helped to assure the financial stability of broadcasting, cable and the Internet. Broadcasters were given their licenses for free; part of the trade-off for a free license, however, was the explicit requirement that the station use some of its resources to provide news and information to the audiences it served. Cable news channels are the direct beneficiaries of FCC rules that allow cable operators to bundle services, requiring every cable subscriber to pay a fee to MSNBC,CNN and Fox News – whether they want them or not. Those subscriber fees are more important than advertisements in funding the bottom line of all three cable news outlets. Until recently, none of the over-the-air broadcasters (including public 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 cable subscriber to decide whether to pay for Fox or for MSNBC or for CNN. That change would have had a dramatic impact on the business model for cable news. As news migrates to broadband, it seems inevitable that the business model for those news outlets – and the assured stream of subscriber revenue – will change.

Internet entrepreneurs have benefited from the huge federal investment in creating the Internet, and are about to benefit from billions in the stimulus package that will be spent on broadband. By extending high-speed Internet to consumers who do not yet have it, the government will be helping consumers migrate online at the expense of conventional print and broadcast outlets. In addition, new-media entrepreneurs, including many bloggers and news providers, benefit from the Internet Tax Moratorium, a federal 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 the Internet.

Cable news channels are the direct beneficiaries of FCC rules that allow cable operators to bundle services, requiring every cable subscriber to pay a fee to MSNBC, CNN and Fox News – whether they want them or not.

There are scores of other ways in which the government helps to support the gathering and dissemination of news. The best-known forms of support are the financing of public broadcasting in the United States and of Voice of America, Radio Free Europe/Radio Liberty and other outlets for audiences abroad. According to the Corporation for Public Broadcasting, about $1.14 billion of the $2.85 billion spent on public broadcasting (or about 40 percent of the total funding for public broadcasting) comes from federal and state government sources. Much of the funding for the major PBS news programs – “NewsHour” and “Frontline” – comes from the government, through the Corporation for Public Broadcasting. The Corporation for Public Broadcasting also provides special funds for programs on urgent and controversial topics, such as NPR’s coverage of the Iraq war.

Some who read this report will feel that the government does too much to support news and that it should start at once to end those forms of support that already exist. That group may include people who are concerned about federal and state deficits, those who think the news media are biased, and those who think that as a matter of principle and practice there should be a firm wall between the government and the news media, much as there is a wall between church and state.

While the authors of this report respect these points of view, we have a different perspective. We think the press is vital to democracy. Washington and Madison were right when they insisted that the government fund a robust postal system, partly to deliver news to the nation’s farflung population, and they were right to create postal subsidies to assure that the public 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 believed in laws that would enhance the press, including those providing for postal subsidies, public notices and other devices that would help to ensure financial stability. The authors of the Federal Communications Act and the early members of the FCC were right to require that stations provide news and public affairs coverage in return for receiving a federal license to broadcast. Those who wrote the Public Broadcasting Act were correct when they found a way to fund public broadcasting, and the credibility of government-funded news on public radio and public television stands as a testament to their wisdom.

Government should explore new and enhanced ways to support the production of news and information, as it has throughout our nation’s history.

We live in an era of profound technological change that threatens many forms of news media. We do not favor government policies that keep dying media alive. But we do believe that during this transition period, government should explore new and enhanced ways to support the production of news and information, as it has 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 paid for work that might otherwise be used without permission or compensation (which is one reason why the founders provided for copyright laws in the Constitution).
  2. Most government funding should be indirect, rather than direct (as it is through the Corporation for Public Broadcasting and through participating public radio and television stations).
  3. Where possible government funding should be distributed according to a formula rather than as a direct subsidy for particular news outlets (as is the case with tax breaks and postal subsidies).
  4. The government can play an important role by investing in technology and other innovations, as it did when it supported research on transistors, on satellite technology and on the Internet.

Above all, we urge an honest debate that recognizes the vital role that the government has played throughout our history and that it continues to play today. It would be a public tragedy to wake up one day and discover that news outlets are in even deeper trouble because hundreds of millions of dollars of public support had disappeared while no one was watching.