The first financial impact of COVID-19 on local news is clear: As businesses have closed, they’ve stopped advertising, prompting news organizations to lay off, furlough or cut the pay of journalists — right when the public is turning to local news more than ever.
But there is a likely secondary effect that will make things even worse: further consolidation of the newspaper industry. Distressed industries tend toward consolidation, and with newspaper balance sheets spattered with red ink, analysts like Ken Doctor are predicting more mergers.
This is particularly worrisome since the acquisition of newspapers by private equity and hedge funds has contributed mightily, along with the digital disruption of advertising, to the decline of local news. Some 680 newspapers are owned or controlled by a handful of hedge funds, according to soon-to-be-released data collected by Penny Abernathy at the University of North Carolina Chapel Hill. If McClatchy and Tribune Publishing end up in that same boat, as seems probable, then by the end of the year more than 55% of the daily newspaper circulation in America will be in newspapers owned by financial institutions.
The fear of excessive consolidation is oddly bipartisan. Attorney General William Barr recently decried media consolidation and praised the olden days when “the press was so fragmented that the power of any one organ was small” and a multiplicity of newspapers “cultivated a wide variety of views and localized opinion.”
Consolidation has also led to a cutback of reporting resources in American communities. Abernathy summarized the role of hedge funds: “The standard operating formula often included aggressive cost-cutting … the sale or shuttering of under-performing newspapers, and financial restructuring, including bankruptcy. At the most extreme, their strategies have led to the closure of hundreds of local papers and diminished the important civic role of newspapers.”
We need to uproot some of these newspapers and replant them into more hospitable ground. And we need to then nurture locally-owned and nonprofit news organizations.
What would a replanting strategy look like?
First, we need a temporary moratorium on newspaper consolidation to prevent more harm.
Second, along with that stick, let’s offer a big carrot: tax incentives for newspaper chains and private equity firms to give up some of their (now financially even more troubled) titles instead of shutting or gutting them.
For instance, we could allow a supercharged charitable tax deduction for companies that donate a newspaper to a local nonprofit or convert an existing paper into a nonprofit organization. We could allow them to claim a deduction based on the previous value of the newspaper rather than the current (stinky) market value, and we could allow them to carry over the tax benefits for several years. And — forgive me for getting into the tax policy weeds here — we could make it so that such a conversion is not a taxable event.
Or, the newspaper company could get an extra tax credit if they sell to a B corporation or other mission-oriented for-profits.
Third, we need to help those, and other, nonprofit local news organizations develop a real chance to develop successful business models. Nonprofit news organizations should be able to take advertising without jeopardizing their nonprofit status — and consumers should be able to count the purchase of a subscription as a charitable donation on their taxes. And the IRS should once and for all count journalism as a legitimate public purpose — making it easier to convert a newspaper to nonprofit status, or start one from scratch. Never again should an organization have to delete the word “journalism” to get approval, as has happened in the past.
Efforts to steer government advertising toward local news, which I applaud, must have an extra safeguard: A significant portion of the local share should go to locally-owned or nonprofit media. That would strengthen one of the local news revenue legs.
We could also experiment with more direct, content-neutral funding.
Imagine a fund modeled after the successful experiment called NewsMatch. More than a dozen foundations pooled money and provided matched dollars that local nonprofit news organizations had raised from the community. The government could drop some money into that fund, which would help local news without necessarily entailing political interference.
Finally, someone — the government? A benevolent billionaire? — should create a well-endowed deconsolidation fund to help, well, fertilize all of this replanting. This would help facilitate the conversion of newspapers to nonprofit status, hire bankruptcy lawyers to guide the process, act as a holding company to buy-and-donate broke newsrooms, and provide some transition capital for the news organizations.
Replanting as nonprofits won’t solve all of the problems facing local news organizations. The new entities would still need to decide whether to continue publishing print editions, how to collect revenue from members or subscribers, whether to convert to digital-only, and how to strengthen their local charitable fundraising. Being a nonprofit could give them an additional revenue stream, donations, but that likely can’t be the only one.
Realistically, some of the newspapers currently owned by mega-chains are too far gone to be saved. Their brands, editorial staffs and reach have shrunk too much. In those cases, it will be better to start something new from scratch. In other cases, the local newspapers owned by chains may still be doing great work, and should continue.
We have already had a handful of successful cases where newspapers have either converted to nonprofit or become part of an existing nonprofit, including The Salt Lake Tribune, The Philadelphia Inquirer and the Tampa Bay Times.
If even, say, 20% of the newspapers could be replanted, that would mean hundreds more setting down roots in their communities and doing great journalism.