This topic is back in the news because of the rapid economic decline of newspapers, news magazines and many broadcast outlets. Amid deepening concern about the impact on our democracy, some are calling on the government to get involved. Leonard Downie and Michael Schudson were among the latest, urging limited government aid to support the cause of news and information. The Federal Trade Commission is among the federal agencies wading in, scheduling discussions Dec. 1-2 to gauge whether government intervention is needed.
The truth is that American government and the news business have always been joined at the hip, and not just through the government's copyright protections, restrictions on anti-competitive practices and regulation of the public airwaves. It's also through the infusion of tax dollars.
The Postal Service's subsidy of mailing costs for newspapers and magazines, which dates back to colonial America and the Postal Act of 1792, is often raised as Exhibit A. Less well known is just how large this subsidy was – and how much it has shrunk. As recently as the late 1960s, the government was forgiving roughly three-fourths of print publications' periodical mailing expenses, at a cost of about $400 million annually (or, adjusted for inflation, about $2 billion today). Much of that disappeared with the Postal Reorganization Act of 1970 and in subsequent cutbacks. But the Post Office still discounts the postage cost of periodicals by about $270 million a year.
Postal subsidies, though, are just the start of the story. Federal and state governments forego about $890 million a year on income and sales tax breaks to the newspaper industry, most of it at the state level. The actual figure is probably much higher because many states don't report tax expenditure details.
Another major form of government support comes through public-notice requirements, which also have their roots in colonial America. These laws require cities, counties and school districts, along with state and federal agencies, to buy advertising space in newspapers to disclose a range of government actions – such as plans for a new school. Take a look at the Wall Street Journal, for example, and you’ll usually find a page or more of federally paid and mandated ads – in impossibly small print -- announcing property seizures. Those are public notices, and nationwide they bring in hundreds of millions of dollars in revenue.
But all three of these categories are shrinking. For example, legislation has been introduced in 40 states to move public notices to the Web, and the Department of Justice has already announced it will shift property-forfeiture notices from newspapers to its own Web site. The impact would be another blow to newspapers, especially small ones: In 2000, the National Newspaper Association estimated that public-notice billings accounted for 5-10 percent of newspaper revenue.
Surprisingly, the authors don't mention three other virtual subsidies, each of them applied in California as in most other states.
• The federal Newspaper Preservation Act of 1970, reportedly signed by President Nixon as a reluctant favor for the editorial support of the Hearst newspaper chain in his 1972 re-election campaign, which allowed daily newspapers in the same city—San Francisco and many others—to combine their business operations (advertising, production, circulation) into a single joint enterprise, sharing the revenue under a "joint operating agreement" (JOA) while preserving their independent reporting and editorial work under their own mastheads. The law thus exempted the JOA partners from the antitrust laws, which otherwise would have prohibited pooling of enterprise between such competitors. The typical effect was to give the weaker of the pair in any given city a few years' extra survival before folding—a decline documented ten years ago— and meanwhile to undercut ad revenue for other competing media in the local market. There may have been studies of just how big a gift this was to participating dailies—especially those that eventually went under—but it had to have been sizeable.
• Another major subsidy enjoyed for most of the 20th Century by newspapers in California and other states—the sales tax exemption—was repealed nearly two decades ago as a legislative effort to close an earlier budget gap, with the promise that it the exemption would be reinstated when the state's revenues improved otherwise. But it never was.
• A third unmentioned effective subsidy comes in the area of circulation costs. Since the Nineteenth Century "paper boys" or "newsies" have been classified by publishers as independent contractors—"little merchants"—rather than employees. Employees are subject to the wage and hour laws, including the minimum wage and overtime, to workers compensation liability, to payroll taxes and other economic benefits and protections that are not extended to independent contractors. The latter are considered to be in business for themselves and to have parity of bargaining power with the publisher. This legal fiction applied to newspaper carriers is not the result of legislation but rather of the lack of legislation or administrative rulemaking deeming these people to be employees—more than a century's restraint that is a remarkable tribute to newspapers' lobbying powers. But as more and more carriers are no longer youngsters on bikes but adults—often immigrants—in motor vehicles, the myth of the little merchant is hard to sustain, and the grownups have begun demanding to come in out of the cold—through court action. The Orange County Register last year settled a five-year lawsuit by carriers seeking employee status. They did not get that status, but then the newspaper's parent company had little to celebrate, either, having recently filed for bankruptcy protection.