Washington State Gives Newspapers A Tax Break – Have They Earned It?

Philip M. Stone May 14, 2009 Follow on Twitter

Depending on your role within a newspaper there are two prevailing views on whether the media deserves tax breaks because of their dire economic circumstances. The editorial pages insist that for newspapers to remain honest they shouldn’t accept governmental financial help; publishers on the other hand say that for newspapers to remain in business they’ll take help from wherever they can find it.

Thus mixed reviews that the governor of Washington State has signed into law a 40% cut in the state’s main business tax for the state’s newspapers that is expected to save them around $1.5 million each year through 2015. Not really a lot of money but it’s something, but does this now mean the newspapers are in the pockets of the politicians? Certainly not, but there is some unease that those who are supposed to be critical of government are actually receiving favors from government. A little too cozy? But then again, newspapers are a business, and what business out there isn’t somehow trying to reduce tax obligations?

Perhaps because of that conundrum that’s why the state’s largest newspaper, The Seattle Times, downplayed the tax break news offering just four brief paragraphs and making clear in the first paragraph that the tax help for newspapers was in a similar vein to what the state has done in the past for the timber industry and Boeing.

Meanwhile in the other Washington on the East Coast, the Senate Committee on Finance is taking a look at the Newspaper Revitalization Act, a Bill introduced by Senator Benjamin Cardin of Maryland (think Baltimore Sun now in bankruptcy) that would allow newspapers to operate as non-profit entities if they so chose, meaning the subscription and advertising revenues would be tax-free, and thus more to spend on good journalism. But there is a catch – those non-profit newspapers would not be allowed to endorse candidates for political office.

That has the editorial writers across the land sounding a hue and cry. A typical example comes from the Lancaster Eagle Gazette in Ohio that wrote, “Senator Cardin’s bill would take the teeth out of a newspaper’s right to freedom of speech and opinion.”  It concluded, “The answer to the newspaper’s financial problems is not to introduce a Bill to make them tax exempt. This is solely for churches and nonprofit organizations …even though, accidentally, many newspapers might now be considered nonprofit. We need freedom of speech for newspapers and that includes their opinion, just as you can read on this very page.”

Publishers, however, are not so quick to dismiss government help even if the non-profit route may not the way to go if there are journalistic strings attached. Jim Moroney, publisher of the Dallas Morning News, testified before that Senate subcommittee last week, merely asking that Congress passes a Bill that has been introduced that would allow all companies, not just newspapers, to offset 2008 and 2009 losses against the past five year’s earnings. That could mean some hefty tax refunds.

Moroney  also wants newspapers to have more antitrust exemptions so they can share new ideas and collaborate on business models – antitrust doesn’t like competitors talking about, or agreeing upon  pricing --  but the Obama Administration has already told Congress it doesn’t favor further antitrust latitude for newspapers.

And he also wants legislation to ensure that newspapers can get fair compensation from online news aggregators. “If the newspaper industry acted in concert, there might be an opportunity then for all of us to have our own intra-industry level playing field, and then be able to go to, en masse as an industry, to the Googles and so forth, and say we want to be paid for consent to take our information.”

All of that was pooh-poohed by David Carr in The New York Times who wrote, “Government bailouts, including special tax status, seem likely to kill independent journalism, not save it. A free press that serves at the pleasure of its government is a diminution of the intent of the founders (of the Constitution) and not, by the way, a free press.” Still, with all the financial troubles at the New York Times Company one would love to hear how Arthur Sulzberger feels about getting some additional tax breaks.

Senator Cardin, testifying before the subcommittee saw it differently to the editorial writers. “A change to non-profit status would not mean government control of the media. It would not bring about the end of the First Amendment and free speech. Religious and educational groups operate as non-profits without government interference. A newspaper operating as a non-profit would continue to freely report on all issues, including political campaigns. It would just refrain from making political endorsements.”

That last sentence may well be a sentence too far and even if the Bill got passed there would probably be few takers.

Meanwhile Dean Singleton’s MediaNews Group has announced it’s not waiting around for any government help and is going to rectify something that probably got newspapers into all this trouble in the first place – giving away all their news for free on the Internet.

Singleton’s note to staff really summed up the problems facing newspapers today and his solutions sound just about right. Here’s how he described the problems, “We face three daunting challenges that needed to be addressed. First, we continue to do an injustice to our print subscribers and create perceptions that our content has no value by putting all of our print content online for free. Not only does this erode our print circulation, it devalues the core of our business - the great local journalism we (and only we) produce on a daily basis. Second, our interactive revenue growth has slowed because it has been too closely tied to our print classified business, which has suffered with the advent of Craigslist and other free online classified opportunities. Finally, we are not significantly extending the reach of our audience, as our online products too closely resemble the newspaper, and thus fail to meaningfully reach the next generation of readers.”

And the solutions: “We will begin to move away from putting all of our newspaper content online for free; We will begin differentiating our sites from the newspaperand focus on strategies designed to reach younger audiences and extend our reach; We will build a new local utility site (Local.com), which is an ecosystem of local information, resources, user content, shopping guides, and marketplaces. This site will be focused on a younger audience as well as other targeted audiences based on demographics which are attractive to our current and potential advertisers.”

Singleton has been vicious in cutting newsroom numbers at his newspapers, so it’s questionable whether he really has the staff to produce “the great local journalism” required to make all of this work, but the philosophical thinking is solid.

And if there were some tax breaks that came his way from Congress, well, doubtful he would turn them down, either, if the conditions were not too onerous.