CHICAGO (MarketWatch) – As a growing number of American newspapers halt daily publication or threaten to do so, U.S. Sen. Benjamin Cardin introduced legislation Tuesday that would allow newspapers to operate as non-profit organizations, providing significant tax breaks to the struggling industry.
Cardin, D-Md., said the decline of newspapers represents “a real tragedy for communities across the nation and for our democracy.” Under the proposal, newspapers could operate as non-profits, if they choose, under 501(c)(3) status for educational purposes, similar to public broadcasting.
Advertising and subscription revenue would be tax exempt and contributions to support coverage or operations could be tax deductible.
Such newspapers would not be allowed to make political endorsements, but would be allowed to freely report on all issues, including political campaigns.
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In a statement, Cardin acknowledged that consumers now have many other sources of news, but said the public relies on newspapers “for in-depth reporting that follows important issues, records events and exposes misdeeds. In fact, most if not all sources of journalistic information … gather their news from newspaper reporters who cover the news on a daily basis … It is in the interest of our nation and good governance that we ensure they survive.”
Cardin’s measure is not meant to preserve large newspaper conglomerates, his office said, but to “preserve local newspapers serving communities.”
No substantial loss of federal revenue is expected. Newspaper advertising revenues plunged 25% in 2008, according to Barclays Capital.
The St. Petersburg (Fla.) Times, founded in 1884, has been owned by a non-profit entity, the Poynter Institute, since 1978.
For decades, newspapers relied on classified advertising revenue to sustain themselves. With little competition for those dollars, profit margins of 30% or more were not uncommon, even as the 21st century began.
However, a number of factors have combined to take away this advantage. Using online classified sources such as Craigslist and Monster.com, consumers quickly discovered that they could find sortable, timely listings, and those who wanted to place the ads could do so far more cheaply than they could in newspapers. At the same time, readers of print newspapers began a steady shift toward online sources of news and information.
Still, while the economy was healthy, real estate and help-wanted classifieds were still strong for newspapers. Once the economy began to decline in 2007, however, those revenues began to erode.
And then, as various problems festered among traditionally heavy buyers of newspaper ads such as airlines, automakers and retailers, the newspaper industry was thrown into an abyss by the worldwide financial collapse triggered by the failure of Lehman Bros. (LEHMQ) last September.
Last week, Hearst Corp. opted to shut down the print operations of the Seattle Post-Intelligencer, turning it into a Web-only publication with a small editorial staff. In February, it warned that it might shut down the San Francisco Chronicle unless it could find a way to drastically cut operating costs.
Also in February, E.W. Scripps & Co. (SSP) shut down Denver’s Rocky Mountain News, while Philadelphia Newspapers LLC and Journal Register Co. (JRCOQ) filed for bankruptcy.
Last December, Tribune Co., publisher of the Chicago Tribune, the Los Angeles Times, the Baltimore Sun and other major dailies, filed for Chapter 11 bankruptcy protection. The parent of the Minneapolis Star-Tribune followed suit a month later. Also in January, Gannett Co. (GCI) , the largest U.S. newspaper publisher, said it would shut down the Tucson Citizen if it could not find a buyer for the publication.
By David B. Wilkerson
March 24, 2009
source: marketwatch.com