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Newspapers as non-profits?
A newspaper company, like a public broadcaster, could be organized as a not-for-profit, tax-exempt corporation. It could still sell papers and advertising, it could still develop new Internet revenues, it would still pay market wages and salaries (or maybe better), it could re-invest in improving its own staff and facilities and operations, it just couldn't make a profit. And it wouldn't pay taxes or dividends.
Here is more. As newspaper ads move to the web, draining a key source of revenue, I see a few options:
1. Subscription finance with high prices and few ads. A bit like the Financial Times. Of course this means fewer newspapers and fewer newspaper pages. On the plus side, fewer articles would continue on other, distant pages.
2. Sleazy tabloids. But the competition with the Internet remains.
3. Some clever newspaper coup to take over Web processing of commercial information and leapfrog over ebay and Craigslist.
4. Web products evolve into customized, print-on-demand newspapers. A some major newspapers survive by going the hybrid route, or by merging with their web competitors. "What is a newspaper?" becomes a question of degree and we needn't mourn the lack of pure newspapers.
5. Non-profits would take in revenue and also raise donations by selling access to social and political networks. What would a date with Maureen Dowd go for?
6. Extremely partisan, low-cost "rag" newspapers, akin to 19th century U.S. experience, and paid for by subscription. Advertisers seek to offend nobody, and thus exert a centrist influence over newspaper content.
I place virtually no weight on option #3. Comments are open.
Posted by Tyler Cowen on December 10, 2005 at 07:12 AM in Economics | Permalink
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Comments
I suspect big city (1 million plus) newspaper subscriptions will increasingly come to resemble NPR or ballet theater season ticket subscriptions -- that is, signalling devices that one belongs to the "proper" social group. Small town papers will increasingly come to resemble community theatre and other semi-commercial "hobby" type economic activities -- more as an outlet for creativity and a place for full-time volunteer types. People who actually want timely information quickly will continue to migrate to craigslist, google, and other internet venues.
P.S. Your blogads bar overlaps the comments textbox on IE6, making it impossible to see the rightmost 15 characters of each line that you are typing. That makes it pretty hard to proof your comments!
Posted by: Matthew Cromer at Dec 10, 2005 9:45:47 AM
The proposed dodge does not work. First, there has
to be a tax exemption approved. That exemption
will have to meet certain criteria. Generating
a product doesn't fit (see Section 501(C) of the
IRC).
Please check the IRS Form 990-T: Unrelated
Business Income. This is essentially the same as
the corporate tax. So, now where is the saving?
Posted by: Paul McMahon at Dec 10, 2005 10:48:36 AM
Newspapers could become profitable again if they offered something that was useful. Unfortunately, most of the newspapers in the country have forgotten their job - to tell the news. Look at the local papers - many of which seem to be very profitable - they stick to their job.
One other comment. The post on §501 (c)(3) is a bit off. Nonprofits can offer products or services. There are some complicated rules about competing with the for profit entities. (See the Mueller Macaroni case where a university inherited a company that made macaroni and the courts said you can't do that without paying taxes.) But there are lots of places in society where c3s offer a service or product. But the basic idea that newspapers should go into this realm is loopy.
Posted by: drtaxsacto at Dec 10, 2005 11:26:08 AM
What would a date with Maureen Dowd go for?
Just one datum: I'd pay about $250 to avoid one.
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Posted by: Andrew at Dec 10, 2005 12:15:14 PM
The Scott Trust, a non profit trust, owns the Guardian and the Observer.
Posted by: dsquared at Dec 10, 2005 2:40:34 PM
In our area, we have a big paper, which is losing money, and a small weekly city paper, which makes money and is free. The money-making paper strictly sticks to local news and sports or local-angle news (town soldiers in Iraq, etc), while 95% of the articles in the big paper are wire-service copy you can get off the Internet. Not sure what this indicates generally, other than something to do with "narrow-casting" and local focus.
The problem with highly partisan newspapers is they would compete directly with the blogosphere, which is both highly partisan and more knowledgable than your typical journalist on the topics they blog about.
Posted by: Foobarista at Dec 10, 2005 4:57:26 PM
Our subscription to the Denver Post recently came up for renewal. Seven days per week of the dead-tree implementation costs $150/yr. Seven days per week of the subscription Internet implementation -- part of the user interface to which consists of PDF images of the paper pages -- is $30/yr. This UI is acceptable for the Mon-Sat issues, but is too clunky on Sunday when the page count is high. In between is the online edition plus home delivery of the Sunday paper version for $50/yr.
As a local news source and other content aggregator, the Post is not worth $150/yr. We do find them to be worth $30/yr for that service. At least at the present time, we're also willing to pay them $20/yr for the paper version on Sunday for the social pleasure of sitting together at the breakfast table for part of an hour and passing the sections back and forth.
I suspect that there is a finite window of time where they can provide the content aggregation function. At some point clever software is going to be able to customize an aggregation for me at a lower subscription price. I believe there's a substantial market for an 11x17" or so wireless e-paper reader that can be propped up on the kitchen table :^)
Posted by: Michael Cain at Dec 10, 2005 6:19:27 PM
One correction (to the linked article, not Tyler): Nonprofits can, of course, earn profits; what they can't do is distribute them to owners. This leads to important organizational differences (which might well explain why newspapers tend not to be nonprofits), but not intrinsic limitations on what the entity can do/make/sell.
Posted by: geoff manne at Dec 10, 2005 7:05:43 PM
Newspapers as a non-profit? You don't have to pay taxes if you don't have net income. If you are making money what is your chairitable purpose.
IRC Sec. 501(c)(3) allows an exemption for:
Corporations ... organized and operated exclusively for
religious, charitable, scientific, literary, or educational purposes ...
no part of the net earnings of which inures to the benefit of any private individual,
no substantial part of the activities of which is attempting to influence legislation
and which does not participate in any political campaign.
====================
Arguably, you might be able to run a newspaper for a litterary or educational purpose. However, being forced to shun political campaigns nor advocating legislation would kill most newspapermen in this country.
"What would a date with Maureen Dowd go for?"
$500, for the pistol and the ammo with which to shoot yourself.
Posted by: Robert Schwartz at Dec 10, 2005 10:29:01 PM
"fewer articles would continue on other, distant pages."
This is one of many reasons why the Financial Times is my paper of choice. I like being able to read it linearly (or actually from front to back) without page jumping. I find front page 'continued on...' to be obnoxious now in comparison.
Fewer high placement ads = higher cost per ad, less paper to print, and a presentation that caters the reader. Of course it takes an economics newpaper to figure that out!
I also like the idea of some sort of at home printing, or at least more options to have any paper printed locally and delivered. My copies of the FT are printed in San Francisco and arrive in my Hawai'i mailbox the following day. Reading about things that happened two days ago is getting less and less tolerable in the internet age.
Posted by: Bryan G at Dec 11, 2005 4:23:23 AM
oops
that should read "linearly (or actually from back to front)"
Posted by: Bryan G at Dec 11, 2005 4:25:13 AM
#4. There is no loneger much of an efficiency gain from having an entire newspaper. It used to be you needed the resources to print a million copies. Now all you need to do is post to the internet. This means more efficiency via division of labor. I can choose where to get my sports info, my style info, my business info, and my headlines (all different sources). The newspaper will fade from importance and thats a good thing.
Posted by: joshg at Dec 12, 2005 9:40:38 AM
The major newspaper can appear as non-profit, selling bulk subscriptions to an organization at a reduced price, which would re-sell a customized version to suit the interests of the readers. It would have to be for the bulky Sunday paper only, focusing on reducing people's waste and unwanted sections. It would be an organization set up to reduce paper consumption. In a perfect world the newspapers would agree to allow the org to have access to their system and be able to print only the sections on demand, specific to each subscriber. The subscribers would get a tax deduction with the sale of the subscription. This would help the newspapers sell subscriptions at a higher volume (using less paper), support their on-line endeavors from the popularity of being kind to the earth without having to sacrifice much. It would help the advertisers pin point who they're targeting since the sales would naturally give them a more specific idea of who is reading what.
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