Federal Trade Commission Explores Newspaper Bailout

Published July 5, 2010

Reflecting its concerns that the Internet is undermining serious journalism, the Federal Trade Commission is examining avenues for taxing new media to support print media.

The FTC announced the project May 2009. On June 7 of this year the commission released a draft proposal, “Potential Policy Recommendations to Support the Reinvention of Journalism.” The FTC stated the proposal is for discussion purposes only and should not be considered a source for public policy recommendations or conclusions.

Many of the discussion points in the proposal, however, have elicited concerns the FTC might in decide to promote strategies that will introduce new taxes or dissolve the wall dividing government and journalism.

Doug Filaroski, a Pennsylvania business editor and reporter, said, “Like any private enterprise, journalism—though vital to a democracy—should be able to sustain itself without the government playing King Solomon.”

Seeking New Revenue Streams
Among the many topics addressed in the FTC proposal is the drop in print advertising revenue—the bread-and-butter of the journalism trade—which has been steadily occurring for several years as more and more people get their news from the Internet.

Measures to bolster the bottom line of the print journalism industry discussed in the proposal include a copyright tax on online news aggregators; sales taxes on electronics such as the Kindle and iPad used to read online media; taxes on Internet Service Providers; taxes on television and radio broadcast outlets; taxes on radio and television advertising; tax breaks and direct government subsidies to newspapers; initiation of a journalism division of AmeriCorps; instituting government grants to universities to promote investigative reporting; and providing more subsidies to the Corporation for Public Broadcasting.

Justifying Government Intervention
The proposal acknowledges journalism and government should be separated, but it goes to great lengths in attempting to prove there are long-established precedents of government intervention in the newspaper industry.

The report argues, “There are reasons for concern that experimentation may not produce a robust and sustainable business model for commercial journalism. History in the United States shows that readers of the news have never paid anywhere close to the full cost of providing the news. Rather, journalism always has been subsidized to a large extent by, for example, the federal government, political parties, or advertising.”

Edward J. López, associate professor of law and economics at San José State University, acknowledges government largesse in the journalism industry, noting that postal subsidies for shipping of print news were first enacted in 1792, tax breaks to newspapers for costs incurred to increase circulation, and direct funding of public radio and television.

However, Lopez asserts: “History shows us repeatedly that public goods are often and perhaps even usually provided voluntarily—without mandate or subsidy from government.”

Lopez stated that toll charges have been sufficient incentives to build roads and bridges for centuries, and that beekeepers and orchard growers found ways to contract and cooperate with each other to provide more of two goods – honey and flowers — that have classic potential free-rider problems.

“Another example is casino hotels in Las Vegas providing free self-parking and security,” Lopez continued. “Even law enforcement itself is not a public good. Neighborhood police forces have survived on a fee-for-service basis in San Francisco, of all places, for over 150 years.”

‘Drudge Tax’
The proposed copyright tax on aggregators—also known as the “Drudge tax,” named for the popular Internet news aggregator—would require online “free riders” who provide synopses and links to original stories to pay fees to “hot news” (independently researched and written) sources by amending the Copyright Act to allow the licensing of news and narrow the definition of fair use.

The draft proposal also suggests exempting hot-news institutions from antitrust litigation when determining fees for free riders.

Although both would undoubtedly raise revenues for news producers at the expense of free riders, López notes these strategies would “encourage in all likelihood collusion in charging end users and online news aggregators.” 

‘It’s Redistribution of Wealth’
New taxes on broadcasters, electronics, and the Internet could backfire, warns NetChoice policy counsel Braden Cox. Cox notes additional taxes would weigh down parts of the media industry in an attempt to help other parts.

“It’s bizarre that our policy leaders in government actually think that you can rescue an industry by taxing it,” said Cox. “It’s redistribution of wealth in the journalism context.

“There is freedom of the press and freedom of the press from government intervention and there should also be freedom of the press from government taxation. The future of journalism is electronic and what we have now in my mind is an expansion of who is a journalist with bloggers,” said Cox.

Bruce Edward Walker ([email protected]) is managing editor of Info Tech & Telecom News. Krystle Russin ([email protected]) contributed to this article.

Internet Info:
FTC proposal can be found at http://www.ftc.gov/opp/workshops/news/jun15/docs/new-staff-discussion.pdf.