The Houston Chronicle on Saving Newspapers

Yesterday, the Houston Chronicle editorial board weighed in with its suggestions on how to save themselves and their industry. As I outlined more broadly last week, these particular suggestions either make no sense or would be counter-productive. However, let's discuss each of the three Chronic proposals (cribbed, ironically, from the Dallas Morning News publisher):

1. Provide temporary tax relief by passing the Baucus-Snowe Act, which would allow newspapers (or any other businesses) to offset losses from 2008 and 2009 against the past five years’ earnings. This may be a bad suggestion from a tax point of view; currently businesses can take current losses and "roll them forward" to offset future tax burdens. This would allow businesses to make the offset today against past taxes, and get a big refund from the IRS. What this might do is encourage newspapers owners to take the refund up front, then declare bankruptcy and close. Hardly seems like a public good.

2. Give newspapers a limited antitrust exemption that would allow them to share ideas and investigate collaborative new business models. This is a very bad idea; collusion would potentially allow the small number of newspaper publishers nationwide an opportunity to distort the market to their own economic benefit, to the detriment of all their readers and customers. Funny that the newspapers, who have been such proponents of the "free market", argue against letting the market decide their fate, now that competition has dramatically reduced the amount of advertising revenue they can extract.

   Today less than 275 of the nation's 1,500 daily newspapers remain independently owned, and more than half of all U.S. markets are dominated by one paper. Why would we allow such an already small number of players in the market to collude on price-fixing? It makes no sense.

3. Allow newspapers to devise a way to ensure fair compensation from Internet outlets that use their content to generate their own advertising revenues. This is the one that confuses me the most, probably because I don't use any Internet outlets which use newspaper content to generate advertising revenues. I do occasionally visit Google News, which gives me headlines; when I click on a headline, it takes me to the publisher's site, where they can serve me all the ads they want; I can't read the content on the Google News site. What about using a search engine to discover articles? As it turns out, the search function on the Houston Chronicle's own web site is so poor that the best way to find articles on their site is to use an external search engine. So where is the free ride? It seems the Chronic should be paying Google for the visitors they bring to the site.

   The Chronicle should, in the interest of fairness and accuracy, let us know how many of the visitors to their site arrive from Google News, or various search engines; we would then know how much value those "parasites" are actually providing to this content provider. I'll go out on a limb and suggest that without the online aggregators and search portals, no one from outside Houston would have any reason to visit www.chron.com - nor would they know it existed unless they stumbled upon it at random..

I also don't get the idea of "Topic A: allowing newspapers to become nonprofit organizations." As I pointed out, newspapers already have the option to emulate The Texas Observer and Mother Jones Magazine, which are publications supported by non-profit foundations. Why would we need to make any other changes to the tax code just for newspapers, since that solution is already available to them?

I am sympathetic about the plight of the newspapers; I have good friends who either work at papers or who have family members there. I wish them all the best as they try to navigate the new economic conditions, and try to survive after playing in the free market and having their indirect compensation model undermined by new competition for advertising. But, much like the health insurance providers, the big record labels, and the merged banking and investment institutions, I won't miss them if they end up disappearing. I think there are enough indicators that the functions they serve either aren't necessary or can be handled by other market players.