Part IV - Sustaining Journalistic Institutions

16 Introduction Sustaining Journalistic Institutions

Gus Hurwitz

Media have traditionally relied on a mix of advertising and subscription revenue to keep the lights on – and to produce a mix of high-quality, thoughtful, well researched, compelling news, information, educational, and other content that is necessary in a modern democracy. The internet has disrupted those revenue streams. And while some media outlets have shored themselves up on other sources of support – grants, government transfers and licensing fees, wealthy patrons, or the like – such funding is both the exception and de minimis in the overall operation of our media ecosystem.

The chapters that follow consider these institutions’ struggle to survive technological disruption. Can traditional media enterprises survive internet-era market forces? And if not, can they survive the governmental interventions (and governmental controls) that may be necessary to ride the market out?

In the first contribution to this section, Professor Laurie Lee looks to the relative success of local television news compared to newspapers over the recent past, to explore whether there are lessons that can be learned from the local television business model that can help print news to continue as a going concern. Her chapter surveys a significant amount of material, both historical and regulatory, to understand the enduring success of local television news – as well as to ponder how likely it is to continue to survive, if at all. And in an observation that bears on the other contributions to this cluster, Professor Lee notes that broadcast’s most significant advantage may lie in the “regulatory protectionist policies” it enjoys under federal telecommunications law. It is doubtful under the First Amendment that these same policies could be carried over to newspapers.

Paul Matzko carries the discussion forward from here in a chapter that considers a recent mechanism advanced to support traditional media institutions in Australia. This mechanism, commonly referred to as a “link tax,” requires social media platforms to pay some amount to Australian media outlets for links on the social media platform to content hosted by the Australian firms. As innovative as it may seem, Matzko argues that the link tax has an early twentieth-century forbear in the “hot news” doctrine. “Hot news” meant that news organizations could claim fresh scoops as their own exclusive quasi-property for short periods of time – and sue competitors who picked up the story too soon. This judicially created doctrine secured some established news organizations’ revenue against the technological disruption of the day (competitive entry in the telegraph market). But critics including Matzko have argued that hot news created entrenchment effects that negated whatever benefit to journalism courts claimed it would provide. The “link tax,” Matzko argues, will do the same: “If redistribution of online revenue is a priority for policymakers, then almost any other mechanism for accomplishing that goal would be preferable.”

Lee’s and Matzko’s chapters both focus on what could be considered business models that distribute revenues from one set of (profitable) stakeholders to another set of (unprofitable, or at least less-profitable) stakeholders though a regulatory mechanism. The final two papers go a step further, considering permutations of direct public support for uneconomic media platforms. It bears note that all four authors contributing to this discussion consider at least a minimal level of regulatory intervention in markets – even if Lee ponders whether it is necessary and Matzko urges caution against the dangers of the Australian link tax that he examines.

In his contribution, Professor Kyle Langvardt minces no words, starting with the clear statement that “The commercial market for local news in the United States has collapsed.” Two-thirds of the United States, he tells us, have no local newspaper; those papers that still serve their communities are struggling. What is the remedy? Considering the unviability of private markets to provide a solution, at least outside of edge cases such as Substack and other idiosyncratic markets, Langvardt looks to the clear alternative: public subsidies for traditional media institutions. Public funding of the press is traditionally disfavored in the United States – but, Langvardt notes, “A[a]lmost all wealthy democracies [other than the United States] give substantial financial support to the news media.” Why should not we? Indeed, he notes that even in the United States there are various subsidies for media – such as discounted postage.

Professor Langvardt argues that American concerns about First Amendment rights and state control (or capture) of critical media institutions explain much of America’s public stinginess toward the news. He considers a range of options that a public option for media may take, focusing on designs that may pass First Amendment muster. His discussion touches on several points, from the unresolved standing of government speech under the First Amendment (it may not be constitutionally problematic for the government itself to establish a media platform) to voucher-based programs directed through plebiscite.

Rounding out this section, and this volume, Professor Ramsi Woodcock also considers a model for traditional media businesses that involves more intervention in the market. Unlike Langvardt’s argument for direct public subsidies to support traditional media, Woodcock proposes two indirect interventions, one aimed at newspapers’ market for readers and the other at newspapers’ market for advertisers.

On the reader side, Woodcock would use the postal service’s letter-box monopoly to tax high-visibility social media posts. This would force lower-quality content out of the market, creating space for newspapers to shift resources back from the opinion-reporting that has proliferated in recent years to the more fact-oriented reporting that characterized mid- and late-twentieth century journalism. He believes this would restore the moderating influence that newspapers once exerted over American politics.

On the advertiser side, Woodcock would raise advertising revenues for newspapers by restricting advertising on social-media platforms, with the goal of pushing advertisers to spend more on advertising in traditional media. Unlike the link tax considered by Matzko, advertising restrictions would be more likely to restore newspapers’ revenues because they would not depend on social-media companies’ demand for news, which Woodcock believes to be small. Both of Woodcock’s proposals are grounded in a frank, unsparing recognition that social media is simply built for attention and advertising in a way that traditional journalism is not and never can be – and that public policymakers will have to rebuild the playing field if they want journalism to survive competition in the digital economy.

17 How Local TV News Is Surviving Disruption as Newspapers Fail Lessons Learned

Laurie Thomas Lee

17.1 Introduction

Despite the sharp decline in the number of local newspapers, it’s important to understand that other legacy news-delivery platforms – particularly local TV news – have not been suffering the same degree of loss. Pew Research Center found that local TV news actually saw its audience increase across the evening and late-night timeslots in 2020, and that local TV companies earned more revenue than the previous year.¹ In fact, local TV was deemed to be on par with or outpacing cable and network TV. Pew survey data show more Americans still prefer to get their local news from television than from any other medium, including online. Even with an increasing preference for digital delivery, “local television stations have retained a strong hold in the local news ecosystem.”²

Why and how has local TV news managed to stay afloat while local newspapers close their doors? Even as we mourn the loss of local news from print media, we should not overlook its surviving sibling that continues to churn out news to small and medium markets. Why do some media survive in the face of competition from new, disruptive media technologies? What lessons might be learned? Is there a role that government might play? Yet with the loss of local newspapers, are broadcast stations and online platforms adequate substitutes for providing local news? Or is local broadcast news actually just on a slower decline compared to newspapers?

17.2 Surviving Disruption

Much of the blame for the fall of the newspaper industry rests with the rise of the internet and online competition. For example, digital offerings have cannibalized the editorial side of the business as online aggregators. Social-media sites have become the alternate entry point for daily news as readers rapidly migrate to social media.

Newspapers have also been hit with a loss of advertising revenue to online companies like Facebook and Google.³ The most devasting blow is from the online siphoning of roughly $5 billion in classified ad revenues – a critically important revenue source for newspapers.⁴ Dedicated online businesses, such as Craigslist, and social-media companies, like Facebook, are able to easily provide less-expensive access to their online “Marketplace” for individuals and merchants to buy and sell goods and services.

As a result, cost-cutting ownership practices⁵ – particularly by hedge-fund owners⁶ – have led to a death spiral for newspapers. Granted, trends have shown that revenue growth from advertising expenditures had been weakening and not keeping up with inflation enough to be sustainable.⁷ But newspapers’ shrinking page counts, staff layoffs, and general financial crises are largely due to the advent of the internet and the online business competitors it spawned.

17.3 Understanding Local Television News Success

To understand how local television news has fared compared to local newspapers, we should examine distinguishing factors such as regulation and technology, as well as other market forces, including consumer behavior.

17.3.1 Regulation

Both industries have faced similar disruptive effects over the years, but the one element that most notably separates broadcasting from the newspaper industry is federal regulation and oversight. Governmental authority has shaped the broadcast industry in terms of invention, competition, and content, including how it serves local communities with news and information. It has controlled but also protected local broadcast stations in ways that may explain their continued success in the digital age.

17.3.1.1 Local and Educational Coverage Requirements

Unlike newspapers, TV and radio stations have always been and continue to be subject to federal licensing requirements. Since broadcasting signals naturally cross state lines,⁸ the U.S. government’s authority over broadcasting comes from the Commerce Clause,⁹ which provides for oversight of interstate commerce. A period of chaotic interference by early radio entrepreneurs during the 1920s prompted calls for some sort of licensing and coordination of the airwaves akin to a traffic cop. The rationale for supporting licensing was then based on the legal premises of the scarcity doctrine and public ownership of the airwaves. Simply put, the range of frequencies in the electromagnetic spectrum that broadcasting stations use to transmit their signals is a limited resource, and that resource belongs to the public.¹⁰

As a result, one regulatory distinction is the assurance that all communities are served by at least one TV station. The federal government intentionally created a system of channel allocations that would ensure small markets are served.¹¹ Congress was concerned that licenses would become concentrated around major cities and would thus leave remote and less populated areas of the country without service.¹² The Federal Communication Commission (FCC) believed that the public interest would best be served by ensuring that every community had its own television station that was locally oriented and controlled.¹³ So, a “Table of Allotments” was created that established a formula for the geographical distribution of local television and commercial FM radio frequencies across the country.¹⁴ These channel assignments are set. Unlike newspapers, stations cannot abandon their local communities and move to larger markets or regionalize the scope of their coverage. They must serve their local communities of license.

The FCC further ensured that local communities would be served by increasing the number of stations available. Given the limited number of allocated broadcast TV channels and the high costs of entry into the market, the Low Power Television Service (LPTV) system was established, which provided flexible and less-expensive entry into television broadcasting while also permitting fuller use of the broadcast spectrum.¹⁵ This was “primarily intended to provide opportunities for locally-oriented television service in small communities, … delivering programming tailored to the interests of viewers in small localized areas, providing a means of local self-expression.”¹⁶ As a result, many communities are served by LPTV stations that are “operated by diverse groups and organizations, including high schools and colleges, churches and religious groups, local governments, large and small businesses, and individual citizens.”¹⁷ Today, these stations provide local news, community affairs, weather, and emergency information to millions of viewers across the country, particularly in small markets and rural areas.¹⁸

Along similar lines, the federal government in its frequency-allocation system required certain channels be set aside for noncommercial, educational broadcasting.¹⁹ This meant that markets would be served by TV stations that are unconstrained by the quest for advertising dollars.²⁰ This also lead to a system of federal financial support for noncommercial stations when Congress recognized the need for federal funding in 1962 to help facilitate the development of such stations by passing the Educational Television Facilities Act.²¹ In 1967, Congress also passed the Public Broadcasting Act, which considerably broadened the federal role in noncommercial broadcasting through the creation of the Corporation for Public Broadcasting (CPB), a nongovernmental and nonprofit corporation, to provide public broadcasting and network interconnection needs.²² Notably, the CPB receives a federal appropriation for public broadcasting that it distributes to member stations. The CPB’s role is to shield stations from political influence while delivering federal support in a way that allows stations to operate independently.²³ Their taxpayer-funded support in the form of direct station grants amounted to about 18.3 percent of the average public television station’s total revenue in 2020.²⁴ Other federal funds may come from the National Telecommunications and Information Administration (NTIA) at the Department of Commerce as well as through programming grants from various federal agencies such as the National Science Foundation.²⁵ The remaining station revenue comes from public donations and underwriting. While these stations have national sources for programming such as PBS and its PBS Newshour, they also produce their own programming. A few public television stations – albeit in the largest markets – each provide a daily local-news program that is thirty minutes or longer.²⁶

Newspapers, on the other hand, are typically for-profit enterprises, highly dependent on diminishing advertising revenue and without government support. There is, however, a movement by nonprofit outfits to take over or start news outlets. In fact, several notable publications are now run as nonprofits, such as the Chicago Sun-Times, which in 2018 was acquired by Chicago Public Media – a noncommercial/public radio broadcaster.²⁷ The deal moved a money-losing investment into the nonprofit tax space where revenue – including advertising, donations, and membership fees – are tax-exempt, and the need to please stockholders is eliminated.²⁸ Congress has even introduced legislation to help make it easier for newspapers to become nonprofits.²⁹ But while the CPB provides funding for TV stations, there is no comparable source of federal funding for newspapers. Still, Congress has introduced legislation that could help ease some financial concerns for local newspapers. Instead of direct grants, a series of tax credits has been proposed that would: (1) provide a tax credit of up to $250 for consumers to subscribe or donate to local newspapers; (2) provide a payroll tax credit to local news organizations for each local news journalist employed; and (3) provide a tax credit to small businesses that advertise with local newspapers – as well as local radio and television stations.³⁰ Although there appears to be some bipartisan support,³¹ such measures would need to be passed, and it’s not clear whether tax credits may be “too little, too late” for local newspapers on life support. There is also concern that this content-neutral approach may have unintended consequences of benefiting and spurring the creation of hyper-partisan aggregation sites that only mimic local newspapers while promoting political agendas, contrary to the spirit of the legislation.³²

17.3.1.2 Ownership Limits

For broadcasting, structural regulation has ensured a diversity of local voices through broadcast ownership limits. Initially adopted in 1964, the Local Television Ownership Rule restricted the number of local television stations that any one entity can own in a single market. This ensured that TV stations in a market cannot be bought out by one another, effectively reducing the number of stations and the diversity of viewpoints serving a community.

Contrast this with the treatment of the newspaper industry, which at the time was seeing a sharp decline in the number of cities and towns with two or more competing newspapers. In 1970, Congress passed the Newspaper Preservation Act to enable the Justice Department to make antitrust exceptions so that two newspapers in a community could combine their noneditorial functions to reduce costs.³³ Yet despite this regulatory effort to keep a second newspaper voice alive by allowing newspaper joint agreements, few survived.³⁴ For broadcasting, the local TV ownership limit continues, albeit modified slightly.

17.3.1.3 Localism and Public Interest Requirements

Another regulatory distinction from newspapers is the requirement that, as licensees of the public’s airwaves, broadcast stations must serve the public interest. When Congress enacted the Communications Act of 1934,³⁵ it created the FCC to license broadcast stations that would serve in the “public interest, convenience, or necessity.”³⁶ Broadcasters are essentially granted a limited-term “lease” to serve as public trustees of the airwaves.

A cornerstone of this public-interest requirement is a commitment to “localism.”³⁷ Licensees must air programming that is responsive to the needs and interests of their communities of license. For years, broadcasters were required to conduct detailed ascertainments of their local communities and to indicate how their stations were addressing community problems through programming and outreach.³⁸ They even had to dedicate a percentage of their programming to local programs, news, and public affairs.³⁹ At one point, TV stations had to observe the Prime Time Access Rule, which effectively required them to carry at least one hour of non-network programming each night in an FCC effort to promote independent and locally originated programming.⁴⁰ Although the FCC deregulated many of their behavioral rules in the 1980s and 1990s in favor of marketplace forces, the Commission has continued its commitment to ensuring licensees achieve the goal of localism. For example, stations must provide public inspection files of their operations and service to their community, which include quarterly lists of the most significant programs they have aired concerning issues of importance to their community.⁴¹

Of course, this is not to say that newspapers are not dedicated to or are uninterested in serving the public interest and their local communities. Quite the contrary, as this is a core part of their journalistic principles.⁴² But newspapers are unregulated and enjoy greater First Amendment protections to make editorial decisions about their content than TV stations.⁴³ This can open the door to brazen abuse by a wave of hedge-fund owners and others who can ignore the public interest without government penalty. Indeed, evidence shows that community service by newspapers has been giving way to corporate profit centers over the years.⁴⁴ This situation produces a newspaper aimed not at the whole community it serves but at an audience valued by advertisers who provide roughly three-quarters of their revenues.⁴⁵

For broadcasters, however, the consequences of ignoring the public interest can be dire. Licenses must be renewed, and the FCC will review applications to see if “the station has served the public interest, convenience, and necessity” and not violated any rules and regulations.⁴⁶ If an applicant for renewal has not met the standards, the Commission can deny or condition the application, including reducing the license term.⁴⁷ This has implications for any potential hedge-fund buyers since licenses may not be granted to or renewed for broadcast stations that engage in layoffs and cost-cutting measures to maximize profits, failing to serve the public interest.

17.3.1.4 Regulatory Protections

Compared to newspapers, the greatest regulatory distinction for broadcasting may be less about constraints and more about the regulatory protections that broadcasting has uniquely enjoyed. The sustainability and growth of television broadcasting has been supported by government regulation, primarily in the name of localism. Such regulatory protections have not been afforded to newspapers.

For example, laws were created to ensure that TV stations would be receivable by all Americans. In 1962, Congress passed the “All Channel Receiver Act,” requiring television manufacturers to produce TV receivers capable of receiving both VHF and UHF signals.⁴⁸ This meant that Americans would have free and ready access to stations in the UHF band (channels 14 and above).⁴⁹ Later, when the industry transitioned from analog to digital in 2009, the federal government spent over $2 billion to ensure that Americans with analog TV sets could receive the new digital signals with $40 digital converters.⁵⁰

In the same vein, Congress and the FCC required – and continue to require – cable-television systems to carry all local TV stations in their cable-TV channel lineup. These “must-carry” rules were upheld by the Supreme Court as being consistent with the First Amendment.⁵¹ TV stations have a right to be carried for free or to negotiate carriage for a price.⁵² Such “retransmission consent fees” are now a significant and rapidly growing revenue source for TV stations,⁵³ accounting for roughly a quarter of the average station’s revenue.⁵⁴

This is in sharp contrast to what the newspaper industry faces. Newspapers do not benefit from such guaranteed content-redistribution revenues unless, for example, they are successful in collecting copyright-licensing fees from news aggregators which otherwise claim fair use.⁵⁵ The rise of online news aggregators – which have captured an increasing share of the news-consumer market⁵⁶ – is considered one of the significant reasons for the crisis facing the newspaper industry.⁵⁷

Protectionist rules were also created to ensure that TV broadcasting would remain successful in the face of competition. Early subscription television services and cable television were seen as disruptive threats to the preservation of local broadcast services, which prompted the FCC to impose onerous rules that hindered their development. Competing content was restricted. Early rules prevented cable systems from carrying most movies and local sporting events in order to give local TV stations the opportunity to carry such programming.⁵⁸ Cable systems were also prevented from carrying distant television stations that were in competition with local stations.⁵⁹ Duplicate network signals still cannot be imported by cable systems or satellite carriers in competition to local network affiliates.⁶⁰ And, in order to protect local TV broadcasters from viewers migrating to cable channels, cable systems and satellite carriers are also prevented from carrying syndicated programming that is licensed exclusively to local TV stations.⁶¹

17.3.2 Technical Advantages

The continued success of broadcast-television news stations may also be explained by certain technological advantages inherent to the medium. Their method of delivery has enjoyed certain efficiencies and steady costs. Local TV stations have also more easily adapted to digital delivery, allowing them to meet and embrace internet disruption head on.

In the first place, advances in technology have led to noticeably lower operating costs for TV stations. While newspapers have struggled with rising print costs, TV stations have benefited from steadily dropping prices for cameras, computers, and transmission equipment.⁶² On average, the annual operating expenses for U.S. television stations have remained fairly steady since 2013.⁶³ In contrast, newspapers have been stricken with newsprint costs that have soared by over 50 percent in just a matter of months.⁶⁴ This comes after having reduced the size of their papers and losing their supportive partnerships with paper mills.⁶⁵

Local TV news stations are also highly – if not more – suited to adapt to the digital revolution, given their technological roots. They have already transitioned from electronic to digital media production with cameras, editing, switching, and other equipment. TV stations also successfully weathered the very-expensive transition from analog to digital delivery when the government required all terrestrial TV signals in the U.S. to be transmitted in digital format by 2009.⁶⁶ TV stations have the workforce and the workflow to embrace new distribution opportunities, from news video for social media, to over-the-top (OTT) news clips, to streaming news coverage.⁶⁷

These moves into the digital realm have especially positioned television stations to be able to innovate and adopt new strategies. For example, digital antennas are now being promoted as the next frontier of TV viewing that will meet the needs of consumers who are shifting to streaming services but want to supplement their maxed-out monthly subscription services with free, local TV station content that includes local news and sports.⁶⁸ Already 40 percent of Americans own a digital antenna, up from 29 percent at the end of 2019 and pre-pandemic quarantines. Digital technology has also allowed TV stations to generate additional revenue from “multicasting” – transmitting additional digital TV signals that typically carry low-cost programming and provide more opportunities to sell advertising.⁶⁹ As much as 5 percent of some TV stations’ total revenue now comes from multicasting.⁷⁰ Some local TV-station groups have also introduced their own national OTT service that uses a data platform to provide local and national advertisers with advanced audience targeting and automated buying, thus giving stations an additional, growing source of revenue.⁷¹

Most importantly, digital television can seamlessly integrate with the internet and directly challenge online competition. Consumers can use virtually any screen – and even the same screen at the same time – to watch TV, browse the internet, or engage with social media. In fact, multiscreen use is one of the most significant changes in modern media consumption.⁷² It has long been expected that television and the internet would effectively merge, and television entrepreneurs have been successful in developing technologies to capitalize on this integration.⁷³ Most notable is NextGen TV, or ATSC 3.0, which is the next generation of local TV services approved for implementation by the FCC in 2017.⁷⁴ NextGen TV is essentially 4K TV that merges over-the-air antenna TV with the internet.⁷⁵ It allows local stations to personalize their news, sports, live events, and shows with interactive features that give viewers the content that is most relevant to them.⁷⁶ And it gives advertisers the ability to geo-target viewers with addressable advertising.⁷⁷ Aside from picture and audio improvements, NextGen TV gives viewers the ability to watch broadcast content on phones, tablets, and in cars.⁷⁸ It can be repurposed for streaming at a time when the creation of streaming options, especially for mobile devices,⁷⁹ is particularly important as more people turn to the internet for their television content.⁸⁰

Of course, many print newspapers have also successfully responded to digital disruption by going digital themselves – creating e-editions, news websites, and digital news services for mobile access, often with video and audio. Traffic on newspaper websites has steadily increased – at least for the top fifty daily newspapers in the U.S.⁸¹ Thus, making the technical shift to digital production has not been a barrier to success for most newspapers. Instead, economic failure is primarily attributed to waiting too long to make the transition, trying to hold on to a traditional print model.⁸²

Nonetheless, most local television stations have similarly developed station websites and embraced social media, and some are outperforming their local digital newspaper competitors.⁸³ TV-station websites have become an important and increasingly profitable distribution platform for local news video.⁸⁴ Local TV has an advantage over newspapers and other competitors on digital platforms in that it is already equipped to better deal with breaking news and video. Local TV newsrooms know best how to engage in video storytelling, and most will post these videos to the web as part of their daily workflows.⁸⁵ Given an increasing consumer demand for video news, some stations now boast about having the top news website in their city, with 50 percent more daily visitors than the local newspaper site.⁸⁶ Although both newspapers and television websites earn about the same amount of advertising dollars per online visitor,⁸⁷ some advertisers are willing to pay more to be featured with online video than text.⁸⁸

TV stations are also using social media more fully. While newspapers tend to focus more on X, some are arguably ceding Facebook and other social media.⁸⁹ TV broadcasters enjoy a social-media presence advantage, being responsible for a significant portion of the news video published on social media, especially Facebook.⁹⁰ One study has shown that the median social-media share for TV was 85.5 percent, while the median share for newspapers was only 11.7 percent.⁹¹ While newspapers certainly have extensive content to offer, social media is said to particularly play well to TV’s strengths, namely, “timely, emotional, video” content.⁹²

17.3.3 Consumer and Advertiser Demand

Consumer and advertising demand further distinguish broadcast television from newspapers when it comes to the ability to thrive in the local news media market. Factors such as the growing demand for video, promotional opportunities, a sense of community, and economic value tend to favor broadcast television. These factors also help give broadcast television a more competitive footing against rival internet services.

Overall, a majority of Americans choose local TV news as their go-to news source. Roughly 50 percent of U.S. adults say they often get their news from local television, compared to only 18 percent from print newspapers and 25 percent from radio.⁹³ The margin for online news sources has tightened, but trails at 43 percent.⁹⁴ Also reinforcing the popularity of local TV news is the fact that adults are watching more minutes of news in a typical week and spending more of their TV-viewing time (18.2 percent) watching news.⁹⁵

A key advantage that sets TV apart from newspapers in general is its visual storytelling appeal and the increasing demand for video. Videos have become the most popular choice for content consumption.⁹⁶ Nearly a quarter billion people in the U.S. watched digital videos in 2020 – a number that far exceeded expert predictions.⁹⁷ This has certainly been driven by online use. But while the internet and smartphones are increasingly popular platforms for video-viewing, television has dominated with the most content and the most time spent viewing.⁹⁸ Americans watch TV an average of five hours per day, largely consuming live content,⁹⁹ while watching videos online for about two hours per day.¹⁰⁰ This is also the case for video-news consumption, where Americans “show a clear preference for getting news on a screen, and the TV screen still leads the way.”¹⁰¹ The average adult spends nearly six hours each week watching TV news.¹⁰² It’s therefore not surprising that 90 percent more local news is being broadcast today than twenty years ago, and that viewers can find local news on 39 percent more TV stations.¹⁰³

Of course, disruptive internet services – such as various streaming services, YouTube, and social-media sites like Instagram, Snapchat, and TikTok – are quickly gaining market share in competition to both TV broadcasters and newspapers. One-third of all online activity is spent watching videos, and the vast majority of global internet traffic is from streaming videos and downloads.¹⁰⁴ In fact, it is suggested that more video content is being uploaded in just thirty days than what the major television networks in the U.S. have created in the past thirty years.¹⁰⁵ Online video consumption is up for all age groups, but especially teens and young adults.¹⁰⁶ Yet, as previously mentioned, local TV websites are also increasingly popular and are ideally suited to deliver online news videos, giving them a strong, competitive grip in the online market.

The video advantage also helps broadcasters when it comes to advertising, particularly on their local TV websites. The preference for video content is not just limited to entertainment and news; it extends to brands. More than two-thirds of consumers say they prefer video over text when learning about a product or service.¹⁰⁷ And studies show that more than half of consumers want to see more video content from the brands or businesses they support.¹⁰⁸ Advertisers recognize the power of video when it comes to convincing consumers to purchase a product or service.¹⁰⁹ They prefer video ads because people are more likely to pay attention to them than to audio and written content, which they may otherwise skip or skim.¹¹⁰ Advertisers often try to tell visual stories within their ads to create an emotional impact on viewers.¹¹¹ This means giving TV websites the preferred nod to carry their ads. Indeed, digital advertising revenue for local TV stations has been growing, increasing 6 percent in 2020 alone.¹¹²

Television also draws in large numbers of viewers, which means greater promotional and cross-promotional opportunities for its local news product. Since roughly 2000, television has been in a second “Golden Age,” enjoying an era of “Peak TV”¹¹³ with the creation of a wider array of critically acclaimed content leading to more viewers watching – and even binging – on more television than ever before.¹¹⁴ This resurgence in television entertainment programming has attracted more viewers, many of whom will also end up watching a station’s local newscasts. Not only does popular entertainment content provide an effective lead-in and lead-out programming strategy for local newscasts, it also serves as an excellent vehicle for station newscast promotions that can be strategically placed throughout the programming schedule. Cross promotions may also run on other Multichannel Video Programming Distributors (MVPDs). This benefit also applies to a station’s website, which draws users for its entertainment program listings and social engagement and then captures interest in its local news content and on-air newscasts. Newspapers, on the other hand, do not enjoy a similar cross-promotional advantage. Aside from some entertaining columnists, comic strips, puzzles, and entertainment-related supplements, newspapers generally do not have a comparable cache of non-news options to attract readers to their news product, and this also applies to their news websites.

For the same matter, television programming is effective at cultivating fan-based communities and is a driver for social-media interaction, which offers even more cross-promotional opportunities for local news. Among the most widely discussed topics on social media is television.¹¹⁵ TV viewers like to interact with one another about their favorite shows over Facebook, X, and TV-network websites. In fact, over 40 percent of viewers watch TV while also using a social network,¹¹⁶ and nearly 24 percent will post, vote, share, or otherwise comment on a TV show on social media.¹¹⁷ These communities of fans share a common experience, which is important to the success of television. These communities will then connect favored programs with the networks, streamers, and stations that distribute them. And once again, local television news can indirectly benefit from the promotion of shows carried on their station, potentially converting those users into local broadcast-news consumers.

Generating a sense of trust and local community is another advantage for local television stations, although this is also true for newspapers, distinguishing both legacy media from their online competitors. Nearly eight in ten Americans say they have more trust in their local news to give them information they need to get involved in their community.¹¹⁸ In addition, they are almost twice as likely to express trust in local news as compared to national news.¹¹⁹ Still, broadcast news may have an edge when it comes to trust. Aside from reaching the largest share of local news consumers, there is some sense that TV provides viewers with more accurate news that is from professional journalists.¹²⁰ Television-oriented local-news consumers also appear to have a stronger attachment to their preferred source of news than those with digital preferences do. U.S. adults who prefer getting local news online are less likely to follow local news very closely, compared to those who prefer television news.¹²¹

Perhaps the greatest distinguishing factor for local television news, however, is its cost and perceived value by consumers. Simply put, local over-the-air TV stations have always been and continue to be available for free. There are no subscriptions, messy contracts, or onerous online agreements with terms and conditions.

Local print newspapers, on the other hand, customarily charge subscription and per-issue fees, and even their digital newspapers employ some type of paywall model. While some well-known national newspaper outlets have had success charging subscribers, local publishers have been much less successful in converting their online readers into paying subscribers.¹²² Yet it’s important for digital newspapers to attract a large base of subscribers in order to have a sustainable business model. One analysis found that small towns of less than 10,000 residents will not have enough subscribers to support the operation of a digital publication.¹²³ If the price point is set at only $5, for example, 20 percent of the town’s population would need to subscribe to cover the publication’s overheads, salaries, and other expenses. Unfortunately, most local outlets are already only converting less than 1 percent of their population.¹²⁴

Value is also a top consideration for advertisers. Both TV stations and newspapers rely heavily on advertising revenues, and both have seen a decline in advertising over the years. But for local TV, the loss of ad revenue is far less concerning than it is for newspapers. Television stations reap the benefits of political-advertising revenue in election years, for example. Although this revenue is cyclical, in election year 2020, local TV over-the-air advertising revenue actually increased by 8 percent over 2019.¹²⁵ In the meantime, additional income is generated by the increasing fees related to retransmission consent from MVPDs, as mentioned earlier. TV does not depend on subscription or circulation revenues, and there is less reliance on digital ad revenue, which accounted for only 7 percent of total TV ad revenue in 2020.

For newspapers, however, total advertising revenues have been dropping significantly. In fact, 2020 saw a 25 percent decline from 2019.¹²⁶ Even the top six publicly owned newspaper chains, which own and operate more than 300 daily newspapers, reported a 42 percent advertising revenue loss.¹²⁷ For the first time, advertising revenue was less than newspaper-circulation revenue,¹²⁸ which has also been in decline.¹²⁹ Digital advertising now comprises 39 percent of newspapers’ remaining ad revenue. This is particularly troublesome when the Big Tech companies of Facebook and Google have reportedly siphoned away 77 percent of the digital ad revenue in local markets.¹³⁰ Moreover, while traffic has increased, consumers are spending less time on newspaper websites, with the average number of minutes per visit for the top fifty daily newspapers dropping to less than two minutes in 2020.¹³¹ This, along with the use of online paywalls, impacts the attractiveness of local news websites for advertisers, resulting in the dreaded revenue death spiral for newspapers.¹³²

17.4 Discussion

It’s clear that, while newspapers are struggling economically, local television news enjoys a number of comparative advantages that have kept it afloat. Of course, it is unclear how long these advantages will continue and whether they will be enough to counter the disruptive forces of the internet. And if local TV news does continue to thrive, it is additionally unclear whether it and competing online news platforms would be sufficient substitutes for the loss of a strong newspaper presence in their respective communities. There have been various approaches suggested to help the newspaper industry readjust, recover, and possibly regain market share and its important role of watchdog journalism. Looking to local TV news as a model is one approach to consider.

17.4.1 Sustainable Success?

It is important to first recognize, however, that the success of local TV news may not be sustainable. Disruption is a process, after all, and for television, this may simply be a slower process than it has been for newspapers. In fact, some have suggested that local television as an industry has been “very, very mildly contracting.”¹³³ It’s quite possible that TV stations could face declining audiences and revenues, and fail to adapt. Or the disruption may not only be slow, but incomplete.

17.4.2 Following a TV-News-Station Model

Nonetheless, local TV news appears to have the only media-revenue model likely to sustain itself for at least the next decade.¹³⁴ Covering local news continues to earn a profit for at least two-thirds of local stations that run local news.¹³⁵ In fact, TV news directors report that 55 percent of station revenues come from their news operations, even though news constitutes less than a quarter of a station’s daily broadcast schedule.¹³⁶

Although there are inherent differences between TV- and newspaper-delivery platforms, there are some lessons that can be gleaned from the TV-news business model that may help newspapers going forward. While newspapers have responded to TV competition in the digital realm by adding audio and video, for example, they should evaluate what is working well for local television news and consider adopting those winning strategies where possible. Newspapers could model themselves more on what has helped sustain local TV news in the face of internet competition. Taking a page from their TV competitor’s playbook, so to speak, could open the door to new opportunities and ultimately success for the industry.

For example, newspapers might lower their technology costs by eliminating their expensive print-newspaper operations and going all digital. Small-town newspapers, in particular, should make the digital leap and even let go of their legacy print model entirely. As with broadcasters, this would take advantage of lower-cost video equipment and other production technologies.

Newspapers need to take full advantage of digital technology and its opportunities for instantaneous, breaking-news posts and live streams, including audio and video. To be competitive with broadcasters and digital platforms, newspapers will need to meet them where they are at by excelling at visual storytelling by incorporating more video in their online stories. This will also give advertisers more video options for their ads, which they prefer.

Daily newspapers would then need to continue increasing their digital readership and significantly bolstering their website traffic, attracting users to their sites as well as keeping those users engaged for a longer time in order to yield more views on revenue-supporting advertising. This might mean engaging in “clickbait” strategies, pushing more enticing headlines and incorporating more entertainment/non-news elements alongside higher social-media engagement. In order to compete with more-popular local television websites, newspapers will need to find additional exclusive or niche content that they can promote. Journalists are excellent storytellers and they can capitalize on that strength. The additional content could also help with effective promotions, which newspapers need in order to draw users to their digital news sites, especially younger users whom advertisers covet. More cross-promotional arrangements with other media outlets could also be explored.

Newspapers should also borrow from broadcasting’s revenue model and rethink their reliance on subscription revenue. Even digital newspapers struggle with getting a large-enough base of subscribers to be sustainable. Paywalls have not been as successful an approach for smaller daily papers as they have been for national newspapers, such as The New York Times and Washington Post.¹³⁷ Charging a fee for base access simply makes it hard to compete with freely available television news and other online news offerings.

Of course, removing or reducing subscription revenue would require a greater reliance on advertising revenue, which the newspaper industry has already fought hard to grow with limited success. The industry has earned more than twice as much money in digital advertising than local TV has, but after factoring in daily visitor use, both newspapers and TV are earning the same amount of advertising money per online visitor.¹³⁸ Content improvements, including producing more video, could help turn the tables and pull digital-advertising revenue away from Facebook, Google, and the like. Newspapers might further bolster advertising revenue by embracing more sponsored content or “native advertising” on their digital sites,¹³⁹ which – similar to broadcasting’s “infomercials” – can be offered while adhering to the journalistic ethical principles that require news and advertising be distinguished from one another.¹⁴⁰ They might also take a cue from broadcasting and find a way to capture the cyclical but highly lucrative political-advertising revenue. Ever since the U.S. Supreme Court in 2010 opened the political-advertising floodgates with the Citizens United case, the broadcasting industry has seen their political-ad revenue shoot to over $3 billion in 2020.¹⁴¹ By creating a space for effective audio and video political ads, newspapers could capture a piece of this revenue pie.

Newspapers might also follow the trend of becoming nonprofit enterprises, much like noncommercial public-broadcasting stations. As mentioned earlier, this would allow newspapers to generate revenue that would be tax-exempt. Legislation such as the Saving Local News Act would make this possible by amending the Internal Revenue Code to include “publication (including electronic publication) of written news articles.”¹⁴² In addition, nonprofit newspapers could receive additional federal support with something comparable to a federally funded Corporation for Public Broadcasting that distributes funds to them. This could be in the form of grants, just as the CPB provides to public-broadcasting stations, which constitutes about 18.3 percent of their annual revenue.¹⁴³ There would have to be provisions and oversight to ensure that such nonprofits were not just hyper-partisan aggregation sites mimicking local newspapers. There could be conditions that require that they, like broadcasters, serve the public interest to ensure that funding recipients are responsive to their local communities. These conditions might go as far as requiring that a certain percentage of the news-editorial content be locally originated as opposed to syndicated or aggregated. Like broadcast stations, any nonprofit newspapers that receive government funding might be expected to provide regular reports indicating the issues and needs of the community and how these were addressed by the newspapers. Of course, care would need to be taken to ensure that this funding approach was content-neutral and did not violate First Amendment rights. Another condition for funding might require that owners and staff, including journalists, live in the community they serve. This would help ensure the involvement of local editorial voices and commitment. Having nonprofit status and local ownership would also ward off hedge-fund owners and other corporate profit centers that are currently crippling the newspaper industry.

Some of the regulatory protectionist policies of the FCC for broadcasting, however, cannot be extended to newspapers. For example, it would not be possible to mandate a system whereby all Americans receive at least one local newspaper as they do with the allocation of regulated television signals. Moreover, aggregators and other media outlets cannot be required to carry local newspapers on their services like MVPDs are required to carry local TV broadcast stations, nor can they be required to negotiate retransmission fees. Such fees, as noted, constitute a significant part of broadcast-station revenues. Yet, it’s possible that some creative regulatory approach could be taken to at least assist newspapers in collecting fees from online news aggregators, similarly to broadcasting’s retransmission fees from MVPDs.

Likewise, there is no regulatory authority to protect newspapers and promote a diversity of local voices with structural ownership rules for newspapers. The Newspaper/Broadcast Cross-Ownership rule that existed up until recently was an FCC regulation that applied to broadcasting. That said, elimination of that broadcast rule creates new possibilities for the survivability of local newspapers. Taking advantage of the opportunity to now merge with local TV news stations in the same market may prove to be the ultimate solution for saving newspapers. And despite concerns that consolidation will result in a diminution of local voices, some believe that cross-ownership could actually lead to more coverage of local issues. The synergies produced by such a merge could also balance the playing field, stimulate investment, and potentially save local news media.

17.5 Conclusion

Even if local TV news remains resilient to internet disruption and is the last local news medium standing, there is concern that it is not a perfect substitute for the kind of journalism that daily print newspapers have traditionally provided. Since TV-station coverage areas largely encompass towns and cities, smaller communities and even neighborhoods will likely not receive the same level of journalistic attention as would their weekly print newspaper. TV stations may employ fewer and less experienced reporters. Many fear that deeper forms of reporting and investigative explorations that make civic journalism valuable to communities will be lost.¹⁴⁴

Still, if local TV news proves to be the model of success for legacy media, local journalism will remain available for most communities nationwide. TV news stations can ensure that large “news deserts” do not develop, where citizens become even more politically polarized, less engaged civically, and lose their ability to hold government officials accountable.¹⁴⁵ But this situation is made much better if local newspapers – even co-owned with broadcasters – are enabled to prosper.

18 From Hot News to Link Tax The Dangers of a Quasi-Property Right in Information

Paul Matzko

18.1 Introduction

In February 2021, the Australian federal government enacted the “News Media and Digital Platforms Mandatory Bargaining Code,” which requires Facebook and Google to pay domestic news outlets for linking to their websites. It was a first-of-its-kind mechanism for redistributing revenue from Big Tech platforms to legacy journalism, and it has attracted global attention from policymakers looking to halt the internet-fueled decline of the traditional news industry. Thus, the success or failure of what critics call Australia’s “link tax” has significant implications for the future of both the World Wide Web and the news industry writ large.

But while the full consequences of Australia’s regulatory innovation will not be apparent for several years, there is a precedent from the United States that could shine light on the possible outcomes. In the early twentieth century, U.S. courts created a “hot news” doctrine to bolster the Associated Press newswire service when it faced new competitors and navigated the technological disruption caused by the spread of the telegraph. The intended and unintended consequences of the American hot news doctrine offer a cautionary tale to contemporary policymakers interested in an Australian-style link tax. Both hot news and the link tax are forms of enclosure that turn a category of information into a novel form of property. Doing so has radical implications: rewarding politically connected incumbent firms, punishing insurgent competitors, and producing ideological consensus.

It is not breaking news that newspapers in the twenty-first century have experienced a general decline that has dramatically affected circulation, advertising, and revenue. The rise of the consumer internet eroded classified advertising, once the single most significant source of newspaper revenue. In Australia, classified revenue fell from $1.5 billion in 2002 to just $0.2 billion by 2018. At the same time, overall Australian newspaper revenue fell by nearly the same margin – from $4.4 billion to $3 billion – suggesting that the migration of classified ads to online clearinghouses like Craigslist was a principal factor in the collapse of the old newspaper financial model.¹

18.2 Who Should Pay and How?

Australian newspapers had a revenue problem and looked to their national government for redress. A straightforward solution would have been to tax the online classified-ad platforms and redistribute the money to bereft newspapers, whose market share had fallen from 96 percent to 12 percent. However, such an approach would have been straightforwardly anti-competitive, would have generated costs that fell directly on consumers, and would have targeted domestic classified-ad platforms. Instead, Australian newspapers sought to take a slice from a much-larger financial pie: online search-and-display advertising, which enjoys quadruple the revenue of online classifieds.² Since two companies that are headquartered abroad – Facebook and Google – dominate search-and-display in Australia, the costs of a link tax would not fall as directly on Australian consumers (so long as neither company pulled out of the market entirely).

Online classified platforms derive nothing from newspapers, so taxing them to subsidize newspapers would not have seemed equitable (nor would it have been particularly lucrative). By contrast, Facebook and Google operate as news aggregators, linking to newspaper articles in order to sell ads and garner user data. Since aggregators have a proximate relationship to the news, it is easy to claim that they are free-riding off of journalists’ hard work and should pay a fair share.³ As Australia’s Federal Treasurer Josh Frydenberg put it, “This is really a question of fairness. If you prepare the content and the digital platforms are using it to bring traffic to their websites, then they should pay for it.”⁴

Note that the justification offered is moral, rooted in a particular concept of what is fair. It is not a proposition that translates well in the offline world. For instance, it would be strange to suggest that brick-and-mortar retailers have a moral obligation to pay manufacturers not only for their product but also for the mere right to resell and display the product on their shelves. (Typically, the relationship is reversed, with manufacturers paying major retailers for prime shelf space. Efficient distribution is a value-added proposition.)⁵ Fundamentally, the problem that the link tax is meant to address is not moral but structural, as policymakers attempt to buttress traditional media organizations that are coping with technological disruption, albeit with varying degrees of success.

Yet news aggregators had little to do with the financial decline of the newspaper industry. They were not major players in the rise of online classified advertising. Additionally, online advertising has shifted display-ad revenue away from its traditional proximity to the news. Advertisers have more non-news digital options for placing their ads – social media, streaming, etc. – than they did back when print newspapers were one of the few mediums for reaching large audiences. For example, a clothing store would have once placed an ad in the local newspaper by necessity (and not because it was a newspaper per se); how else could they affordably reach a large group of potential customers? Today, however, that clothing company would be more likely to place an ad with a TikTok influencer or to buy a display ad on Pinterest, neither of which has anything to do with news reporting. Only a miniscule fraction of the revenue lost from display ads in print newspapers was transferred over into advertising on online news aggregators.⁶ In other words, even if one were to somehow abolish online news aggregation, it would not return significant display-advertising revenue to newspapers.

Nevertheless, after several years of studying a variety of financial redistribution mechanisms – including a per-click hyperlink tax, the source of the now somewhat-misleading “link tax” moniker – the Australian Competition and Consumer Commission opted for a mandatory-bargaining scheme. News aggregators are expected to negotiate revenue sharing deals with news producers in exchange for linking to their articles and videos. If they fail to do so within three months, the treasurer is given sole authority to appoint an arbitrator, require the parties to submit competing offers, and then choose whichever offer they find fairest.⁷ Thus far, the mandatory-bargaining component has remained notional, given that the treasurer has yet to exercise his authority. But the mere possibility of enforcement was enough to convince Google and Facebook – after some brief initial resistance – to quickly strike a number of deals with Australia’s largest news producers.⁸

The early returns from the law have heartened proponents. Australia’s largest newspaper and magazine conglomerate, News Corp Australia, negotiated a $50 million deal with Google, while broadcasters Seven and Nine got $30 million apiece. The total reported transfer to all news outlets from both Google and Facebook as of March 2022 was $200 million, with 90 percent going to News Corp, Seven, and Nine. Flush with cash – for instance, Nine Entertainment reported a 39 percent increase in earnings because of the payments – the outlets have embarked on a journalist-hiring spree.⁹

However, the newly fattened bottom lines of Australia’s largest media enterprises are unlikely to assuage critics of the link tax. Indeed, given that News Corp is owned by Rupert Murdoch, opponents have dubbed it the “Fox News tax,” raising concerns that the link tax will merely entrench the global news magnate’s disproportionate share of the Australian news industry and bolster his ability to influence politics in a particular ideological direction.¹⁰ Others have argued that the link tax is an example of ham-fisted government intervention, an “extraction of money at the point of the proverbial gun” rather than an “honest attempt at collective bargaining.”¹¹ The boldest claim, however, comes from Sir Tim Berners-Lee, the inventor of the World Wide Web, who was “concerned that the Code risks breaching a fundamental principle of the web by requiring payment for linking between certain content online” and “could make the web unworkable around the world.”¹²

18.3 Made in America

This is not the first time a national news industry has successfully pushed for government intervention to subsidize operations via a novel legal mechanism in response to technological disruption and financial competition. In the early twentieth century in the United States, the Associated Press (AP) newswire service found itself facing a similar crisis. Half a century earlier, a group of New York City newspapers had banded together to share the costs of producing original journalism. For example, a journalist on assignment in Charleston, South Carolina, or London, England, could send back dispatches about the latest events, from which each AP member could then construct a news story with their own stylistic spin. This system allowed newspapers to focus their efforts on the local news beat while defraying the high cost of national and international coverage. In addition, as historian Richard Schwarzlose puts it, the AP “was partner in a common-law marriage with Western Union,” which enjoyed a functional trans-continental telegraph monopoly.¹³ As a result, the AP could not only share costs across a national pool of member newspapers, but it could transmit dispatches more quickly than could its various regional competitors.

The AP’s competitive advantages made membership a desirable privilege. By the turn of the twentieth century and by design, only about 30 percent of American newspapers had been allowed to join the AP fold. First-class AP members were given the right to exclude from membership all other newspapers in a 120-mile radius. It was a trade-off. On the one hand, more members meant that shared costs could be spread more widely; however, adding too many members would dilute the value of existing memberships by introducing local competition between member newspapers. And since AP membership rights were transferable, when a member newspaper folded, its membership could sell for the modern equivalent of hundreds of thousands or millions of dollars at auction. As one newspaper owner put it, “The exclusive character of the news [was] an essential element of its value, and incentive to its collection.”¹⁴

But that value proposition was under serious pressure by the turn of the century. Antitrust action against Western Union and the rise of competing telegraph lines had eroded AP’s technological advantage. Newspaper owners clamoring for AP membership lobbied state governments and appealed to the courts, asking for a mandate that the AP sell its wire service to all comers as a “quasi-public utility affected with a public interest.”¹⁵ But when the Illinois Supreme Court ruled against the AP in Inter-Ocean Publishing Co. v. Associated Press in 1900, the AP dodged this requirement by moving to New York and re-organizing under a designation intended for fish and game clubs.¹⁶

Hunting club or not, by the 1900s, dissatisfied newspaper owners like magnate William Randolph Hearst – better known today as the inspiration for the movie Citizen Kane – took aim at the AP cartel and founded competing newswires, including United Press and the International News Service. Hearst was a sensationalist and innovator, the first newspaperman to print letters to the editor and color cartoons (including the popular Yellow Kid strip, which originated the phrase “yellow journalism” as a description of Hearst’s often-lurid article topics).¹⁷ Instead of the AP’s dry, boring dispatches full of legislative votes and business mergers, the new wire services provided colorful accounts that had human-interest angles. Furthermore, they were early adopters of the faster, cheaper teletype technology.

The Associated Press, then under the leadership of Melville Stone, needed to find a mechanism that would stymie external competitors, quiet restive AP affiliates, and preserve the value of possessing an AP membership. Stone believed that the AP would find its salvation in “hot news” (a name derived from the saying that news was “hot off the press,” pages still warm from the printing process). Stone believed that newswires deserved an exclusive, time-limited, legal right to disseminate information collected by one of its correspondents or affiliated newspapers. This was a significant departure from the standard newsgathering practices of the time; it had been routine to extract facts from competing newspaper stories and rewrite them into stories for one’s own paper. An entire ecosystem of evening-edition and West Coast newspapers had sprung up around the practice, repurposing information gathered from morning editions and East Coast papers.

This system had been tolerated because it helped morning newspapers by making it “notorious” – as early AP member Horace Greeley put it – that “certain journals have the earliest news” while evening papers were forced to regurgitate from the leavings of the morning papers. And the practice was so beneficial to the morning papers that Greeley said he “would rather that those [evening newspapers] who do not take it should copy than not.”¹⁸ Indeed, the Associated Press itself engaged in so-called “news piracy.” As Stone reported to the AP Board of Directors after the U.S. Supreme Court ruling in INS v. AP, the “proprietary news case had not only great advantage for us, but it had some disadvantage” by “necessarily put[ting] an end to our pirating news from the London papers.”¹⁹ But the loss of that benefit was outweighed by the way in which the hot news doctrine would reinforce the competitive advantages of the Associated Press. Since the AP had the largest news-gathering network, decreasing the amount of free-riding performed by non-member newspapers and insurgent newswires would simultaneously raise costs for competitors, increase the value of an AP franchise, and convince current AP members to remain in-network and continue paying the substantial membership fees required.

Stone found a test case involving an employee of an AP affiliate in Cleveland, Ohio, who had been bribed by the International News Service to relay information gathered from the newsroom’s bulletin board. The AP sued, the federal district court ruled in its favor, INS appealed, and the case then went to the U.S. Supreme Court, which upheld the district court’s decision in International News Service v. Associated Press (1918). Melville Stone got his wish for a hot news standard when the Supreme Court granted newswires and newspapers a “quasi-property” right over freshly collected news as rightful recompense for “one who gathers news, at pains and expense, for the purpose of lucrative publication” and to prevent unfair competition.²⁰ The Supreme Court did not set a cooling-off period for hot news, though the district court had suggested a minimum of “three or four hours,” as long as “sufficient time has elapsed to afford opportunity for general publication.”²¹ Regardless, the Supreme Court had created something wholly new, a category of property separate from copyright, trademarks, trade secrets, stock tips, and other established categories of proprietary information.

18.4 Enclosure of an Informational Commons

Both the hot news doctrine and the link tax have created a novel, quasi-property right in information. The proper term for describing that process is “enclosure,” an echo of how rentiers in early modern Europe turned previously common pasture, open to the use of all village residents, into private property by erecting fences and legal boundaries. Similarly, as legal scholar Yochai Benkler wrote in 1999, “We are in the midst of an enclosure movement in our information environment,” as “our society is making a series of decisions that will subject more of the ways in which each of us uses information to someone else’s exclusive control.”²² The invention of the internet undermined the value that could be extracted by a class of quasi-monopolistic newsgatherers who had been able to charge consumers inflated prices for access to news information and the classifieds marketplace.

With those geographically defined news-distribution monopolies under threat from digital disruption, it is understandable why the formerly landed newspapers would seek a legal mechanism to enclose their corner of the World Wide Web – to erect a high regulatory fence that could keep out all those who would graze on their news without permission. The metaphor breaks down, however, given that in the case of internet news aggregation, the grazing does not crop the grass, thus starving the animals and leaving the owner bereft; rather, the aggregator funnels users to the news originator, expanding their audience at no marginal cost to them. It is hardly the fault of the aggregator that the news producer lost an entirely different form of income (from classified ads) and has suffered as a result.

Proponents of hot news and a link tax often justify a quasi-property right on the basis that reporting the news takes hard work and great expense. As the Associated Press had argued in its brief, “News is a business commodity, because it costs money and labor to produce and because it has value for which those who have it not are ready to pay.”²³ In other words, it is property because we have it, it was hard to produce, and you want it so much that you will pay for it. The U.S. Supreme Court in INS v. AP had agreed, adopting what would later become known as the “sweat of the brow” standard for property in information.²⁴ Factual news itself, not merely copyrightable stories about that news, was considered a form of time-limited property under the hot news doctrine.

By contrast, the traditional standard for those “noblest of human productions – knowledge, truths ascertained, conceptions, and ideas” – was that they should be, in the words of Justice Louis Brandeis (from his dissent to INS v. AP), “free as the air to common use.” Exceptions could be made to this rule, especially “productions which, in some degree, involve creation, invention, or discovery” – a standard which certainly applies to newsgathering – but it was an exception that proved the rule.²⁵ For instance, copyright was a form of property invented to be, as Lord Thomas Macaulay put it, “a tax on readers for the purpose of giving a bounty to writers.”²⁶ According to dissenters like Justice Brandeis, the question of whether or not an abstraction should be proprietized was a function of the social utility derived and not the labor that went into making it. The goal was not payment for authors per se but rather the creation of a necessary incentive that would lead to greater literary production and thus net social benefit.

This is an old debate, which legal scholar Richard Epstein has summarized as the difference between “those who see the source of property rights in the positive law” and “as a command of the sovereign” versus those who ground “property rights on the traditions and common practices within a given community” and see property arising “from the bottom up, and not from the top down.” In the latter conception, the state ought to play merely a discovery role, figuring out “what the community has customarily regarded as binding social rules” and then enforcing those organically generated rules. Indeed, this debate underlines the current contest over the link tax. Should the government of Australia use positive law – given “its administrative ease of application,” to quote Epstein again – to subsidize news outlets via the creation of a novel, quasi-property right over links to news articles? Or should it instead constrain itself to conforming the law to the spontaneously evolving technical and community standards of the World Wide Web?²⁷

18.5 Wreck-It Rupert Breaks the Internet

It is important to recognize just how radical a departure such a link tax enclosure is from the norms of the World Wide Web. This was the source of Sir Timothy Berners-Lee’s concerns about the link tax’s effect on the future of the internet. Berners-Lee invented the concept of hypertext in 1980 – which links text on one site to text in another location – and then connected it to emerging protocols for transmission and identification, thus creating the first modern website in December 1990. As he later described, his intention was always that “normal links should simply be references,” meaning that a hyperlink did not imply endorsement or claim ownership of the linked site. The link was no more the property of the reference site than the bare footnote to this paragraph is the property of the cited author.²⁸ The resulting spiderweb of interconnections spread quickly and globally, thus earning the name “World Wide Web.”

The Australian link tax, however, turns the hyperlink itself into a form of quasi-property by granting an exclusive right of control and compensation to the reference site.²⁹ As internet-theorist Konstantinos Komaitis notes, this “changes fundamentally the meaning and scope of hyperlinks” and “ascribes to them a meaning they are not meant to have.”³⁰ Links to news sites are no longer “normal links” under Berners-Lee’s taxonomy. Google and Facebook can no longer legally share a mere link to one of Rupert Murdoch’s papers without paying for his permission to do so (or, at least, without risking the wrath of the treasurer of Australia for their failure to bargain). Yet, according to Berners-Lee, it is “the ability to link freely … without limitations regarding the content of the linked site and without monetary fees” that “is fundamental to how the web operates, how it has flourished till present, and how it will continue to grow in decades to come.”³¹ The link tax, by proprietizing the hyperlink and legally enclosing online news, threatens to snip a set of threads tying together the World Wide Web.³² Australia has been a relatively minor player in global internet development, so the Web can likely survive even so fundamental a challenge. But the success of the link tax Down Under could propel the rise of an imitative, rentier class across the globe, each nation snipping away at the threads that bind together the Web. The days of a truly “world-wide” web may be numbered.

To understand just how radical the legal enclosure of hyperlinks could be, consider other similar forms of information and how social benefit is derived from their remaining publicly accessible. Compare a news website to the house you occupy; both required significant expense and effort to construct and furnish. However, owning a house at a particular location does not give the title holder ownership of the street address. That is because there is immense social and civil benefit derived from that address remaining public information – remaining “free as the air.” Its nonownership is a traditional, well-established communal norm. It is useful for taxing authorities, commercial entities, and social connectedness; in the internet age, it is a vital part of services such as Google Maps that greatly benefit travelers.

Turning street addresses into private property could have potential upsides, like helping shield celebrities from stalkers or domestic-abuse survivors from former partners. Perhaps it could even generate rents for those holding these novel rights in street addresses by forcing phone-book companies and registries to pay for listing rights. But more likely, enclosure would simply destroy these networks that provide socially beneficial uses without returning any monetary benefit to the owner.

Indeed, this is the reason why, when looking at the global map of Google Street View locations, you will find large blank spots in Germany. Based on an understandable, historical fear of government surveillance and an emphasis on personal privacy rights, German courts have upheld “informational self-determination” and prohibited corporations from using images of people’s homes or even listing their street addresses without obtaining express permission. Enclosing this category of information – which is freely available in other parts of the world – destroyed much of the social utility derived from Google Street View and did so without returning any kind of monetary benefit to German residents. Given the value Germans place on privacy, it appears to be a price they were willing to pay.³³ But it serves as a reminder that the decision to enclose a commons can generate distributed social costs and informational deadweight losses.³⁴

Or imagine a world in which authors – jealous of the revenue extracted from their hard work by used bookstores or the loss of revenue from library borrowing – convinced the government to proprietize factual information about books.³⁵ In this imaginary world, in order to display a book cover on its shelves or list a book title or description in its catalog, a bookstore or library would need to obtain and pay for the express permission of the newly endowed rights holder. This might create some financial benefit for authors, but it would certainly devastate the used-bookstore and library industries. Given the costs of regulatory compliance and decreased competition, that would leave consumers literarily impoverished with fewer titles carried in fewer locations and at higher prices.³⁶ Likewise, the future of a World Wide Web in which an increasing number of hyperlinks are considered property is an internet composed of fewer links, offering fewer services, and providing less information, even as it returns only a fraction of that lost consumer value to a handful of websites.

18.6 Pass Go and Collect $200

The desirability of a new property right should be determined by weighing its social benefits and detriments. To do so, it is first necessary to study the contexts from which hot news and the link tax originated. Both were rooted in efforts – by the Associated Press in the U.S. in the 1910s and Australian news outlets in the 2010s – to protect natural advantages that were crumbling under technological disruption. In the mid-nineteenth century, a natural monopoly in telegraphy developed in response to its high capital costs and the need for government-granted easements, a situation from which the Associated Press, via its relationship with Western Union, derived a massive competitive advantage. As discussed previously, the late-nineteenth-century erosion of the AP’s derived telegraph monopoly launched both a wave of new competition and Melville Stone’s reactionary hot news crusade.

Australian newspapers at the turn of the twenty-first century did not have a comparable technological advantage, but newspapers in the pre-internet era typically enjoyed a different kind of natural advantage: a geography-based regional monopoly in news provision. As Berkshire Hathaway CEO Warren Buffett once put it, “If you have a monopoly newspaper … your idiot nephew could run it.”³⁷ Buffett backed his words with his wallet, going on a U.S.-newspaper buying spree in the 1970s. By that point, Australian newspaper magnate Rupert Murdoch had already inherited the family newspaper in Adelaide and embarked on his own buying spree of distressed newspapers as the industry consolidated. Classified-ad revenue – which Murdoch once described as “rivers of gold” – was the financial bedrock on which Murdoch ultimately built a network of domestic broadcast stations, international newspapers, and, in 1996, a new American cable news network, the Fox News Channel.³⁸

But by the 2000s, it was apparent that technological disruption of the newspaper industry was on the horizon. Online classified-ad platforms provided a better, faster, and cheaper service to consumers than print newspapers could, and newspaper owners were generally slow to pivot and create their own online platforms lest they cannibalize their existing business model. In addition, some of the earliest online news aggregators did not merely share links to articles hosted on the newspaper’s own websites – driving display-ad revenue – but simply copied the content wholesale and posted it on their own sites. By the end of the decade, the newspaper industry’s income had fallen precipitously; at The New York Times, for example, revenue had halved from $3.27 billion in 2006 to $1.59 billion in 2012.³⁹ But the paper’s executive editor Bill Keller blamed not the direct copiers – which could be, and often were, sued for copyright violations – but aggregators like The Huffington Post, which merely linked to The Times’ articles, and which Keller dramatically compared to Somali pirates.⁴⁰

The frustrations of newspaper owners percolated up to the Associated Press, which announced its intent to spend more on its legal efforts to win “appropriate compensation” for its newsgathering. Like in Australia, the primary cause of newspaper revenue decline was the loss of classified ads, but there was nothing the NYT or AP could do about the likes of Craigslist and other classified ad platforms. They could, however, target early news aggregators like The Huffington Post and Drudge Report, which were dependent on linking to newspapers. The Associated Press had waged a war against news piracy in the early twentieth century; and in the early twenty-first century, the Associated Press and member newspapers charged once more into the breach, albeit one opened by the advent of the internet instead of the decline of a telegraphic monopoly.

Little about the rhetoric involved had changed in a century. Back in 1917, district court judges had accused the International News Service of being a “parasite,” which by “taking the news” would kill off the Associated Press and then “meet the same fate that every parasite meets,” dying “with the stock upon which it feeds.”⁴¹ Likewise, a 2009 article in the Los Angeles Times was titled “Internet Parasites” and opened with an elaborate analogy in which newspapers were compared to the hardworking, bread-baking Little Red Hen of the eponymous folk tale, while online aggregators played the role of the lazy dog, cow, and pig who “undercut her price and each other’s” until all were driven out of the bread business.⁴²

The moment also demonstrated the continuing relevance of Melville Stone’s crusade for hot news. From 2008 to 2012, a wave of scholarship and activism called for a revival of a federal hot news doctrine (which had lapsed in the 1930s) with INS v. AP as a precedent.⁴³ If news itself – and not just copyrightable stories about the news – were considered a form of quasi-property, then free-riding online papers and bloggers would have to either wait to publish their own derivative articles or pay the newspapers for the right to do so promptly. Yet while a closely watched Federal Trade Commission panel in 2009 discussed “potential revenue sources from changes in law” to bail out the newspaper industry – including federal hot news legislation – the proposals went nowhere in either Congress or the courts.⁴⁴ In part, that was because early aggregators were small fry; the oft-maligned Huffington Post, for example, had only $30 million in revenue in 2010, at which point the NYT was seeking to recoup nearly fifty times that amount.⁴⁵

18.7 “Advertising Only Is Dead”

In any case, by the middle of the decade, the larger American news outlets had discovered a new, even more successful financial model. The newspapers might have lost classified ads and their regional monopolies, but they now enjoyed a potentially global audience in which the marginal cost of every additional subscriber was zero. They slapped up subscription paywalls, dribbled out a handful of free news articles each month to inveigle new subscribers, and watched their subscription bases swell. For example, The New York Times had flipped its $88 million operating loss in 2012 into a $109 million profit by 2021, in large part by multiplying its online subscriber count from less than one million readers to more than ten million.⁴⁶ With growth and profits this torrid, demand for a revived hot news doctrine went cold.

However, the idea of a quasi-property right in news persisted Down Under. While the NYT and Associated Press complained and dithered, Rupert Murdoch acted. In an insightful speech at a Federal Trade Commission Workshop in 2009, Murdoch acknowledged that “the old [newspaper] business model based on advertising-only is dead” and any replacement “that relies primarily on online advertising cannot sustain newspapers over the long term.⁴⁷ The reason is simple arithmetic…. The old model was founded on quasi-monopolies such as classified advertising – which has been decimated by new and cheaper competitors.” Instead, “good journalism will depend on the ability of a news organization to attract customers by providing news and information they are willing to pay for.” By 2009, Murdoch had already begun to pivot to a subscription model, well before his peers.⁴⁸

Murdoch’s acute business analysis did not, however, alleviate his sense that news aggregators were unfairly appropriating his content. He decried those who “take our news content and use it for their own purposes without contributing a penny to its production,” and some who “rewrite, at times without attribution, the news stories of expensive and distinguished journalists … all under the tattered veil of ‘fair use’” but which is truly “theft.” Bear in mind that his speech was titled, “From Town Crier to Bloggers: How Will Journalism Survive the Internet Age,” suggesting a capacious definition of unfair online competition. Murdoch might have made the smart move and pivoted his newspapers to a subscription model, but he was still determined to crack down on bloggers, aggregators, and copiers by restricting their right to profit from his news articles without his express permission. “There’s no such thing as a free news story,” Murdoch enjoined, “and we are going to ensure that we get a fair but modest price for the value we provide.”⁴⁹ Of course, what Murdoch saw as collecting a “fair but modest price,” critics saw as him extracting a pound of flesh – vengefully taking that which was not his by right.

While the push for an enhanced property right in news in the United States stalled, Murdoch was able to take advantage of his even greater influence over Australian media and politics. As Rod Sims – the head of the Australian Competition and Consumer Commission, which drafted the mandatory-bargaining rules – acknowledged, it was Rupert Murdoch who first proposed a link tax.⁵⁰ Sims recently stepped down, but Murdoch’s personal influence within the link tax regime is likely to continue given that the new head of the competition committee, Gina Cass-Gottlieb, is a former director of the Murdoch family trust.⁵¹

18.8 Concentrate, Consolidate

Rupert Murdoch is both the driving force behind the Australian link tax and its greatest beneficiary. That is because the Australian newspaper industry is one of the most highly concentrated in the world. One study of media concentration ranked it third out of thirty countries, behind only China and Egypt, which have nationalized news outlets and authoritarian governments. It is so concentrated that more than half – 51.9 percent – of all newspaper readership in Australia goes to newspapers affiliated with Murdoch’s News Corp. Throw in the next three networks by size, and only 7.4 percent of the market is left for independently owned papers.⁵² It should not be a surprise that Murdoch’s News Corp and the Nine Network together received over 90 percent of the total money brokered between Google, Facebook, and Australian newspapers. The largest conglomerates in a highly concentrated industry are naturally best able to extract the greatest financial returns from the new regulations they helped design.⁵³

This is an expected outcome from informational enclosure. As legal scholar Yochai Benkler notes, enclosure increases input costs for everyone “because some information previously available at no charge from the public domain is now available only for a price.”⁵⁴ Previously, another website or aggregator could freely link to a news article; doing so now, however, comes at a cost. News producers and distributors can compensate for those higher costs by either sharing fewer links or by adjusting their organizational strategy to reduce costs – merging, in this case.⁵⁵

Benkler’s taxonomy of organizational structures can be adapted to the Australian media landscape. News Corp is a blend of two organizational forms. It is, like most traditional newspapers, a “quasi-rent seeker,” an entity that sells exclusive access to a time-sensitive product.⁵⁶ But News Corp is also something that Benkler calls a “Mickey” (after Disney’s famous Mouse), meaning a highly integrated firm with a large catalog of valuable content. News Corp is horizontally integrated across a national network of newspapers and radio and television stations. A quasi-rent-seeking “Mickey” has the most to gain from enclosure because the value of its large informational holdings increases; and it has the least to lose since horizontal integration mitigates increased transaction costs by allowing resource-sharing from across the firm. In short, member newspapers do not have to pay to link to each other, while non members do.

This incentivizes smaller newspapers to merge or to join with larger existing firms. Enclosure thus propels consolidation “of a greater portion of the information production function in the hands of large commercial organizations.” In 1999, Benkler presciently predicted that “a world dominated by Disney, News Corp., and Time Warner appears to be the expected and rational response to excessive enclosure of the public domain.”⁵⁷ Given that Australia already has one of the most concentrated news industries in the world, the anti-competitive effects of enclosure should be a particular concern.⁵⁸

There has already been a severe imbalance that is evident when looking at which companies have benefited from Australia’s mandatory-bargaining regime. Big newspaper conglomerates like News Corp, Seven, and Nine have each won tens of millions of dollars from Google and Facebook. But smaller, nonprofit, and public outlets have struggled to receive the same consideration. Ostensibly, the mandatory-bargaining rules allow these outlets to appeal to the Australian federal treasurer, who can impose arbitration (although the treasurer has yet to do so in any instance). However, even if the rules functioned as designed, smaller outlets would still simply have “less clout than a bigger player, than a News Corp,” in the words of media critic Jeff Jarvis.⁵⁹ That includes Croakey Health Media, which reaches indigenous communities with health information. Croakey’s editor-in-chief, Melissa Sweet, has asked the federal treasurer to compel Google and Facebook to begin mandatory bargaining, but she worries that they “do not have that political power.” A system that requires companies to “bend the ear of the Treasurer” if they are unable to strike a deal with Google or Facebook on their own is a system that will be more responsive to the likes of Rupert Murdoch than to those like Melissa Sweet.⁶⁰

Furthermore, an anti-small bias is designed into the mandatory-bargaining code. It expressly limits mandatory-bargaining rights to news organizations with a minimum of $150,000 in revenue. That excludes most bloggers, newsletters, nonprofits, and even small startup newspapers. The $150,000 limit would be an unusual criterion if the goal of the link tax, as originally stated, was truly to enforce “fairness” in the distribution of the news by ensuring that aggregators pay all newsgatherers. But if the goal is merely financial redistribution from Big Tech to Big Ink – from Google and Facebook to News Corp and other news conglomerates – then it makes perfect sense.⁶¹

The problem is that enclosure, in general, creates incentives for consolidation, just as Yochai Benkler predicted a quarter of a century ago; creating this kind of size threshold only heightens the consolidation pressure for companies that would benefit by meeting it. For example, Broadsheet Media – a small Australian city guide specializing in restaurant reviews – falls below the mandatory-bargaining threshold and thus cannot compel Google to offer them compensation for linking users to their restaurant recommendations. But if a larger conglomerate newspaper were to start a competing culture guide in Broadsheet’s market, it would be qualified for mandatory bargaining, thus driving Broadsheet out of business or into a merger.⁶²

18.9 “Property Rights Talk”

The early returns from Australia’s link tax suggest that there will be anti-competitive outcomes. The history of the hot news doctrine is instructive in this regard. After the victory in INS v. AP, the Associated Press grew enormously, with membership swelling from 35 percent of all daily newspapers in 1912 to 67.8 percent by 1948, while total revenues nearly tripled. The ratio was even more skewed for morning newspapers, of which a remarkable 96 percent were affiliated with the AP by the 1940s.⁶³ Indeed, AP head Melville Stone had worried that the U.S. Supreme Court’s decision was so useful to the AP’s enterprise that it might “destroy our competition or hamper it in such measure that it will make us seem a monopoly,” thus attracting “very dangerous” antitrust attention. The longstanding goal of Associated Press leadership in the early twentieth century was not monopoly power but “moderated competition.”⁶⁴

From Stone’s perspective, the hot news doctrine would cement the AP’s control over existing members, who were restive over high telegraphy fees, worried about the promise and peril of radio news, and tempted to leave because of the AP’s reluctant decision in 1915 – under antitrust pressure from the U.S. attorney general – to allow members to receive news from competing wire services.⁶⁵ By reducing free-riding by non-members, the hot news standard would theoretically raise the costs of leaving the AP fold. However, Stone stepped down from his active duties shortly after the legal victory, and his successor, Kent Cooper, did not share Stone’s interest in pursuing a hot news-based, anti-competitive strategy. Instead, Cooper reduced fees while increasing the number of member newspapers.

Cooper’s approach worked to the benefit of William Randolph Hearst, who was not only the head of the INS but also the single largest owner of newspapers with AP memberships. Hearst had lost INS v. AP in his capacity as INS head, but his AP holdings hedged that loss significantly. Indeed, the post-case boom in the size of the AP meant that even more of Hearst’s papers were quickly added to the AP fold. For Hearst, creating the INS was at least in part a way to increase his bargaining power within the AP – a way to pressure it to loosen its cap on the number of newspapers allowed into membership.

It is also a reminder that the point of asserting an informational property right can be something other than the direct financial benefit that it entails. Even if a property right is never formalized nor defended in court, its mere existence – and the implied threat of assertion – can boost negotiating power or constrain unwanted behavior. Publisher and AP member Horace Greeley once described the inveterate complaints about news piracy as something “talked of for effect’s sake.”⁶⁶ Complaining has its own utility, a function that the AP’s Stone sought to boost by inventing a novel property right in hot news.

This “property-rights talk,” to use legal scholar Douglas Baird’s phrase, may bear on the Australian link tax situation.⁶⁷ If the goal of inventing a novel quasi-property right over hyperlinks was the creation of an equitable and transparent redistribution process, then the chosen mechanism has already proven itself to be a failure. But if the link tax’s goal was instead to bolster the bargaining power of well-connected, incumbent newspaper conglomerates, then the link tax has been a major success. That distinction also makes sense of the fact that the mandatory-bargaining system has yet to be formally invoked by Australia’s federal treasurer. The system’s nominal purpose and actual function are quite different. By persuading Google and Facebook to sit down with large outlets like News Corp, the link tax may have already fulfilled its true purpose.

18.10 Censorship and Consensus

There are other negative consequences that stem from informational enclosure beyond industry consolidation and diminished competition. When the consolidated power of an industry is dependent on governmental support, it exacerbates the risk of either overt censorship or the creation of an artificial consensus. It is too early to predict any particular outcomes from Australia’s link tax in this regard, but there are warning signs. The tax vests a great deal of discretionary power in a single, appointed position: the federal treasurer. And the mandatory-bargaining process is a black box. Initial negotiations between news outlets and aggregators are private. If those negotiations fail and an appeal is filed, the federal treasurer is under no obligation to explain why they mandated arbitration or chose not to. When concerns about the opacity of the bargaining process were raised, the head of the Australian Competition and Consumer Commission retorted that “the objective was never transparency…. The simple thing was evening out the bargaining power. If deals are done that the media companies are happy with, then it’s a success.”⁶⁸ It is hard to imagine a design more likely to result in regulatory capture and untoward political influence on behalf of favored media groups.

There is a subtler danger than overt censorship. News media consolidation tends to favor centrist politics and the creation of ideological consensus. Smaller, more radical newspapers will naturally have greater difficulty than larger firms in building the political capital needed to “bend the ear” of a partisan treasurer or their appointed arbitrators. Without intending to, the link tax could set the stage for decreased ideological diversity in the output of the Australian newspaper industry.

Something similar happened in the aftermath of the hot news doctrine. Although the test case in INS v. AP involved news piracy in Cleveland, Ohio, the subject of the pirated wires was the world war being waged in Europe. Hearst had developed a pro-German reputation prior to U.S. entry into the conflict, becoming the “most hated man in the country” (though he averred that his anti-war views made him “the only powerful sane man on the mad planet”). Hearst changed his tune after the U.S. declaration of war in 1917, but by that point, each of the major Allied governments had already barred INS reporters from using their cables or postal services, angry about INS newspapers running unapproved (but mostly true) stories about various military setbacks and political machinations. Hearst sounded a defiant note – “I will not supplicate England for news”! – but his newspapers still needed coverage from the front.⁶⁹ Hearst was forced to rely heavily on information obtained from the AP’s wire reports and did so until he was caught in Cleveland. By contrast, Stone and the AP had deferred to French and British censors and had earned special, expedited privileges for AP reports.⁷⁰ Back in the United States, the AP encouraged President Wilson to create a censorship board and pledged its “hearty support” for the war effort.⁷¹

In this context, granting a property right over hot news reinforced wartime censorship by guaranteeing that the most enthusiastically pro-government wire service carried the freshest news. In his dissent from INS v. AP, Justice Brandeis recognized this problem, noting the “danger involved in recognizing such a property right in news” when it aligned with “prohibitions imposed by foreign governments.”⁷² There were even concerns within the AP about the situation. Stone’s successor, Kent Cooper, later said that he “disliked the idea of the Associated Press having exclusive access to and being an outlet for the propaganda tainted announcements of foreign governments, which in effect set The Associated Press up as the exclusive mouthpiece in America for these governments.”⁷³ That kind of knock-on government censorship is relatively easy to spot. There is, as of yet, no evidence of a similar problem in Australia today involving the link tax.

However, what is less visible but no less pernicious are the ways in which enclosure and consolidation can stifle peripheral voices, creating an artificial ideological consensus even without formal censorship. By the early twentieth century, the Associated Press had earned a reputation for conservatism, opposition to organized labor, and disinterest in racial issues. Garrison Villard, owner of The Nation, accused the AP of siding “in ninety-nine cases out of a hundred” with “the views of the employing class.”⁷⁴ INS, on the other hand, reflected Hearst’s more progressive politics, his desire to “see the press fulfill its noble calling, and as the mouthpiece of the people, rule, regulate, and reform the world.”⁷⁵ Other, smaller newswires cropped up in the 1900s and 1910s to address the oversights of the AP, including the Federated Press, which served a group of socialist newspapers, and the Associated Negro Press, which reached a growing national network of black-owned newspapers. The hot news standard was never strictly enforced, but a rigorous hot news regime would have been damaging for these second-tier newswires, which often relied upon basic information gleaned from the AP. Through its cozy relationship with the federal government and a relative disinterest in serving radical or marginalized communities, the AP’s rise to predominance by the 1940s may have played an important role in the formation of the post–World War II liberal consensus.⁷⁶

18.11 Friend or Foe?

Censorship concerns aside, it is possible that the link tax’s bark will be worse than its bite, as was the case with the hot news doctrine. The mandatory-bargaining rule has yet to be formally invoked or challenged in court. And the major news conglomerates do have a substantial interest in keeping news aggregators in the Australian market. Perhaps the strangest aspect of the rhetoric revolving around the link tax is that it often assumes an unnecessarily adversarial relationship between news producers and news aggregators. Remember, aggregators did not cause the decline of local newspapers. Aggregators actually provide crucial assistance to papers that have been able to transition away from peddling classified ads and instead pivoted towards a subscription-based financial model. Aggregators function as global discovery and distribution networks for newspapers, which is why newspapers almost invariably keep their websites open to search-engine indexing. If news-aggregator “piracy” were truly a problem, stopping Google would be as easy as inserting a simple text file (robots.txt) into a website’s code. It is so easy that U.S. courts have recognized that the failure to implement such code grants an “implied license” to aggregators to index and link to a website.⁷⁷

That discovery-and-distribution function has significant monetary value. Google claims to direct consumer referrals worth $218 million to Australian media companies yearly. Facebook claims $407 million.⁷⁸ Both companies have an incentive to exaggerate their contribution, but their willingness to pay hundreds of millions to stay in the Australian news market suggests that it is not too far from the truth. And the value of news aggregation is backed by research from overseas. When Spain passed a tax on snippets (the brief description of a website that appears below the hyperlink), Google News pulled out of the country entirely, giving researchers a natural experiment about the effects of (dis)aggregation of online news. All eighty-four major Spanish online newspapers lost a huge amount of traffic and revenue, with the losses concentrated among the smallest newspapers.⁷⁹ By severing the mutually beneficial relationship between news producers and news aggregators, Spain’s snippet tax left everyone poorer and consumers less informed.

Australian newspapers will naturally wish to maximize their share of the revenue from mutually beneficial deals struck with aggregators. But they also have an incentive not to completely drive aggregators away, as happened in Spain. The best-case scenario would be that the link tax is an extreme example of “property-rights talk” or jawboning, not an effort to create a quasi-property right over hyperlinks. If it is jawboning, the link tax is a signal that Australian newspapers want to be taken seriously, not literally. It would then merely reset the bargaining equilibrium at a different value proposition than if the link tax did not exist. Such a scenario may be true, but it is a dangerous game to play, given the high stakes involved.

Policymakers in Canada, the United Kingdom, and the European Union are looking to Australia’s experience for guidance while considering implementing their own versions of a link tax.⁸⁰ But a link tax can undermine mutually beneficial exchange, that is, news producers receiving free distribution and distributors accessing free content, and generate significant downside risks, for example, inequitable enclosure, corporate consolidation, ideological consensus, and a snipped World Wide Web. Thus, a link tax is a questionable option for addressing the decline of the legacy news industry. If redistribution of online revenue is a priority for policymakers, then almost any other mechanism for accomplishing that goal would be preferable.

19 Structuring a Subsidy for Local Journalism

Kyle Langvardt

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19.1 Introduction

The commercial market for local news in the United States has collapsed. Many communities lack a local paper. These “news deserts,” comprising about two-thirds of the country, have lost a range of benefits that local newspapers once provided. Foremost among these benefits was investigative reporting – local newspapers at one time played a primary role in investigating local government and commerce and then reporting the facts to the public. It is rare for someone else to pick up the slack when the newspaper disappears.

The local newspapers that do remain in operation are badly diminished. Most have cut their print circulation either by narrowing geographical reach,¹ distributing the paper only a few days a week,² or moving to an online-only model. Almost all surviving newspapers have made severe cuts to reporting staff. These cuts have diminished the quantity and depth of local coverage. Investigations that dig beneath the surface of police reports and press releases are costly and beyond most surviving newspapers’ means. It is much more convenient, and much more common, to run low-cost pro forma stories that merely repeat the official line.

Local newspapers of the twentieth century had their own problems, but overall these problems were much less dire. When newspapers made cuts and their quality suffered, it was usually because management wanted to report high profit margins to investors.³ But revenues themselves remained quite high.⁴

Revenues were high because twentieth-century papers inhabited a technological “Goldilocks zone.”⁵ The high cost of printing created economies of scale – big papers with big printers incurred less cost per page, so markets naturally encouraged papers to grow their operations. Distribution costs went up over long distances, though, so it was not generally in a publication’s interest to grow the audience by acquiring long-distance subscribers. Instead, the most successful operations achieved scale by saturating the local market.

Under these conditions, most local markets could only support one or two such printer/distributors – and this monopoly or duopoly on printing and distribution served as an anchor for a newspaper’s entire operation. The lack of competing publisher-distributors, in turn, created opportunities to package and sell a “bundle” of sports, lifestyle, home and garden, and local and national news. The inclusion of classified ads and advertiser-friendly “soft” content in the bundle allowed newspapers to cross-subsidize the costly work of investigative reporting.

The internet has destroyed the Goldilocks zone that made this business model possible. Today the marginal cost of distribution is zero, and geographical distance is irrelevant. Economies of scale remain, but local journalism institutions are in no position to capture them. Many readers access content on an à la carte basis, typically mediated by some type of online recommendations platform, and the old bundle of “hard” and “soft” content, “local” and “national” content, is no longer marketable.

These market changes have not wiped local news out completely. Some high-quality paywalled products have enjoyed significant success. Mega-papers such as The New York Times or The Guardian can still thrive by marketing a multimedia super-bundle to far-flung subscribers. But this model only seems possible in very large urban markets, and even when it works, the need to reach out-of-town readers can create pressures for a newspaper like The New York Times to divert reporting resources away from New York City concerns.⁶

Other publications have found success by publishing some kind of a smaller product, such as a newsletter, behind a paywall. The Charlotte Ledger, for example, offers a daily Substack letter to about 2,000 subscribers for $99 per year. Downtown Albuquerque News offers a weekday online-only paper to 450 subscribers for $100 per year. This appears to be a sustainable business model, but one that is probably incapable of producing a volume of content that is comparable to that of a traditional paper.⁷

Some philanthropy-funded, donor-funded, and/or VC-funded outlets have emerged as well, and these often produce high-quality content. But even in large markets, these outlets are unlikely to have the bandwidth to produce the volume and variety of content found in a traditional newspaper, or to achieve the market saturation necessary to play the central role in community life that local newspapers did during most of the twentieth century.⁸

At one time, many hoped that the internet would create new opportunities for volunteers to produce free community journalism – and at some level it has. Quite a bit of social-media activity involves communications that some might consider reporting – even on the low-profile app NextDoor, users “report” (and misreport) suspicious activity on their block. But volunteer reporting, typically uncoordinated, has obvious limits as a substitute for an industry that employs full-time professional reporters.⁹ Indeed, the low-quality information that amateurs and saboteurs circulate on social media and in similar settings only intensifies the public need for professional journalists to play a corrective role.

This is all to say that there is little reason to expect the private sector to produce any reliable, widely reproduceable model to recover what has been lost – or that it is unlikely, at least, that any such model will emerge on an acceptable timescale.¹⁰ If commerce, philanthropy, and volunteerism will not sustain high-quality, wide-circulation local journalism, then the only viable models for journalism will have to depend for financial support on the government.

19.2 Public Media and Subsidized Private Media

Almost all wealthy democracies give substantial financial support to news media. But in the United States, there is a widespread and deep-seated fear among American policymakers and journalists themselves that government actors will inevitably capture and exploit media organizations that depend on public support. This fear explains – or at least provides a rationalization for – America’s uniquely stingy approach to its news media. According to research conducted by Timothy Neff and Victor Pickard, the United States spends just $3.16 per person on its public media, while Germany spends $142.42 on public media per person, Norway $110.73, and the UK $81.30.¹¹

America’s concern about state capture is probably somewhat excessive – the sky has not fallen in Iceland, where per-capita state expenditures on media outstrip those in the United States by a factor of about 13 to 1. Yet state capture is not an entirely unrealistic concern either – state institutions in flawed democracies around the world have used subsidies to influence news coverage, and America’s increasingly troubled political system is nothing if not “flawed.” The question, then, is how to structure a subsidy for local journalism that mitigates the state-capture concern as well as is reasonably achievable.

There are, broadly, two ways for the public sector to support journalism financially. The United States practices both methods in modest ways, but at nowhere near the levels that most wealthy democracies do.

19.2.1 Public Options

The first approach would provide a journalistic “public option” that operated alongside any number of private media companies. The UK’s British Broadcasting Company offers a famous and highly successful example of this approach. The United States has its own public options – the Corporation for Public Broadcasting, Radio Free Europe/Asia, Stars and Stripes, and so on – but at a much smaller scale. In principle, the United States could dramatically expand these offerings at all levels, including local levels, until they compensated for the collapse of the commercial market for journalism.

There is no reason to worry, under existing First Amendment doctrine, that an expanded public media system would run into serious constitutional trouble.¹² But the politics look almost prohibitive. Since its inception, Republican leaders have called to defund the CPB, and at various points they have come close. At one time, PBS and NPR relied on direct federal funding as a primary revenue source; today, federal funding accounts for only about 15 percent of PBS’s budget and 2 percent at NPR.¹³ Republicans have historically lambasted NPR and PBS for alleged “liberal bias,” and the “bias” against the GOP has only grown stronger during the Trump years and beyond as party leaders have embraced flagrant lies about the 2020 election and other crucial matters. Short of a realignment in American politics, it is hard to see how a serious expansion of domestic public media could make its way into law.

19.2.2 Broad-Based Subsidies

An alternative to a public media option would involve direct subsidies for private media institutions. Almost since its founding, the U.S. Postal Service has subsidized newspapers and magazines, albeit indirectly, with free or reduced-rate (“second-class”) postage. Today, several media organizations have registered with the IRS as tax-exempt charitable organizations. And as discussed in Laurie Thomas Lee’s chapter in this volume, private local broadcasters receive an effective subsidy from cable carriers in the form of carriage fees that are required under law.¹⁴

These kinds of policies have never attracted the same kind of political attacks as public broadcasting. One can speculate why. Perhaps public broadcasting makes an easier target simply because PBS, NPR, and the Corporation for Public Broadcasting are high-visibility brands, while second-class postage and Section 501(c) of the tax code are not. Maybe public broadcasting’s Great Society roots trigger a vindictive reflex in Republicans, and none of the media-subsidy programs have a similarly partisan pedigree.

Or perhaps the reason that media subsidies do not draw significant fire is that so many of their would-be critics – small-government think-tanks, conservative print media, local broadcasters – are themselves beneficiaries of the subsidy. Such institutions may argue from time to time that some other organization should be either included or excluded in the subsidy.¹⁵ But few organizations are likely to argue that “their” subsidy should be cancelled across the board.

These observations suggest that a broad-based, boring, and ideally bipartisan subsidy for local news could hold up well politically. A broad-based subsidy would mollify its own would-be critics; a boring subsidy would be hard to campaign against; and a bipartisan subsidy, if possible, would be harder to attack as the other party’s dastardly deed.

19.3 Concerns about Constitutionality and State Capture

Even assuming that a broad-based subsidy is politically achievable, however, it is also likely to draw a constitutional challenge. Such a challenge would almost certainly center on the program’s eligibility criteria and the compatibility of these criteria with the First Amendment.

A completely neutral subsidy available to any media organization that wants it is not desirable. However broadly the subsidy might be drawn, it will have to exclude at least some media institutions to achieve its goals. A subsidy for local news, for example, would probably exclude media institutions that do not report news at all, or that consist entirely or primarily of commentary on national developments. Beyond this basic criterion, one can also expect that the subsidy would require beneficiaries to meet some minimum threshold of quality and human decency.

All these requirements would favor some kinds of speech over others. This favoritism could pose a serious problem if courts apply the “public-forum” doctrine – an uneven but often severe set of First Amendment rules for public programs that underwrite private speech. But it is also conceivable that courts would view a local-news subsidy as the government’s own speech rather than as a form of regulation and, on that basis, exempt the program from any kind of First Amendment scrutiny at all. The stark difference between these two doctrinal worlds – government speech versus public forum – makes it very important to determine which one of them we are in. And if it is impossible to answer this question conclusively up front, then we should determine how likely it is that a court would apply public-forum principles to the kind of broad-based subsidy we have in mind. If it seems likely that courts would apply the public-forum doctrine to the subsidy, then the subsidy’s designers would have to tread lightly to avoid invalidation.

19.3.1 Subsidies as a Public Forum

The discussion in Rosenberger v. Rector and Visitors of the University of Virginia,¹⁶ a seminal public-forum holding, illustrates why a subsidy would likely be construed as a public forum. In that case, the University of Pennsylvania maintained a fund to cover printing costs for publications by student groups. Under the policy, these publications could cover “student news, information, opinion, entertainment, or academic communications media groups.”¹⁷ The policy nevertheless excluded “religious activities,” which in relation to the printing fund meant any publication that “primarily promotes or manifests a particular belie[f] in or about a deity or an ultimate reality.”¹⁸

The Supreme Court held that the exclusion for “religious activities” violated the First Amendment. “[V]iewpoint-based restrictions are [not] proper,” it explained, “when the University does not itself speak or subsidize transmittal of a message it favors but instead expends funds to encourage a diversity of views from private speakers.”¹⁹ For the Court, it was untenable to frame the University’s printing fund as a government speech when the University itself had “declared that the student groups eligible for SAF support are not the University’s agents, are not subject to its control, and are not its responsibility. Having offered to pay the third-party contractors on behalf of private speakers who convey their own messages, the University may not silence the expression of selected viewpoints.”²⁰

Now consider a hypothetical subsidy program to shore up local media around the country. The parallels to Rosenberger seem unavoidable. Like the university fund, our subsidy for local news organizations would subsidize private speech with government funds. And to preserve the credibility of news organizations that took the subsidy, the subsidy’s enabling law would almost certainly include some express public assurance – much like the University’s in Rosenberger – that the subsidy’s recipients were “not [government] agents, not subject to its control, and not its responsibility.”²¹ Such assurances are routine when the government underwrites media, and it is hard to see why a subsidy for local news would not work the same way.²² Indeed, the norm is so accepted that a court might read some protection for editorial independence into a statute that did not provide for it expressly.²³ In any event, a broad subsidy with protections for editorial protection would be hard to characterize as government speech, and easy to characterize as a public forum.

19.3.2 Avoiding “Viewpoint Discrimination”

If our subsidy is indeed a public forum, then it must be held out on broadly equal terms. The details are complex, but suffice it to say that viewpoint discrimination in such a “forum” is broadly prohibited. Discrimination on the basis of subject matter, meanwhile, is often upheld “where a government ‘reserv[es a forum] for certain groups or for the discussion of certain topics,’”²⁴ so long as the subject-matter rules are reasonable and viewpoint-neutral.²⁵

In practice, however, the allowance for viewpoint-neutral subject-matter restrictions does not go as far as one might expect. This is because courts throw the phrase “viewpoint” around rather liberally, and in a way that sometimes covers classifications that read more intuitively as having to do with topic or subject matter. In Rosenberger, for instance, the category of “religious publications” included publications that either represented or opposed any religion; this, for the Court, was a viewpoint-based category in spite of its seeming even-handedness.²⁶ In other cases, the Court has treated pharmaceutical-marketing regulations as viewpoint-discriminatory if they treated generic drugs more favorably than the name brand.²⁷ And in a number of cases, the Court has treated general bans on racial or ethnic disparagement, no matter whose group is disparaged, as bans on a viewpoint rather than as bans on a general topic or theme.²⁸ Offensiveness itself is considered a viewpoint.²⁹

Some of the Court’s more activist Justices have blurred the nature of the viewpoint-discrimination rule even further by invoking it to strike down “controversial” speech regulations that offend the “viewpoint” of one of the regulated parties. Unions are “controversial,” for example, so for Justice Alito, it is viewpoint discrimination to pay for collective bargaining from mandatory union fees.³⁰ Abortion is “controversial,” so for Justice Thomas, it is viewpoint discrimination to require crisis pregnancy centers to disclose true information about the availability of family-planning services in the area.³¹ Note that neither the paycheck deduction nor the disclosure requirement actually regulated advocacy or opinion on unions, abortion, or any other “controversial” subject.

I do not mean to suggest that the Court should give the government a pass on genuine viewpoint discrimination when it subsidizes speech. The Court is right – obviously right – that viewpoint discrimination qualifies as a “particularly egregious” form of content discrimination. In the context of media subsidies, viewpoint discrimination marks the line between public media and state propaganda.

What I do mean to point out, though, is that the First Amendment bar against viewpoint discrimination is susceptible to overextension and abuse by courts. This oversensitivity to “viewpoint” concerns could make it very difficult for subsidy designers and administrators to run a competent program.

To illustrate this problem, suppose that the local news subsidy is available only to organizations that spend some given amount of time or space covering local news. This seemingly modest requirement could create a lot of trouble.

19.3.2.1 Localism

Suppose that to receive the subsidy, a local newspaper must show that at least one-third of the stories it runs deal with people who reside or events that occur within a 100-mile radius. Such a rule – the “local” half of a “local news” requirement – would undoubtedly have to do in some sense with the “content” of subsidized papers. But on its own, this localism requirement would be hard to strike down as any kind of “viewpoint” restriction.

A recent case involving an Austin, Texas, signage ordinance deals with a similar issue. The law there put a restriction on the use of digital signs: Owners could use them to display messages about “on-premises” concerns (e.g., “eat here” at a restaurant on the premises) but not “off-premises” concerns (e.g., “Biden/Harris 2020”). The Supreme Court upheld it as a content-neutral time-place-manner regulation because it did not “single out any topic or subject matter for differential treatment.”³²

I grant that the analogy between the Austin signage law and a national media subsidy is somewhat unsatisfying. The expressive stakes in the Austin case were low, after all, and removed from the media context. But the Austin case is not the first time that the Court has upheld a locality preference as content-neutral. It has also upheld a requirement that cable-service providers, notwithstanding their “editorial discretion” under the First Amendment, can be required to carry local television stations as part of a basic cable package.³³ This, for the Court, was also a content-neutral requirement.

Again, there are significant contextual differences between the “editorial discretion” exercised by a newspaper as opposed to a cable-service provider. But very broadly, both cases suggest a somewhat relaxed attitude on the Court toward localism requirements. If the Court was unwilling in these cases to scrutinize locality restrictions as even being content-based, then there is some reason to hope that a locality criterion in the context of a news subsidy would not be considered viewpoint-based.

19.3.2.2 Quality and Professionalism

So far, so good. But realistically, the “local news” concept would incorporate a number of cross-cutting content lines beyond localism. The subsidy might reasonably be limited to reporting on matters of public importance rather than trivial personal matters or neighborhood gossip. There may be some threshold for journalistic quality, or a mechanism to ensure that “hard news” and investigative reporting get the bulk of the subsidy. Chronic defamers or conspiracy spreaders might be disqualified somehow. And so on.

At least some of these lines could become proxies for viewpoint discrimination or state capture. A “journalistic quality” criterion will raise some particularly delicate issues; even if it is defined in a relatively objective way and administered with safeguards against corruption, journalistic quality will correlate at some level with viewpoint. In some situations, such a “journalistic quality” criterion will correlate even more strongly with partisan viewpoint if it is administered well.

Correlation, of course, is not causation or motivation, and under basic doctrinal principles, the First Amendment does not bar policies that have a disparate ideological impact so long as they are neutral by design.³⁴ But the distinction between a neutral requirement and a discriminatory one can be more slippery than one might think.

Journalistic ethics codes, for example, routinely require objectivity in reporting, a wall between reporting and commentary, and fair and respectful treatment of subjects and sources. But even standards designed to promote objectivity and neutrality embody something that could reasonably be called a viewpoint: namely, the “viewpoint from above” that is the hallmark of professionalized mainstream journalism.

At a policy level, one might question how serious a concern this particular kind of viewpoint discrimination really is, and what measures if any might be taken to mitigate or offset it. But under First Amendment law, any subsidy that is conditioned on journalistic professionalism will be vulnerable to challenges based on the formalistic and somewhat obtuse position that the AP reports the news from one viewpoint and Breitbart reports the news from another.

The upshot here is that if the government (1) offers subsidies on a broad basis to journalistic institutions and (2) includes protections for editorial independence, then courts are likely to treat that program as a public forum.³⁵ If the subsidy is a public forum, then it must be defined and administered in a viewpoint-neutral manner. Institutions excluded from the subsidy will therefore bring constitutional challenges that attack various boundary-setting features of the subsidy as being viewpoint-based. And given how broadly and sometimes capriciously the concept of “viewpoint” has been interpreted in the past, it may be very difficult to draft content requirements that are entirely safe from invalidation.

19.3.3 Government Speech?

Recall, however, that there are two conceivable ways to frame a media-subsidy program under the First Amendment: as a public forum or as government speech. So far, I have focused on the public-forum framing because, for reasons I have already discussed, it fits a lot better. But the government-speech framing is also worth discussing – not because it fits the policy particularly well, but because it presents such a tempting shortcut around the meddlesome public-forum doctrine.

The government-speech doctrine rests on the principle that government must be free to project its own viewpoint, and to exclude others’, when it communicates with the public. That implies that when the government enlists private speakers as mouthpieces for the government, the government is not opening any kind of public forum. The government may impose whatever kind of messaging restrictions it pleases on these speakers without triggering any kind of First Amendment scrutiny.

To expand on this theme, one might say that if the government wishes to use its “voice” via media subsidies to strengthen democracy and public knowledge through a strong, independent, and pluralistic press, then it should not also have to underwrite propaganda outlets that lie to the public and undermine democracy.³⁶ The government-speech concept, at first impression, captures this idea in an appealing way. As Justice Alito has memorably observed, the United States did not, by accepting the Statue of Liberty from France, assume a duty to accept “other statues of a similar size and nature (e.g., a Statue of Autocracy, if one had been offered by, say, the German Empire or Imperial Russia).”³⁷

The catch, of course, is that the government-speech doctrine cuts both ways. The government can always accept the Statue of Autocracy and reject the Statue of Liberty. And applied to a media subsidy, the government-speech framing would empower the government to structure the subsidy in abusive and anti-democratic ways without any meaningful judicial oversight.

Between the highly restrictive public-forum doctrine and the completely ambivalent government-speech doctrine, the Court has thus put forward an all-or-nothing model for analyzing governmental speech supports under the First Amendment. And as noted above, I think the Court would be far more likely to put a broad-based, even-handed local media subsidy into the “public forum” box than the “government speech” box.³⁸ But note that in holding out these two alternatives, the Court signals perverse incentives to Congress. If Congress designs up a subsidy that encourages a “diversity of views”³⁹ and includes protections for editorial autonomy, then its program will become a litigation magnet under the public-forum doctrine; if Congress strips out the editorial protections and encourages newspapers to toe the government’s line, then the program might be upheld as government speech. Or at least that is how the existing case law makes it look.

National Endowment for the Arts v. Finley⁴⁰ illustrates, in a lower-stakes context, the kinds of political and legal difficulties that legislators, administrators, and courts may someday face when considering a national subsidy for local news. The National Endowment for the Arts awards grants to artists and arts organizations based on a standard of “artistic excellence and artistic merit.” In the early 1990s, the NEA sustained heavy criticism for funding works that were in one way or another created to shock mainstream sensibilities. The most controversial among these works involved religious desecration, nudity, or explicit depictions of sex.⁴¹ Congress responded to the controversy by amending the NEA’s statutory guidelines to require the NEA to “take into consideration … general standards of decency and respect for the diverse beliefs and values of the American public.”⁴²

The NEA was set up to be administered apolitically. But by requiring the NEA to consider “decency and respect,” Congress obviously wanted the NEA to consider whether an artist’s work offended mainstream sensibilities. And “giving offense,” as the Court has noted more recently, “is a viewpoint.”⁴³ This viewpoint discrimination is not a problem if the NEA’s subsidy is seen as government speech; but it is a big problem if NEA funding is considered a public forum.

Finley presented Congress with a problem similar in some respects to the one the government might face if it was trying to exclude fringe publications – neo-Nazis, jihadists, QAnoners – from a media-subsidy program. Any viable, politically sustainable program has an interest in not getting caught funding flamboyantly offensive projects. Yet preventing offense is exactly what the First Amendment forbids the government to do when it sets up a public forum. Read simply, the public-forum doctrine would seem to force the government to choose between an unconstitutional policy and a politically vulnerable one.⁴⁴

Justice O’Connor, writing for a six-Justice majority in Finley, found a way to finesse the issue: She and the majority upheld the program based primarily on the fact that the “decency” criterion was merely one factor to be considered as part of a competitive grantmaking process rather than a binding requirement for funding. Even assuming the NEA was a public forum, the new statutory guidelines were simply too ineffectual for the Court to “perceive a realistic danger that [they would] compromise First Amendment values.”⁴⁵

Yet this “merely a factor for consideration” reasoning ultimately dodges the issue, as Justice Souter argued in a lone dissent: “What if the statute required a panel to apply criteria ‘taking into consideration the centrality of Christianity to the American cultural experience,’ or ‘taking into consideration whether the artist is a communist,’ or ‘taking into consideration the political message conveyed by the art,’ or even ‘taking into consideration the superiority of the white race’?” he asked.⁴⁶ In any of these situations, it would be impossible to disregard the censorial implications.

Justice Souter’s point here is surely correct. Yet Justice O’Connor’s small concession to political reality may well have done more to preserve the arts as a going concern in American life. Even so, it is hard to read Justice O’Connor’s opinion as anything but a punt – a way to give Congress a pass in this case while still preserving the option, under public-forum doctrine, to invalidate some other more troubling restriction on arts funding in a later case.

Justice Scalia, concurring in the judgment, would have cut the Gordian knot by calling the whole NEA a form of government speech and unshackling the government to set the message however it wants.⁴⁷ But in a country where arts organizations typically rely on NEA funds to cover about a third of their budget, the “government-speech” approach would allow the government to play a disturbingly authoritarian role in the arts world. It would leave the government free, for example, to withdraw sustaining support from community theaters whose programming is critical of the president’s party. In recent years, the leaders of countries experiencing “democratic backsliding” have exploited subsidies for arts, science, and journalism in just this way.⁴⁸

19.4 Limited Options

In sum, the First Amendment as currently interpreted seems to allow three broad strategies to support local media:

1. 1. Congress may create its own media institutions and then provide them the financial resources to run local affiliates around the country. These institutions may be in the mold of the Agency for Global Media, which is housed within the State Department, or it may be a publicly funded nonprofit corporation like the Corporation for Public Broadcasting. The Supreme Court has held that government may do this without inadvertently opening a public forum. That means that Congress should have the ability to require the new media institution to observe norms of professionalism, objectivity, and balance, and to create institutional firewalls to protect for editorial independence.

2. 2. Congress may give subsidies to existing private media institutions and guarantee these institutions’ editorial independence in much the same way that it guarantees editorial independence at the Corporation for Public Broadcasting and the Agency for Global Media. But in guaranteeing that it will not withdraw the subsidy based on editorial decisions, Congress is very likely to become committed to a full “viewpoint-neutrality” requirement under the public-forum doctrine. This viewpoint-neutrality requirement will make it very difficult for Congress to set minimum standards for journalistic quality.

3. 3. Congress might give subsidies to existing private media institutions as in strategy 2 while also clarifying somehow that these media institutions now speak on behalf of the government and that the government has control over the message. This strategy would allow the government to avail itself of the “government speech” doctrine, which means that the government could safely deny the subsidy to low-quality outlets. The problem, obviously, is that this kind of incursion onto the independence of the press would largely defeat the purpose of having a press at all.

Among these options, the first one – a massive expansion of public media – is in most respects the best. There is American precedent for this model in a dramatically smaller form. PBS and NPR enjoy broad public support despite their perennial funding battles, and their journalistic operations are widely respected.

This model is relatively uncomplicated from a legal perspective as well. Insofar as the courts have applied the First Amendment to public broadcasting, they have generally done so in a way that supports editorial independence at these institutions. Courts have not, so far, given any reason to fear that First Amendment litigation will undermine or interfere with these programs’ operations. For all these reasons, a public media expansion would be an attractive and straightforward way to provide economic support for local journalism.

The one real shortcoming of this approach – other than the longstanding political opposition to public media – is that on its own, it would not support private news institutions that may already be established in a community. If struggling private news institutions are forced to compete with better-funded public options, then a public media expansion seems certain to accelerate their decline. Even with strong public media, the loss of these private institutions would badly diminish the plurality and resiliency of the overall media landscape in ways that may be hard to foresee.⁴⁹ Therefore, some kind of subsidy for nonpublic media institutions is probably desirable in any event, either as a standalone program or as a supplement to a public media expansion.

19.5 Designing a Subsidy

The question, then, is how to design this kind of program in a manner that is least likely to fall under constitutional challenge. As I have discussed, it is likely that courts would construe a broad media-subsidy program as a public forum for First Amendment purposes. In principle, this would allow the government to set some viewpoint-neutral rules for the kind of content the program will support, and at what level. But in practice, it can be hard to predict where the line lies between content classifications and viewpoint classifications. This uncertainty introduces a degree of litigation risk into any element of a subsidy that turns on content. Program designers will be well-advised to avoid content classifications to the greatest extent practicable.

Some degree of content classification is probably unavoidable and relatively safe. A program designed to promote local journalism can probably get away with requiring local coverage.⁵⁰ But it is less certain whether content classifications designed to ensure that funds go to legitimate institutions would survive review.

Bob McChesney has proposed to hold referenda in which voters would name a short list of news outlets in their community to receive federal funds. The few top-ranking outlets then would become eligible to take “journalism vouchers” that individual community residents allocate to the participating institution of their choice.

Vouchers are promising. The Supreme Court has upheld school tuition-voucher programs over objections that these vouchers gave an unconstitutional benefit to religious schools. Direct, preferential grants by government to parochial schools might have violated the First Amendment’s Establishment Clause. But if the government left the final choice with individuals who overwhelmingly awarded their vouchers to parochial institutions, then the government’s hands were clean.⁵¹ A similar line of reasoning could inoculate a journalism voucher from First Amendment-based challenges: It is not viewpoint discrimination or even content discrimination for the government to give funds to individuals who then spend them according to personal preference.

The primary difficulty with a voucher-oriented program, however, is that one still must set some conditions to determine which organizations may collect vouchers and seek public reimbursement. Otherwise, program funds could be diverted to uses that are not related to the purpose of the fund. Churches, for example, might encourage members to use their voucher to buy the church bulletin; or retailers might give incentives for customers to “subscribe” to “news” about products on sale. And for the program to have the most impact, it will probably make sense to concentrate vouchers on a small menu of publications within a community.

McChesney’s proposal of a ranked referendum is likely to address these concerns without requiring government officials to set content criteria. But the Supreme Court has indicated fairly clearly that it would view even a popular referendum as yet another form of viewpoint discrimination. In Board of Regents v. Southworth, the Court warned that a campus referendum to decide funding for student groups would violate the First Amendment. “To the extent the referendum substitutes majority determinations for viewpoint neutrality it would undermine the constitutional protection the program requires…. Access to a public forum … does not depend upon majoritarian consent.”⁵²

An irony here is that in the glory days of local news, the business model of a robust community newspaper really did depend on something like popular consent in the form of large market share, which enabled high economies of scale. It is only when majorities express themselves through a political process – here a direct referendum, but legislative action would count as well – that the First Amendment kicks in and concerns about majoritarian tyranny flare up.

Whether or not this dichotomy between political majoritarianism and market majoritarianism makes any sense, it is bedrock in American constitutional culture. And it may provide an opening for a public subsidy program to concentrate its funds on widely read and widely trusted community papers. Rather than asking community members to choose which local news outlets are worthy to receive public subsidies, the government might implement a system of content-neutral subsidies to simulate the monopolistic incentive structure that made the old local newspapers viable. The government might, for example, provide matching funds for each subscription a local publication picks up – and then sharply escalate the degree of match as the publication achieves a higher degree of saturation within a defined geographical radius.

Such a system would involve some degree of technical challenge, as well as several difficult design choices. But it would also seem to avoid the concerns about state influence and content neutrality that have traditionally underlain the American suspicion toward public news subsidies. In many ways, the incentive structure I propose would offer a spiritual successor to the postal subsidies that Congress has at various points extended to the press.

Those subsidies, too, came with content-neutral conditions that Congress adjusted over the years to achieve different structural goals. In some years, the subsidies were drawn to reward long-distance readership. In other years, the subsidies were drawn to reward local readership. A twenty-first-century subsidy for local newspapers might be drawn to reward popular outlets that are capable of reaching a large segment of the community and offering a common reference point on local events.

Hopefully, many recipients of a program like this one would use their new revenues to pick up the hard, investigative reporting work that so many legacy papers have been forced to forego. But even “soft” news on culture, sports, and community events could provide real value by helping to consolidate a sense of place and local community. If nothing else, a consistent source of local news might help to displace the excess of ideologically polarizing national news that dominates most contemporary news consumers’ media diets.

20 Saving the News

Ramsi A. Woodcock

*

20.1 Introduction

It is usually a mistake to suppose that a company is the best judge of how its business works.¹ Or that an industry is the best judge of how the industry works. AT&T is a good example. When the Justice Department sat down with management in 1981 to negotiate a breakup of what was then a monopoly provider of telephone service, government lawyers asked which part of the company management wanted to keep after the breakup – the long-distance operations or the regional networks.² The long-distance operations had long been the company’s most profitable, so management asked for those.³

It was a mistake. The long-distance operations had been profitable only because AT&T had owned the regional networks and could use them to deny access to competing long-distance companies seeking to complete calls.⁴ Once AT&T had spun off the regional networks, the company could no longer do that.⁵ Competitors flooded the long-distance market, driving down AT&T’s profits. But the regional networks remained protected from competition thanks to the prohibitive cost of running new wires to individual homes. They flourished. Management had failed to grasp that the real source of AT&T’s power was its regional-network monopolies, not its long-distance operations. Two decades later, AT&T was forced to sell itself – to one of the regional networks.⁶

If management sometimes has trouble understanding the value proposition of the single company that it runs, we can forgive newspapers for not understanding the value proposition of the entire industry that they constitute.

Over the past decade, the newspaper industry has been trying to stave off collapse brought on by the very low cost of internet communication.⁷ That low cost has all but eliminated barriers to entry into both the news industry and the broader market for reader attention. That has forced newspapers to engage in ruinous competition for a shrinking share of overall public engagement.⁸ In local news markets, the result has been bankruptcy as newspapers’ declining share of reader attention has reduced the value of newspapers’ main product – advertising distribution – to advertisers.⁹ In national newspaper markets, which still attract enough attention to sustain the market, the result has been fragmentation and quality destruction. Newspapers have replaced fact-reporting with opinion-reporting to differentiate themselves in a more viewpoint saturated national conversation and cut costs.¹⁰

The newspaper industry’s response has betrayed a lack of comprehension regarding the source of its misfortune. The industry has responded to the overall decline in its share of reader attention by calling for antitrust action against the Tech Giants – particularly Google and Facebook – which are principally responsible for the decline.¹¹ But Google and Facebook have prospered because social media is more engaging than newspapers, not because the Tech Giants are monopolies. Whether there is one social media company or hundreds, readers are not going to start substituting more newspaper time for the time they spend on social media. In a fit of blind egomania, the industry has also responded by trying to negotiate payments from the Tech Giants as compensation for their use of links to newspaper articles – part of a broader project of obtaining intellectual-property protection for news articles.¹² But social media has captured the public’s attention for reasons other than the opportunity it provides to share news. Accordingly, the Tech Giants are not willing to pay much for the privilege of linking, whether newspaper articles are protected by intellectual-property rights or not. They would do just fine without linking to news. Finally, the industry has experimented with a microjournalism model of subscriptions for independent journalists and niche reporting. But while microjournalism may prevent the total demise of journalism at the local level and stem losses at the national level, high-quality fact production requires scale in newsgathering that is fundamentally incompatible with such decentralization.¹³

To save newspapers, other approaches are needed. Ruinous competition may be addressed by attacking the root of the problem: the low cost of communication. Policymakers could raise the cost of communication by taxing internet post views at levels just high enough to discourage excessive entry into national news markets and thereby to enable national newspapers to maintain the scale and profitability they need to invest in the production of high-quality investigative journalism.¹⁴ Organizations that cannot pay the tax required to reach a broad audience will be driven from the market. The resulting reduction in competition will alleviate the pressure on newspapers to differentiate themselves through opinion-reporting. It will also drive up revenues, creating both the means and the incentive for newspapers to invest more in fact-reporting. The federal government, in the form of the U.S. Postal Service, already has the tools to impose such a tax by reinterpreting its “letter-box monopoly” to include electronic letter boxes, allowing the postal service to charge postage for the receipt of electronic communications of any kind.¹⁵

Internet postage would solve the problem of excessive competition within the newspaper industry but not the problem of competition for reader attention from the Tech Giants that has hit local newspapers particularly hard. Internet postage should not be set so high as to discourage social media use as a general matter, but only high enough to limit the number of users having large numbers of post views.¹⁶ Social media is, overall, a good thing. Taxing it out of existence would therefore destroy value.¹⁷

To solve the problem of Tech Giant competition, government could adopt a second policy, complementary to the policy of charging internet postage, that would channel advertising revenues back to the newspaper industry. That policy would be to cap the number of ad impressions that social media companies are permitted to sell per year.¹⁸ Because advertising is ultimately a race to the bottom – firms are compelled to do it to counteract the advertising of competitors – advertisers would respond by shifting their advertising dollars back to newspapers, despite the inferiority of newspaper advertising, in order to keep up with each other. For the same reason, modern militaries would purchase bows and arrows if prevented from purchasing more sophisticated equipment.¹⁹ This race-to-the-bottom characteristic of advertising would, incidentally, allow the government to place a cap on all advertising without reducing the amount of revenue generated by advertising distributors.²⁰ Because advertising distorts preferences and therefore leads to misallocation of resources, such a cap would improve economic efficiency – and could be piggybacked on policies targeting Tech Giant advertising.

Neither internet postage nor advertising caps would violate the First Amendment.²¹ The Supreme Court long ago ruled that the U.S. Postal Service’s letter-box monopoly does not violate the First Amendment because people are free to use alternative means of communication such as placing phone calls, slipping paper under front doors, or making in-person appointments.²² And advertising caps must pass constitutional muster because, in the information age, advertising’s information function is obsolete.²³ Consumers can get all the product information they want from a quick Google search, which they can also use to educate themselves about products that they do not yet know to seek out.²⁴ Advertising’s only remaining function is to manipulate consumers into buying products that they do not prefer. But the Supreme Court has extended First Amendment protection only to advertising that enhances consumers’ ability to make independent choices about which products they wish to buy.²⁵

20.2 Newspapers’ Challenges

Newspapers were perhaps the most successful monopolies of the twentieth century, the sort of asset with a “moat” around it that the likes of savvy investor Warren Buffet coveted.²⁶ Newspapers enjoyed protection from competition both because distribution costs were high – paper is costly, and heavy – and because advertisers prefer newspapers that have more readers.²⁷ As a result, a single newspaper serving all advertisers was able to charge lower prices than a smaller newspaper serving a fraction of the market; the larger newspaper could spread distribution costs over more customers. This newspaper could also offer broader distribution to advertisers than a newspaper serving a fraction of the market, making it more appealing to advertisers, as well.²⁸ Nearly, every city therefore came to have a single major newspaper and a handful of papers served the national news market.²⁹

The monopoly position of newspapers created a number of positive externalities. One was independence for the press from interference by either government or corporate advertisers. Monopoly profits meant that newspapers did not require government subsidies and a monopoly position meant that advertisers strove to please newspapers, not the other way around. Another positive externality of monopoly was that newspapers enjoyed both the means and incentive to invest in expensive fact-reporting.³⁰ In a competitive news market, each newspaper caters to a relatively small, ideologically homogenous readership.³¹ Any attempt to attract ideologically distant readers fails because those readers have access to alternative options that are better aligned with their political views.³² In a monopoly news market, the monopolist caters to a large, ideologically diverse group of readers because readers who are ideologically distant from the monopolist have no alternative newspaper to which they can turn.³³ To induce such readers to subscribe rather than forgo news entirely, a newspaper monopolist must deemphasize ideology to the greatest extent possible and invest in fact-reporting. Facts have broad appeal across ideological lines, even if each reader prefers a different spin on the facts.³⁴ The scoop rather than the hot take was therefore king. And, as monopolies, newspapers could afford to invest in scoops. It is no accident that the ethic of objectivity in reporting came to dominate journalism over the course of the twentieth century as newspaper monopolies arose and became more entrenched.³⁵ The result was a willingness to invest in high-cost investigative journalism that incidentally served democracy.³⁶ Finally, the monopoly position of newspapers paid a dividend in terms of social stability. There is, of course, no such thing as a neutral or objective report of the facts. Each newspaper must choose a location along the ideological spectrum. As median-voter theory has taught in the context of elections, however, the point that has the broadest appeal is the center. Newspapers therefore tended to promote viewpoints that interpolated between political extremes, exerting a moderating influence on national debates.³⁷ All this was true even in markets, such as national news markets, that had a small number of newspapers as opposed to a single monopolist. In those markets, the small number of competitors meant that most readers still lacked ideologically aligned news sources, creating an incentive for papers to use fact-reporting and centrism to reach them. And the small number of competitors meant that papers still earned handsome profits.

The low cost of communication created by the internet dealt a death blow to newspaper monopoly on the reader-facing side of the business and created new competitors on the advertiser-facing side, eliminating the positive externalities that had come with newspapers’ privileged market position. Printing and distribution of paper editions on a daily basis requires large, up-front investments in printing presses, trucks, paper, and of course labor, making entry into paper news markets difficult.³⁸ With the maturation of the internet, anyone who could post news online – and that was almost everyone – could compete with The New York Times.³⁹ Low-cost communication also introduced new competition into advertising markets. It created an entire new category of media – social media – that gave advertisers a desirable alternative to advertising in newspapers, putting pressure on news industry revenues.⁴⁰

Low-cost communication tore down barriers to entry into news markets, increasing competition for the attention that consumers devote to news. Social media made new categories of consumer attention available to advertisers by causing interactions that might once have been carried out around the dinner table or by email to be conducted on internet platforms through which they could be subjected to advertising.⁴¹ People spend more time engaging in these interactions than they spend reading news, and the interactions themselves are more revealing than news-reading. That enabled social media companies to offer advertisers a larger audience than newspapers and to profile consumers and target advertising in ways that newspapers – even in digital form – cannot.⁴² This shifted the flow of advertising dollars from newspapers to social-media giants like Google and Facebook.⁴³

The result was the fragmentation of national news markets and the demise of many local news markets. In national news markets, competitors fanned out across the ideological spectrum, picking off legacy papers’ ideologically nonaligned readers, who had been weakly held to the legacy papers by an interest in facts.⁴⁴ Expensive fact-reporting could no longer pay dividends in the form of a broader readership and newspapers now had to defend their own ideological turf against assault from new internet entrants, including both news websites and social media users with large followings. A turn to inexpensive opinion-reporting was the only option.⁴⁵ This was ruinous competition in the economic sense.⁴⁶ Firms were forced to degrade their own products’ quality in order to survive in the market. High-quality fact-oriented reporting was replaced with low-quality opinion-based reporting. This effect was magnified by competition for advertising from social media companies, which reduced the revenues flowing into news, creating a further incentive to substitute opinion-reporting for expensive fact-reporting. In many local news markets, which were too small to support newspapers on reduced advertising revenues, competition from social media had an even more catastrophic effect; newspapers simply disappeared.⁴⁷

By the 2020s, the positive externalities created by the monopoly position of twentieth-century newspapers were gone. Newspapers no longer had the incentive or the revenues to invest in high-quality fact production. Ideological centrism had been replaced by ideological fragmentation, and so newspapers no longer exerted a moderating influence on politics. And the influx of competition into news markets, combined with the competition for advertising from social media companies, had starved national newspapers of revenue and driven many local newspapers out of business entirely. Far from being in a position to speak truth to power, newspapers’ continued existence was in doubt, leading to calls for government subsidization.⁴⁸

20.3 Newspapers’ Inadequate Response

20.3.1 To Social Media

Newspapers’ responses to these challenges betray a lack of understanding regarding their causes. The basic premise of newspapers’ response to competition from social media companies in their advertising markets has been to argue that social-media companies are stealing newspaper content. Specifically, newspapers argue that social-media companies are using links to news content to attract social-media users without providing newspapers with adequate compensation in return.⁴⁹ This premise underlies a campaign by newspapers over the past decade to drum up support for antitrust action against Google and Facebook.⁵⁰ Not only has the News Media Alliance – newspapers’ lobbying organization – explicitly called for antitrust action, but newspapers from across the political spectrum have appeared to use favorable reporting, editorials, and the publication of op-eds by antitrust activists to promote it as well.⁵¹ Whether the apparent pro-antitrust slant to reporting is a product of deliberate policy or anti-tech sentiment among journalists, who believe that their livelihoods are threatened by social media, is unclear.⁵² But the premise that Google and Facebook are appropriating something of value from newspapers is not. Newspapers hope that the introduction of more competitors into social-media markets via antitrust action will make it easier for newspapers to negotiate compensation from the social-media industry.

The premise that social media is stealing from newspapers also underlies newspapers’ attempt to lobby Congress for an antitrust exemption that would permit the industry to form a cartel to negotiate compensation from social-media companies.⁵³ If newspapers can negotiate as a block, they reason, they will be able to extract larger payments from social-media companies than they might otherwise. The theft premise also underlies the News Media Alliance’s interest in achieving intellectual-property protection for news-article links or news content more generally.⁵⁴ At present, newspapers have no legal right to demand payment from social-media companies for links to news content.⁵⁵ All newspapers can do to encourage payment is threaten to program their websites to reject incoming web traffic from social-media platforms.⁵⁶ The hope is that intellectual-property protection for linking would strengthen newspapers’ bargaining position.

It is hard to view newspapers’ conviction that the Tech Giants’ success is built on appropriation of newspaper content as anything other than narcissistic pathology. The news industry seems unable to conceive that its readers might wish to do something on social media other than find news. But, in fact, they do.⁵⁷ While some small fraction of the attention that social-media companies generate may represent attention that once would have been devoted to newspapers – and may even be attention poached from newspapers in the sense that news article links are used to attract this attention – the lion’s share is not.⁵⁸ The success of social media comes not from poaching news readers’ attention but from expanding the overall pool of commercializable attention in the economy. Social-media companies will, therefore, be unwilling to pay newspapers anything but a small fraction of the advertising revenues that newspapers have lost to social media. This is true whether the social-media industry is concentrated into a few Tech Giants or deconcentrated into large numbers of small providers. Either way, an industry that relies little on news links is not going to pay much for access to them.

The importance of news to social media was demonstrated in early 2021 when the government of Australia sought to compel social-media companies to pay newspapers for links.⁵⁹ Facebook responded by disabling news-linking on its platform and pointing out that only 4 percent of the material shared on its platform involves news.⁶⁰ Facebook simply did not need the news. While Facebook and Google eventually agreed to make some payments for news, the amounts – which are estimated to be in the low tens of millions of dollars per year – were an infinitesimal of the Tech Giants’ own advertising revenues and an order of magnitude below annual declines in newspaper advertising revenues. Newspapers declared victory, if only to save face.⁶¹

20.3.2 To News Competition

There has been no analogous industry-wide initiative to counter the threat of ruinous competition in national news markets. By its nature, intra-industry competition pits news providers against each other, complicating collective action. Instead, the ruinous-competition problem has been left to individual newspapers and journalists to solve in decentralized fashion. Left to their own devices, newspapers and independent journalists have sought shelter from the competitive gale in news through two strategies: product differentiation and abandonment of the ad-based funding model in favor of subscription models.⁶² Newspapers have differentiated their product based on ideological orientation, making the problem of ruinous competition worse, further fragmenting news markets, and forcing opinion-reporting on their competitors. Newspapers have also differentiated their product based on subject matter, reporting on a particular industry, profession, neighborhood, or other area of interest. At an extreme, it involves independent journalists taking refuge in subscription-based blogging services like Substack. Differentiation of this and also the ideological variety can help newspapers or independent journalists avoid bankruptcy. But it also results in insufficient revenues to sustain high-quality fact production except in the few ideological or subject matter markets having well-heeled audiences, such as markets for opinion that support moneyed interests or for news about Silicon Valley, Wall Street, or Capitol Hill.⁶³ Thus while there might still be years-long investigations of Silicon Valley, there will be no years-long investigations of corruption at City Hall. There have been some notable attempts to overcome the revenue squeeze through pooling of resources across organizations to carry out specific investigations.⁶⁴ But these are limited by inter-organization coordination costs that the old newspaper monopolies did not face. The move to subscription-based funding models is also unlikely fully to replace lost advertising revenues. If it could do that, then newspapers would have relied more on subscriptions than advertising in the first place.⁶⁵

20.4 Postage and Ad Caps as Alternatives

20.4.1 Charging Online Postage

One way to restore newspapers’ dwindling revenues would be through direct government subsidization along the lines of what Britain does for the BBC in the broadcast arena.⁶⁶ To maintain the political independence of the press, government could impose a special tax on communications – in Britain, all television hookups are taxed at a flat rate – and dedicate the proceeds to newspapers, ensuring that any attempt to punish newspapers by directing the funding elsewhere would be viewed by voters as a misappropriation of public funds.⁶⁷ Britain does this by taxing all television hookups at a flat rate. On a similar theory, Franklin D. Roosevelt insisted that Social Security tax be charged as a separate line item to taxpayers in the United States in order to protect Social Security from rollback.⁶⁸ A few state and local governments are already dabbling in direct subsidization as a way of rescuing local news. But the direct subsidization model is unlikely to spread thanks to America’s deeply engrained anti-statism, which resists both taxation and government influence over public debate, however tenuous.⁶⁹ Even if it were to spread, it could be no more than a partial solution to fragmentation and political polarization at the national level. Entry into that market would remain free and readers would continue to be drawn to the private news sources that best fit their ideological preferences. But so long as subsidies were to reward fact-reporting, more of that would be supplied to the market.

Another approach would target fragmentation and political polarization in national news markets in particular, and avoid the pitfalls of direct subsidization. That approach would be to leverage a mode of indirect support for the news with which Americans are comfortable and which is so firmly embedded in the nation’s history that it was one of the means by which the country obtained independence from Britain in the eighteenth century: the postal service.⁷⁰ Although Americans today think of the postal service as a rapidly obsolescing mode of private communication through the exchange of paper letters, it started life as a method of distributing newspapers.⁷¹ The British Crown had a monopoly over the provision of postal services in the colonies and its postmasters leveraged this monopoly to favor carriage of newspapers that they themselves published, excluding competing viewpoints.⁷² In response, the American revolutionaries created a national postal service that lavishly subsidized the distribution of American newspapers, enabling any newspaper to transmit the news to customers at virtually no cost.⁷³ Alexis de Tocqueville, viewing the results some decades later, remarked with awe that, thanks to America’s subsidized news distribution, a backwoodsman in Michigan knew more about the rest of the world than a suburban Parisian.⁷⁴

By the start of the twentieth century, the postal service had largely ceased to be an important disseminator of news. The advent of the telegraph and a general decline in transportation costs allowed newspapers to build private distribution networks that disseminated the news far more quickly.⁷⁵ The challenges faced by newspapers today give the postal service an opportunity once again to carry out its original mission to sustain the press.⁷⁶ Whereas the challenge faced by the press at the nation’s founding was how to overcome an excessively high cost of communication, today the challenge faced by the press in national news markets is how to overcome an excessively low cost of communication that has led to ruinous competition and political polarization. It follows that, whereas the job of the postal service at the founding was to lower the cost of distributing the news by charging low, subsidized postage rates to newspapers, the job of the postal service today should be to raise the cost of distributing the news by charging postage for online posts.⁷⁷

The goal would not be to drive distribution costs back to pre-internet days. The low cost of communication has created immense value for society by allowing a greater diversity of voices and information to enter public debate. Rather, the goal would be to drive costs up enough to strike a balance between the benefits and harms of easy entry into news markets.⁷⁸ Just as the Federal Reserve uses data on capital markets to set interest rates, the postal service could use data on news markets to adjust online postage rates to achieve a level of ease of entry that properly balances benefits and harms.⁷⁹ By imposing a zero price of postage for posts to social-media sites, blogs, or newspaper websites that garner small numbers of views but a substantial fixed price for posts to such platforms that have a moderate number of views, the postal service could impose a fixed cost on writing for the general public as opposed to private friend groups. That cost would drive down the number of news organizations in the market. With competition reduced, the news organizations that would remain in the market would have the opportunity and incentive to maximize their readership through fact-reporting.⁸⁰ Scale would be rewarded, and fragmentation and product differentiation discouraged.⁸¹

The postal service already has the statutory authority to act.⁸² Federal law gives the postal service a “letter-box monopoly” – the sole right to deliver mail to mailboxes – and the authority to define, by regulation, what a mailbox is.⁸³ By redefining mailboxes to include electronic mailboxes, including email and social-media accounts, the postal service could acquire the exclusive right to deliver internet communications.⁸⁴ It could then grant a license to make those deliveries to the firms, such as Google and Facebook, that actually deliver them today. But the postal service could retain the right to charge postage for such delivery. To minimize the resemblance of such postage to a tax, the postal service could distribute the proceeds to the public. This would demonstrate that, even if internet postage would have the effect of a tax on participants in news markets, its purpose would not be to raise revenue for the postal service or the government more generally, or to subsidize the news industry à la the BBC’s tax on television hookups, but only to alter the structure of news markets in ways that improve the quality of the news and reduce political polarization.

20.4.2 Capping Advertising

Internet postage would insulate national newspapers from ruinous competition from other news sources, but it would not restore the revenues that national newspapers have lost to social media. Internet postage also would not help local newspapers, which lack the advertising revenues they need to stay in business, much less engage in ruinous competition. Some additional policy is required to address newspapers’ loss of advertising revenue to social media. One approach would be for the postal service to use high postage rates for social-media views to destroy social media. That would eliminate the competition that is diverting newspapers’ advertising revenue flows. But that is not a desirable solution. Social media represents a genuine improvement upon communication, which is why it is so popular.⁸⁵ Destroying it would be wasteful.

A better solution would be for government to place a cap on the number of advertising impressions that social-media companies distribute each year.⁸⁶ Normally, a restriction on the sale of a superior product will not necessarily help a competitor offering an inferior product because buyers might exit the product category entirely rather than purchase the inferior product. If you cannot obtain a high-quality ice cream, you might purchase a pastry instead, rather than poor-quality ice cream. So, in principle, capping social-media advertising, which advertisers view as superior because of its reach and the opportunities it affords for targeting, would not necessarily induce advertisers to advertise in newspapers. They might choose to stop advertising entirely and invest in improving the technology of their products instead.

But advertising is different. Firms rarely have a choice about whether to advertise because their competitors already advertise. If they do not use counter-advertising to cancel out their competitors’ advertising, they will lose business.⁸⁷ It follows that firms that are locked out of high-quality advertising distribution will substitute low-quality advertising distribution because they fear that their competitors will substitute low-quality advertising distribution.⁸⁸ A cap on the amount of advertising that social media can distribute would, therefore, channel advertisers’ dollars back to newspapers rather than away from advertising entirely.⁸⁹ By adjusting the cap, a regulator could adjust the precise amount of advertising revenue that would be returned to the newspaper industry. The regulator could even set the cap so low as to redirect all social-media profits to newspapers, allowing the social-media industry only enough revenue to cover costs.⁹⁰ Thus a cap would not have the redistributive limitations inherent in the news industry’s current approach of seeking to extract payment from social-media companies that place a low value on access to news content. While the Federal Communications Commission (FCC) currently enjoys some authority to regulate advertising, new legislation would be required to enable the FCC or another regulator to implement this approach.⁹¹

An advertising cap has the virtue of continuing the newspaper industry’s tradition of funding itself through advertising.⁹² That approach is the principal way in which an anti-statist society such as the United States funds information-related public goods, including not just newsgathering but also the arts, entertainment, and sports.⁹³ All of these activities provide benefits to society as a whole – newsgathering is critical to a successful democracy, for example – for which consumers are sometimes not willing to pay in full if charged directly.⁹⁴ Rather than fund these activities through taxation – the textbook means of funding public goods – the United States for the most part leaves it to those engaged in these activities to acquire their own funding through the distribution of advertising. Consumers still end up paying for these activities, but they do so indirectly by purchasing advertised products. Advertising manipulates consumers into paying higher prices for goods and services. Advertisers pay a portion of the additional revenues they generate from those higher prices to the providers of informational public goods who distribute their advertising. In this way, advertisers end up manipulating consumers into paying for public goods for which consumers would not be willing to pay if asked to do so directly.⁹⁵ The result is a decentralized model of public goods financing that minimizes the influence of government over the news and culture more generally. Such minimization of government influence is not necessarily good for either the news or culture.⁹⁶ Moreover, there is something odd about using a practice that manipulates consumers into buying products they would not otherwise buy to fund a newspaper industry devoted to empowering citizens to think for themselves.⁹⁷ But this funding model may be the only approach to subsidizing the news that Americans will accept, at least in the short term.

An added benefit of placing a cap on social-media advertising is that it would afford government the opportunity to reduce the overall amount of advertising in the economy.⁹⁸ Reducing advertising is desirable because advertising short-circuits free markets. Free markets enable consumers to impose their preferences on firms, showering profits on those that please them and starving those that do not.⁹⁹ Consumers who have been manipulated by advertising into buying things that they would not otherwise buy are unable to impose their will on firms, however. Firms use advertising to ensure that consumers buy products that firms prefer rather than products that consumers prefer.¹⁰⁰ While counter-advertising by other firms tends to prevent advertising from raising demand for individual firms – that’s the canceling effect of advertising – it does not prevent consumers from being manipulated by advertising. The net effect of advertising may well be that those who prefer Coke drink Pepsi and those who prefer Pepsi drink Coke, even if advertising does not increase overall demand for either product.¹⁰¹ The result is inefficiency: Advertising prevents markets from allocating resources in ways that consumers would value the most.¹⁰² It was once possible to argue that advertising had an offsetting benefit in the form of the product information that it provided to consumers. In the world before the internet, a consumer might not have been able to find a product that they really did prefer without the aid of advertising.¹⁰³ But in the information age, advertising’s information function has become redundant. Consumers can find all the product information they desire – much of it in the form of unvarnished consumer reviews that are more informative than any advertisement – through a Google search.¹⁰⁴

A regulator empowered to place a cap on social media advertising could go one step further and place a cap on all advertising.¹⁰⁵ For the same reason that the canceling aspect of advertising ensures that capping social-media advertising would not reduce the total amount of money spent by firms on advertising but would merely shift it to newspaper advertising, capping all advertising would not reduce the total amount of money spent by all firms on advertising either. But because now there would be no alternative form of advertising to which the money could flow, capping social-media advertising would instead cause advertisers to bid up the price of the advertising that would remain available under the cap. Indeed, because firms advertise in order to cancel the advertising of others, a cap on all advertising would lead firms to bid up the price of advertising impressions – so as not to lose the opportunity to counteract a competitor’s employment of this scarce resource – until they find themselves spending the same amount on advertising as they did before the cap.¹⁰⁶ Funding for public goods financed through the distribution of advertising – whether the good is news, the arts, or sports – would, therefore, not be reduced by a cap on all advertising.¹⁰⁷ So long as the regulator were to cause the cap to fall disproportionately on social-media advertising relative to newspaper advertising, dollars would still be diverted from social media to newspapers, but the overall number of advertising impressions served up by the advertising-distribution industry would fall.

20.4.3 First Amendment Concerns

Both internet postage and advertising caps regulate speech. Postage burdens internet communication and advertising caps prevent advertisers from speaking about their products. Neither of these policies would violate the First Amendment, however. In Postal Service v. Council of Greenburgh Civic Ass’ns, the Supreme Court rejected a challenge to the postal service’s letter-box monopoly on the ground that regulation of the speech that passes through mailboxes does not prevent speakers from communicating by other means.¹⁰⁸ According to the Court, the postal service’s control over mailbox speech is rather like the military’s control over speech on military bases – necessary for government to act.¹⁰⁹

To be sure, were the postal service to redefine the definition of “letter-box” to include all virtual receptacles of online communications, the definition would be far more expansive than the physical mailbox on a stick on the front lawn contemplated by the Supreme Court in Greenburgh.¹¹⁰ But all of that expansion would be to areas that did not exist when the Supreme Court decided Greenburgh in 1981.¹¹¹ If, at a time when virtual mailboxes were not an extant alternative to mailing letters, the Court thought that depriving Americans of the right to speak through physical mailboxes without paying a toll left Americans enough alternative modes of communication for free speech to remain uninfringed, then it is hard to see why depriving Americans of the freedom to speak un-tolled through new virtual mailboxes that did not exist at the time Greenburgh was decided could deprive Americans of sufficient alternative modes of communication to pose a threat to free speech.¹¹² Moreover, in both the case of the physical letter-box and the virtual letter-box, regulation is essential to the government activity of promoting a healthy news industry that is the original purpose of the postal service.

Advertising caps do not violate the First Amendment because advertising’s manipulativeness – which is its exclusive function now that its information function has been rendered obsolete by the information age – places all advertising in the same unprotected First Amendment category as false advertising.¹¹³ The Supreme Court has said that false advertising receives no protection because it tends to impair the ability of consumers to make “intelligent and well informed” purchase decisions.¹¹⁴ That is, false advertising impairs consumers’ ability to impose their preferences on markets. All other forms of advertising today do the same, but they do it by manipulating consumer preferences rather than hiding the true characteristics of products from consumers, as false advertising does.¹¹⁵ While advertising’s information function, which does help consumers make well-informed purchase decisions, once enabled advertising to enjoy First Amendment protection, the obsolescence of that function has eliminated this rationale for protecting advertising.¹¹⁶ The notion that the First Amendment no longer protects any advertising would seem to clash with the apparent alacrity with which the Court has extended the First Amendment to ever-larger amounts of commercial speech in recent decades.¹¹⁷ But a careful reading of the cases shows that the Court has never extended protection to advertising that it has understood to be exclusively manipulative in function, as all advertising is today.¹¹⁸

20.5 Conclusion

By lowering the cost of communication almost to zero, the internet created two challenges for newspapers. The first was that, by making possible the creation of the social-media industry, the internet greatly expanded the amount of commercializable attention in the economy, relegating the quality of the advertising distribution product offered by newspapers to second-class status, and driving revenues so low that newspapers disappeared from many local news markets. The second was that, by enabling virtually anyone to distribute news, the internet greatly increased competition within national news markets, forcing newspapers to substitute opinion-reporting for fact-reporting, fragmenting the industry, and polarizing American public discourse.

Newspapers’ responses have been inadequate. Attempts to force social media companies to share revenues will not restore newspapers’ lost profits because the sharing of news links is a small part of social-media activity. The Tech Giants will not pay enough for links to restore newspapers’ lost revenues. Embrace of a small-is-beautiful ethic in newsgathering, in the mode of Substack authoring, will only increase opinion-reporting, industry fragmentation, and polarization.

One solution to the problem of ruinous competition between newspapers would be to restore some of the cost of communication. The postal service could reinterpret its letter-box monopoly to apply to virtual mailboxes, allowing the postal service to charge postage for internet posts that garner large numbers of views. That would reduce the number of players in news markets and so the opinion orientation, fragmentation, and political polarization that afflict the industry. A solution to competition from social-media companies would be for regulators to cap the number of advertising impressions that social media companies are permitted to distribute per year. Because advertising is a race to the bottom, such a cap would not reduce the amount of money spent on advertising, but it would drive advertising dollars back to newspapers.