Destructive Creation: Journalism and the Internet

The day that I run into a Huffington Post reporter at a Baltimore zoning board hearing is the day that I will be confident that we have reached some sort of equilibrium. -- David Simon

Information wants to be free. This is the promise that the Internet, through its unique and costless distribution mechanism, holds. Traditional pay models of information production are almost laughably anachronistic, but that isn't stopping the entrenched news industry from fighting to impose these outmoded business models on the public. News has a fixed cost problem, much like its sister industry, the expression industry (i.e., music, film, and television); however, unlike its counterpart, the transition from priced print to free digital brings with it two tremendous costs: investigative reporting and localism. Today's newspapers are not producing the revenue necessary to please its stockholders while employing enough personnel to produce quality journalism. A May 2009 Senate Hearing on The Future of Journalism contemplated just these costs and benefits. The question though, as Arianna Huffington put it, "is not how do we save newspapers, but how do we strengthen journalism?"

The Destruction

The allure of The Newspaper is at least partially an ideal: The image of a diligent, hard-nosed beat reporter hitting the streets each day, exposing corruption and inequality in our society is powerful one, proudly rooted in the bedrock of our nation. As Sally Duros, journalist and digital advocate noted, newspapers are the only business mentioned by name in the Constitution. In truth, newspapers are businesses like any other, with boards and profit margins. Like any other business that finds itself at the losing end of creative destruction, it cuts off its metastasized branches. It shrinks its personnel; it shifts its focus from delayed reward news (e.g., social problems) to immediate reward news (e.g., scandal); it closes its doors. When it works effectively, creative destruction fulfills the same need but in a different way. In this case, in the process of opening entry to entrepreneurial citizen journalists, bloggers, and aggregators, it leaves two needs unsatisfied.

(1) Investigative Journalism. There are costs of producing investigative stories that digital journalism has not yet figured out how to effectively and realistically subsidize. This is likely a temporary problem but a pressing one nonetheless. Citizen journalists simply do not have the resources to spend the hours extensively gathering resources, developing sources, and traveling to distant locations. At present, they depend on professional reporters to do this work and then they aggregate, comment, and redistribute the story. Eventually, there will be no one left to depend on beyond the few who survive and the even fewer who do investigative journalism. Few is not nearly enough for an institution that depends on the voices being many.

(2) Localism. Digital journalism is mostly national. The information is easier to find and the story is more likely to attract a large audience. To the former point, state institutions have not yet accepted citizen journalists as "legitimate." They are unlikely to be welcomed at the police station or at the local chemical plant in the same way a "professional" would be. As reprehensible as this de facto "licensed" freedom of the press is, to ignore this reality is to ignore the lag time accompanying the institutional transition to a system of citizen journalism; unfortunately, local state and corporate actors still need to be held accountable during this lag time. To the latter point, even if these stories do not attract a large audience, they are a public necessity. Though often unnoticed, this coverage is essential to the functioning of civic society at the local level.

The Creation

(1) 501(c)(3) Status. 501(c)(3) organizations are non-profit ventures exempt from federal corporate tax ("unrelated business income," such as revenue from advertising, is taxable). In return for no longer being enslaved to a profit margin, publishing activities are confined to those that "further the exempt purpose": keeping the community abreast of crucial issues. Candidate endorsement is be prohibited, but 501(c)(3)s are still be able to publish and participate in the discussion of elections and political issues. As of now, newspapers are not technically able to apply for 501(c)(3) status, but the loophole lies in applying as an "investigative news organization" that put out papers. The Voice of San Diego? is one such entity. There was an effort in 2009 to make certification nearly automatic for newspapers, but the Newspaper Revitalization Bill has yet to be enacted.

(2) L3C Status. Low profit limited liability company (L3C) model is an intermediate structure between the poles of for-profit and non-profit systems. L3Cs are taxable for-profit businesses, but, by law, they must place their charitable mission/community service goals ahead of profits. This model is likely to appeal to many more newspapers than the 501(c)(3) model because the LLC structure can remain intact (i.e., owners exist, profits can still be distributed, etc.). L3Cs derive their sustainability from program related investments (PRIs), loans made by private foundations for specific goals that are low-yielding, but tax deductible and in line with the IRS's charitable giving requirements. Because the probable investors are local, this reorients newspapers' mission to community service. In June 2010, Vermont's Point Reyes Light became the first newspaper successfully converted to an L3C. There are obvious drawbacks to this model. Because the structure remains almost entirely indistinguishable from an ordinary corporation, L3Cs can get away with being little more than an LLC with an organizational promise. The creation of L3Cs must be authorized by an amendment to the state's (or the country's) General Limited Liability Company Act; only a handful of states have done so, likely because, historically, newspapers have not been recognized as non-profits. Additionally, attracting donations depends on the supply of investors satisfied with reaping high social dividends rather than any substantial financial ones.

-- StacyAdelman - 4 Jan 2012

Stacy,

Great paper on an important topic. Do develop the idea of L3C? and introduce us to what it is. What are the respective roles of the federal and state governments in promoting L3C? newspapers? For instance, would states need to modify their corporate or nonprofit entity laws, and would the IRS/Treasury need to interpret tax law differently? It seems tax law will play a key role, but then that might raise a First Amendment issue from government entanglement in the press.

The two concerns of investigative journalism and localism are there - I don't see how having citizens can reproduce what is essentially a profession. I see the similarities between journalism and law - traditional models of delivering services are displaced by the new digital world. But certain constraints, namely professional norms and local practice, enable both to survive in some way. Perhaps explore whether these needs will ever be met by ordinary citizens in the digital age. Or must a whole scale transformation of journalism happen to realize that?

-- ThomasHou - 12 Dec 2011