A Bailout for Local Newspapers?

In this morning's Post-Gazette, my friend Otto Chu and his son Jonathan have an op-ed advocating a new version of an old solution to the problems of the nation's daily newspapers:

We believe the need is sufficiently dire for the U.S. Congress and state legislatures to amend antitrust laws so that newspapers could join together, perhaps with other media and Internet companies, and figure out how to charge enough for their content and services to survive. Provisions of the federal Sherman Act and state statutes that prohibit price fixing or collusion would need to be amended in a limited way to allow this to happen....
There is precedent for this type of action. In 1970, Congress passed the Newspaper Preservation Act, which created a limited antitrust exemption so that competing newspapers in a market could combine business operations if one of the newspapers otherwise would fail. The Post-Gazette and the former Pittsburgh Press worked under this type of arrangement for years before the Press folded in 1992.

This is a thoughtful analysis - and I couldn't disagree more. Creating media monopolies is not the way to preserve an independent watchdog on government authority, which is the First Amendment interest most at stake in the survival of contemporary journalism.

Way back in my law school days, 25 years ago, I researched and wrote a long (and, unfortunately, unpublished) analysis of the Newspaper Preservation Act, and I criticized it on several grounds.

First, as contemporary observers noted, the NPA was a flat-out bailout for newspaper publishers who complained about losing money. The First Amendment provided rhetorical camouflage, which even many newspapers themselves recognized. On the floor of the Senate, opponents labeled the legislation "a millionaire-crybabies-publishers' bill,” which was apt -- the seven largest newspaper companies of the time lobbied for its passage. The bill passed over the objections of many papers, including the New York Times, which worried that the NPA would threaten -- not reinforce -- the editorial independence of papers that participated in exempt Joint Operating Agreements. Today, research shows that media concentration in local markets tends to reduce the amount of local TV news coverage. Alarm bells have been ringing around the world for years about concentrated media ownership.

What's the problem? The Act would appear to create stable finances for media enterprises, but it would do that by creating or permitting the operation of monopolies -- or cartels, to use an equally accurate term. In the absence of further government regulation of their behavior (which we see with "natural monopolies," like many utilities) those cartels would limit competition and jack up prices. That's what cartels naturally do, and that serves as a barrier to entry. That's the key. You get to choose: The state-sponsored, officially-exempt-from-antitrust-law-newspaper-monopoly. Or competition -- which eventually came, from cable TV, then the Internet. Which is the better way to the Fourth Estate?

Second, the NPA didn't work. Most of the JOAs that were operating in 1970, and which were eligible for antitrust exemptions, have folded. Many of the original papers involved have disappeared, including, in many cases, the paper that was stronger before the JOA. [Fans of the Pittsburgh Press may pause here for a mini moment of silence.] Cartels raise prices and limit output -- when they're working. But cartels often are inherently unstable, both in the sense that cartel members are tempted to cheat on each other (the endogenous or internal problem), and in the sense that the economic conditions that permitted the cartel to get organized in the first place may change (the exogenous or external problem). The end of JOAs in San Francisco, Pittsburgh, and Detroit illustrates.

Third, the NPA, like any antitrust regulation, involved expensive and time-consuming government bureaucracy, federal lawyers mussing about the business in administrative proceedings to claim NPA benefits (Cincinnati, Seattle, Detroit) and private lawyers mussing about the business in private litigation to disqualify a JOA from NPA benefits (San Francisco). Newspapers usually use the First Amendment to keep the government at a healthy distance; it's hard to imagine exactly why they would want to have *more* government involvement. On the other hand, the NPA failed in part because the government *wasn't* more involved on the editorial side. The law was supposed to guarantee "editorial diversity," yet it contained virtually no standards for ensuring that "editorial diversity" would be maintained. Operation of JOAs wasn't regulated; termination of JOAs was regulated only lightly.

In fact, the best way to ensure that an amended NPA would be more effective would be to get the Justice Department and local courts involved in a kind of consent decree process, the way that desegregated school districts are monitored, to ensure that the cartelized media are in fact observing "editorial independence" as Congress intended. (This would be the rough equivalent of PUC rate regulation for state-sanctioned "natural" monopolies (utilities) and common carriers (railroads).) In other words, every publication and media outlet in the deal would be under periodic review by a kind of public ombudsman, and subject to being ordered to change their practices by a federal judge. That can't be a good thing.

The news is a public good, in all of the many popular and technical meanings of that phrase, and because it's a public good, it's increasingly difficult to find a sustainable way to produce it, distribute it, and store it. Economists will tell you that one standard solution to a public goods problem involves government provisioning -- either because the government produces it or the government directly or indirectly underwrites the cost of private production. But those aren't the only solutions to public goods problems, and in the media context, government provisioning seems to be an especially bad one.