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Could newspapers survive under a nonprofit model?



American Red Cross of Central Oklahoma. United Way of Central Oklahoma. Regional Food Bank of Oklahoma. OPUBCO Communications Group?

Would the parent company of The Oklahoman, the state's largest-circulation newspaper, join the list of area nonprofits? What about Community Newspaper Holdings Inc., owner of The Edmond Sun, The Norman Transcript and 12 other Oklahoma newspapers?

Most likely, neither would for a number of reasons. But a U.S. senator wants to encourage newspapers to operate as nonprofits, similar to public broadcasting, with a variety of tax breaks. Such a restructuring could benefit struggling newspapers and society, said Benjamin L. Cardin, a Maryland Democrat.

"We rely on newspapers for in-depth reporting that follows important issues, records events and exposes misdeeds," Cardin said in a release. "In fact, most if not all sources of journalistic information " from radio to television to the Internet " gather their news from newspaper reporters who cover the news on a daily basis and know their communities. It is in the interest of our nation and good governance that we ensure they survive."

Under Cardin's proposed Newspaper Revitalization Act, daily and weekly newspapers could operate as nonprofits for educational purposes under Section 501(c)(3) of the Internal Revenue Code. Subscription revenue would be tax exempt, and contributions to support coverage or operations would be tax deductible.

The current tax code doesn't prevent newspapers from operating as nonprofits, as evidenced by the 100-year-old The Christian Science Monitor.

But Cardin's bill would make nonprofit status more appealing to publishers by creating a tax exemption for advertising revenues. However, the exemption would apply only to the extent that the space allotted for advertising didn't exceed the space set aside for news. To stay afloat, however, commercial dailies typically need an advertising-to-news ratio of 60/40, leaving about one-third of advertising sales taxable.

Another drawback, some observers say, is that the legislation would prohibit newspapers from endorsing political candidates. In Cardin's own state of Maryland, at least one publisher considers political endorsements an essential service to readers that wouldn't be offset by tax breaks.

Other critics fear that Section 501(c)(3) would stop more than formal political endorsements by newspapers because it also bars nonprofits from participating "in any campaign activity for or against political candidates" and from attempting "to influence legislation as a substantial part of its activities." Cardin contends that newspaper editorializing could continue under IRS cases and public broadcasting models defining the limits of political advocacy.

For many journalists, the newspaper as a not-for-profit has a Camelot-like lure: Comfort the afflicted and afflict the comfortable without having to worry about earning a double-digit profit margin or upsetting advertisers.

But nonprofit status is no guarantee of financial success. Case in point: The Christian Science Monitor, which this month became the first newspaper with a national audience to end its daily print edition in favor of weekly print and online publications as it tries to reduce about $20 million in annual subsidies from its endowment fund and its owner.

Operating a general circulation newspaper as a nonprofit won't likely be any more successful than the current business model relying on circulation and advertising, cautioned a recent report on the state of the news media.

Nonprofit financing could make more sense in targeted areas such as health or investigative reporting, but even with ad revenue, "it is unlikely that there is enough funding to become a general ownership model," said the 2009 annual report from the Pew Research Center's Project for Excellence in Journalism.

The report concluded that the newspaper industry overall remained profitable in 2008 and noted that some newspapers recently filing for bankruptcy could continue profitably once separated from parent company debts.

Perhaps the issue isn't whether newspapers should operate as nonprofits, but rather how much profit is needed to comfort their owners. As Oklahoma Gazette Publisher Bill Bleakley told a recent forum on the news media's future: "Newspapers aren't dead. They're just being abused by some selfish, greedy people."

Senat is an associate journalism professor at OSU and past president of FOI Oklahoma Inc.

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