Non-profit newspapers? Not very likely

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NEW YORK (Fortune) -- Should newspapers become not-for-profits? Probably not. Still, the idea won't go away -- and, why would it with the daily rattle of gloomy news in the industry? Just last week, the Washington Post announced voluntary layoffs and the New York Times laid off 100 business side employees while seeking a 5% temporary pay cut from its newsroom. In the midst of this Senator Benjamin Cardin (Dem. Maryland) proposed legislation that would allow newspapers to convert to non-profit status, meaning they would not have to pay taxes on advertising or circulation revenue and donors could make tax deductible contributions.

The idea might make sense, maybe, for some smaller papers, but as Craig Huber of Barclays Capital (BCS) pointed out in a report, "the proposal misses the mark on several fronts." Among other things, Huber noted there is nothing in the tax code that prevents papers from being put into not-for-profit entities today. (The St. Petersburg Times is one paper that is already owned by such an entity.) Also, Huber noted, given all the pressures on the industry a lot of newspapers are expected to be losing money before long, and unprofitable companies don't pay tax anyway. More practically, even not-for-profits have budgets to keep and the newspaper industry needs to wrestle through fundamental issues about its business model before going not-for-profit could be contemplated.

I'm all in favor of wealthy folks endowing newspapers -- and in some respects the current owners of some of the world's biggest newspapers have effectively done that, given the wipeout in newspaper valuations. But, in general, even the world's richest benefactors would have a hard time endowing something without knowing what the plan and budget are. As one senior newspaper executive who has wrestled his share of budget shortfalls said to me when asked about the proposal: "to survive, newspapers have to attack outmoded cost structures and innovate on ad sales approaches and digital product development, not the sort of thing I'd associate with not for profits."

That said, as newspapers (and other forms of media) struggle with these issues, the not-for-profit idea has some interesting facets. And there are interesting hybrid models out there, like the National Geographic Society and the Smithsonian, which have taxable for-profit divisions. And even though public television is obviously not for profit, there is also the presence of highly lucrative programming like Sesame Street on the air there to think about in terms of how the two notions can successfully intermingle.

I don't want to entirely dismiss Cardin's idea because, well, I'm a print journalist and have spent most of my career in newspapers; I appreciate their societal purpose and want as many of my colleagues as possible to keep doing the work they enjoy. But even the name of the proposed legislation "The Newspaper Revitalization Act" sounds a bit fanciful and Orwellian. (There is of course the whole issue of the so-called watchdogs being beholden to those they are watching.) If any kind of legislative relief were appropriate it would be something that helps publications that won't stay afloat otherwise remain so for a couple of rocky years as they wrestle with the double whammy of the deep recession on print advertising and the havoc being wreaked on all media -- but newspapers most urgently right now -- by the growth of digital media. As the head of a prominent foundation put it to me, a newspaper "is a profit making organization and has market value, or it's a loss-making organization."

How odd it would be if some papers opted for not-profit status only to discover that others that did not stuck it out and eventually thrived as for-profit businesses. On paper -- pardon the expression -- endowed investigative news organizations like ProPublica and a similar endeavor just announced by The Huffington Post actually make more practical sense for now than endowed newspapers.

So here's my two cents: It's unlikely that many in congress beyond Cardin will feel the government needs to get involved. But if they do, in the spirit of the current climate of financial bailouts and "stimulus" they might consider what I'll call the Newspaper Advertising and Reading Act. There are two components: first, the government would agree to buy a few billion dollars of advertising to explain and promote its various initiatives in "qualified" (i.e. demonstrably endangered) publications. Second, it would buy or deeply subsidize newspaper subscriptions for the estimated 15 million people who work as civil servants for a couple of years, and maybe create a program of free subscriptions for millions more college and high school students, as part of academic programs that encourage news literacy. A crazy idea, I admit, for crazy times.