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Cross Ownership Can Save Newspapers From Extinction

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By JOHN CHACHAS

Special to the Tribune

Published: March 1, 2009

Many American cities will soon lose a critical producer of local news and information - the daily newspaper - unless the government grants publishers some urgent and long-overdue regulatory relief.

In our work advising the American newspaper industry, we are seeing widespread financial distress. By the middle of this year, as many as a third of daily newspapers may be under the protection of a bankruptcy judge; dozens more could be shuttered, with thousands of jobs lost.

The industry has self-inflicted problems, but one of the most destructive factors has been the change in how consumers search for information. By the time the average American gets to work each morning, he or she has seen, read or heard news via radio, television, Internet, PDA or cell phone.

Although a great deal of that content comes from daily newspapers, which pay journalists to report, write, edit and provide photographs and even video, many of the re-users of the newspapers' content essentially pay pennies or nothing at all.

Imagine if this were so for the writers of Frank Sinatra's ballads or the producers of a James Bond film - you write it and everyone else uses it free.

Some publishers drowning in red ink are reducing the number of days they print the local paper. Others are concluding that it is better simply to shut down. In the quarter ended Sept. 30, the average daily newspaper in the nation's top markets saw declines in year-over-year revenue approaching 20 percent; several lost more than 25 percent. In a business with a largely fixed cost structure, such revenue erosion can be lethal. By the end of this year, some of America's biggest dailies may well be run by their lenders. There is little evidence that banks would serve us well as the chroniclers of the nation's news.

Laws Are Outdated

The government, however, can do something about all this without costing the taxpayer a dime. The Justice Department, the Federal Communications Commission and even the U.S. Senate have, for decades, held that combining local dailies or owning papers along with other local media is anti-competitive.

This is nonsense. Antiquated anti-trust laws have been extended to apply not just to the local concentration of economic power but also to how many "voices" there may be in a defined market. Yet voices refer only to print. Regulators fail to consider the Internet or even cable TV as local competition. The regulators' insistence on a narrow product-market definition is particularly inconsistent given their recent willingness to define the market more broadly in other contexts, such as in the merger of XM and Sirius.

These regulations evolved decades ago when there were, in any given market, one morning and one evening paper, two or three local TV stations and three or four radio stations. Media concentration may have been a concern then, but how could it be now?

Today, the average American city has a daily paper, several "national" papers with plenty of local advertising, maybe a tabloid, several free papers and "shoppers," and weekly suburban papers - all of them competing for classified advertising dollars - as well as city magazines.

And that's just print media. Add to that a half-dozen TV stations plus 200 or more cable and Direct Broadcast Satellite networks such as DirecTV and Dish Network, plus between five and 50 radio stations, and the Internet with an almost endless number of "local" or "hyper-local" URLs that distribute information and news. We didn't mention Google, Yahoo or MSN, all of which are ad-driven enterprises and in every market. For advertisers, to say nothing of citizens, the voices abound.

What Government Can Do

Newspapers are the most trusted, credible source of local news. They serve as a bedrock of information and a critical monitor of a functioning democracy, and their imminent demise isn't just some abstraction of destructive capitalism.

Here are some steps that should be taken under the new administration to create a fairer landscape for the evolution and survival of the newspaper business.

•Redefine "market" truthfully - all local media. The historical reluctance to approve geographically adjacent mergers or combinations is based on a fallacious definition of "market." This must be changed. Adjacent suburbs are part of the core market for any major daily paper.

Constraining publishers by erroneous market definitions has slowed combinations, led to massive over-capacity and inefficient fragmentation, which will now give way to business failures. Combinations of geographically adjacent papers are one logical path to efficiency.

•Eliminate local media cross-ownership restrictions. The subject of so much discussion at the FCC that it has been the mantel (or undoing) of five successive chairmen, the cross-ownership rule prohibiting common ownership of newspapers and TV stations should be jettisoned immediately.

The rules fashioned more than 35 years ago prohibit local media from competing effectively in rapidly evolving digital media markets. Without this change, television stations may well be the next endangered species.

Democracy is safer when the news is gathered, written, edited and filtered by professionals who are dedicated to the craft. Without newspapers, who will provide the in-depth, accurate reporting on the workings of government, the wars, the hurricanes and the acts of heroism? Is this to be provided by bloggers or the staff at the eco-cool campuses of the Web portals?

The executive branch of government, led by the president, has the power to over-ride the bureaucracy when the government's position has no valid purpose. This is precisely the case with the American newspaper industry.

Letting newspapers fail under the weight of bad antiquated policy would be a catastrophic mistake.

John Chachas is a managing director of Lazard and co-head of the firm's practice advising media companies.

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