Wednesday, November 19, 2008

Nonprofit Model for Newspapers?

As circulation and advertising revenue continue to decline, some in the newspaper industry see nonprofit form as providing a viable model to stay in business. This article in the on-line National Journal Magazine explores how some regional newspapers are using an on-line only, nonprofit structure for their business. These new nonprofit news ventures include the MinnPost in Minneapolis, in San Diego; the Chi-Town Daily News in Chicago; Gotham Gazette in New York City; the New Haven Independent in Connecticut; and the St. Louis Beacon. The trend is examined in more depth in this article in the Carngie Reporter, and a Google search on "nonprofit journalism" will yield several more articles on the subject.

The Christian Science Monitor is one long-time example of a nonprofit news organization, organized in 1908. Recently, the Monitor discontinued its paper publishing business in favor of a completely on-line operation, which by all accounts has been successful. And National Public Radio, (a private nonprofit formed in 1970 pursuant to the Public Broadcasting Act) has become the news outlet of choice on radio for a significant segment of the population. The IRS, meanwhile, has long recognized that magazines and newspapers can qualify as tax-exempt educational organizations under 501(c)(3) (though occasionally the IRS has become a bit overzealous in trying to regulate viewpoint-pushing by such publications; one of the most famous cases dealing with exemption for educational organizations involved IRS attempts to revoke exemption for a feminist publication. The D.C. Circuit in Big Mama Rag v. United States, 631 F.2d 1030 (1980) held that the IRS's "full and fair exposition" test for educational organizations was unconstitutional, leading the IRS to promulgate a new "methodology" paradigm for exempting viewpoint-pushing educational organizations in Rev. Rul. 86-43).

While we may not soon see the New York Times, Chicago Tribune, Washington Post or L.A. Times adopt nonprofit form, it is clear that this is becoming a significant trend in the news-gathering and reporting world. The trend, moreover, lends some credence to the "market failure" theories of nonprofits and tax-exemption espoused by Henry Hansmann and yours truly: as the market becomes incapable of providing a service, nonprofits funded by donations step in to fill the hole.


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