The FTC Confuses Newspapers With Journalism as it Seeks New Media Tax

by Michael Gonzalez
Heritage.org
Jun. 07, 2010

Last week my wife and I bought a used car, the better to ferry our children between sports events. For this we went to the websites of nearby dealers, researched different cars online and, after settling on one vehicle, quickly called up its history–inspections it had passed, the fender bender in 2007, etc. Our online investigation helped us make an educated decision that fit our family budget. It was just another example of how the explosion of information online has transformed the lives of everyone for the better.

Now comes the latest Federal Trade Commission “discussion draft paper” suggesting that these advances must be hobbled, taxed and maybe even reversed–because they hurt the newspaper industry. Dead-tree media’s salvation, it seems, lies in hobbling social media and making search engines as user-unfriendly as possible.

Oh, and newspapers will need one more thing: government subsidies. That’s why we need the tax hikes–especially on Internet and 3G phone users.

Turns out, the way we bought our car is killing newspapers. As James Fallows observes in this month’s Atlantic, newspapers never made money on hard news. He quotes Google’s chief economist Hal Varian:

Serious reporting, say from Afghanistan, has simply never paid its way. What paid for newspapers were the automotive sections, real-estate, home-and-garden, travel, or technology, where advertisers could target their ads.

The Internet, Fallows concludes,

has been one giant system for stripping away such cross-subsidies. Why look to the newspaper real-estate listings when you can get more up-to-date, searchable info on Zillow–or better travel deals on Orbitz, or a broader range of movie showtimes on Yahoo? Google has been the most powerful unbundling agent of all. It lets users find the one article they are looking for, rather than making them buy the entire paper that paid the reporter. It lets advertisers reach the one customer who is searching for their product, rather than making them advertise to an entire class of readers.

The FTC finds this pernicious. It proposes more than a dozen remedies, several of them silly, some outright dangerous.

Among the latter: a proposal to extend the Copyright Act to make facts proprietary. That’s right, a paper would own the facts it uncovered, not just the way it phrases them. Poor Daniel Patrick Moynihan, who once told another senator, “Sir, you have the right to your opinions, but not to your own facts.” The gentleman from New York must be rolling in his grave.

Why make facts proprietary? The FTC paper notes that “the copyright act allows parasitic aggregators to ‘free ride’ on others’ substantial journalistic investments, by protecting only expression and not the underlying facts, which are often gathered at great expense.” The silly proposals include these jewels:

Establish a “journalism” division of AmeriCorps “to ensure that young people who love journalism will stay in the field.”
Increase funding for PBS and NPR “to build and maintain strong newsrooms at the state and local levels.”
Establish a National Fund for Local News, financed by current or new fees on “telecom users, television and radio broadcast licensees, or Internet service providers”–all to be administered through state Local News Fund Councils. (Ah, new local bureaucracies with taxing authority–what could possibly go wrong?)
Give news organizations a tax credit for every journalist they employ. This could help pay their salaries.

Do you sense a theme here? Save “responsible” journalism by having government subsidize it. What better way to assure fierce journalistic independence and watchdog vigilance? The FTC rather spreads itself on revenue-raising proposals:

Small Business Administration-insured loans for new nonprofit journalism organizations.
Higher postal subsidies for newspapers and periodicals.
A broadcast spectrum tax (call it the “Tax on Rush”) “which should result in a fund of between $3 and $6 billion.”
A tax on consumer electronics (dubbed “the iPad Tax” by the New York Post) worth “approximately $4 billion annually.”
A Spectrum auction tax, “with the proceeds going to the public-media fund.”
Advertising taxes, including a 2 percent sales tax on ads that would generate “$5 to $6 billion annually.”
An ISP-cell phone tax, which at “3 percent on the monthly fees would generate $6 billion annually.”

You get the picture: Soak a burgeoning and vital business to keep a dying one on life-support. The FTC is making several tragic mistakes. The first is to confuse the delivery method with the goods delivered. To use the oft-repeated analogy, they assume the horse and buggy is essential to providing transportation. The FTC says

newspapers have not yet found a new, sustainable business model, and there is reason for concern that such a business model may not emerge.

Here, they confuse journalism with newspapers, and an informed public with newspaper jobs. In fact, Americans have never been better informed or more engaged. As my family’s car-shopping experience shows, the possibilities are endless.

What needs to be saved is not newspapers but content. The Internet (which we seem to forget, is all of about two decades old) has not been good yet at creating a successful business model for content creation.

But companies such as Google, which realize that they depend on content, are busy coming up with 21st century ways to create new models–rather than using the state’s power of taxation to keep a 17th century industry on life support.

As Varian told Fallows in the Atlantic piece:

If you were starting from scratch, you could never possibly justify this business model. Grow trees–then grind them up, and truck big rolls of paper down from Canada? Then run them through enormously expensive machinery, hand-deliver them overnight to thousands of doorsteps, and leave more on newsstands, where the surplus is out of date immediately and must be thrown away? Who would say that made sense?

Why does the FTC want to do any of this? I am not a mind reader, but the FTC is an “independent” agency run by people appointed by the Obama Administration, which has been antagonistic to an Internet it cannot control and nostalgic for the good old days when the news was controlled by a handful of mostly liberal newsmen.

The FTC is merely suggesting these proposals. It adds, “we welcome additional proposals, which can be submitted” here. I suggest you write to them.?