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May 6, 2024, 12:34 p.m.
Business Models

Newsonomics: Eight essentials as California’s “save local news” bill picks up speed

What’s important to watch, in this gnarly legislation filled with acronyms, are two simple things: Money In and Money Out.

Legislatures don’t move at the speed of newsrooms.

The California legislature now moves into its second year of addressing its state’s shrinking newsrooms. The cry of the Democratic majority is clear: “Save local news.” Yet those three seemingly simple words — “save”, “local,” and “news” — have slowed progress, as legislators parse how the new law may affect each of the three. Despite these still-astounding numbers of loss, aid has been stalled: In California, since 2004, we have lost an astounding 68% of journalists, as well as 25% of our newspapers; total print news circulation has dropped more than 50%.

After more than 12 months of on-and-off discussion, we now seem to be in the season of decision. Last Wednesday, State Senator Steve Glazer introduced his long-awaited bill, SB-1327, which he says could contribute as much as $500 million a year toward reviving local news in California. This Wednesday, the bill gets its first hearing and vote in Glazer’s Taxation and Revenue Committee.

That bill now stands alongside another bill, AB 886, the California Journalism and Preservation Act (CJPA), sponsored by State Assemblymember Buffy Wicks and passed by the Assembly last session. In the next 60 days or so, we will all see an unprecedented flurry of maneuvering, lobbying, and maybe deal-making that might propel funding of real news revival forward.

Combined with New York State’s recent passage of journalist-supporting payroll tax credits, we may see real momentum. That could help form the expanded business models of the next five years. Not only would two of the largest U.S. states have made a strong financial statement about the need to revivify these institutions, but such declarations could well spread to other states — and to the renewed discussion of a similar move by Congress.

But there are so many details and so many places that this train of aid could go off track.

The protagonists are fairly well known.

Legislators earnestly understand the impact of what the diminishment of a local free press means to democracy. They know what the loss of local news coverage means to their own ability to communicate with voters. They’re eager to take on the outsized platforms, both to increase state revenues and to make political points.

Independent, locally owned news outlets —  both long-standing organizations and a spate of newer digital startups — are trying to survive and claw their ways to a more sustainable future.

The California Newspaper Publishers Association, representing the state’s largest publishers, is an early supporter of CJPA, which mirrors the national JCPA that Congress let languish two sessions ago.

And Google, most prominently among the big platforms, is making its case for what it’s done for publishers over time and is trying to avoid new taxation.

I won’t re-litigate the case on CJPA, the Assembly-passed AB886, again, since I’ve done so already. Its link tax carries much more capacity to harm than to help, as we learn from the mistakes of our Canadian neighbors in imposing one and cutting off Facebook news links in the process. Jeff Jarvis has laid out quite a treatise here on such legislation, and why it’s off the mark. He’s made the point over many years that misguided blaming and punishing of the platforms for reinventing the ad business is bad public policy.

Over time, too, opposition to CJPA has faced growing opposition, including deepening concern on the bill’s impact on the state’s ethnic press, as summed up here by Benjamin Chavis, the CEO of the National Newspaper Publishers Association. The good news here is that CJPA is finally in the midst of revision, given all the feedback received.

What’s important to watch, in this gnarly legislation filled with acronyms, are two simple things: Money In and Money Out. Publishers care mainly about the Money Out — will they get meaningful dollars to support local journalism?

Money In? That can be more complicated. CJPA calls for that link tax, while SB 1327 calls for a “data extraction mitigation fee,” an effort to avoid the word “tax” and to acknowledge the business model that has swept away so much of traditional advertising: offering consumers free products and monetizing their attention. It’s a perhaps clever legerdemain that is intended to win approval and avoid litigation. It taxes companies with more than $2.5 billion in revenues, and so it applies to Google, Meta, and Amazon, but not to any news publishers.

Platforms, of course, don’t want to pay out, under either bill. If times were flush, California might be considering, as New York State did, funding payroll tax credits out of its general budget. But with a budget deficit between $38 billion and $73 billion, that’s a likely non-starter.

Amid all the wrangling to come, I hope the sausage that emerges from the legislative meat grinder will include these eight ingredients:

First, do no harm. That means a variety of things here. We’ve already seen Meta pull Facebook news links in Canada due to AB 886–like link tax legislation there. Canadian publishers say that loss of traffic continues to hurt them, just as other Canadian legislation — specifically, the payroll tax credits — has helped them. We can well assume that Meta would pull news links in California if the link tax is enacted — and that Google, which has threatened to do so as well (and is doing a “test”) might, too. While Facebook traffic’s importance has declined over time, Google still directs somewhere between a quarter and half of many news sites’ traffic, so such a loss would be devastating. There are many reasons the link tax is a poor solution, but that is the number one reason — and it’s irremediable by the state government.

Bolster California news publishers. This should be axiomatic, right? But the funding distribution currently in CJPA would apparently (there’s no legislative estimate of the payout specifics) see large amounts of money going to national publishers serving California readers non-local content, and not all of it “news.” That violates our “save local news” mantra directly. Any bill must be directed toward those who publish local news. Even the CNPA members who supported CJPA in the past are coming to realize that they’ll do better distributing any new money wholly within the state.

Payroll tax credits to support the retention and addition of local journalists are the best solution of the day. Consider all the debates over the years about the perils of having the government, in an attempt to address local press loss, pick winners and losers. Out of the welter of “solutions” cataloged by the Rebuild Local News coalition, payroll tax credits have emerged as a winner. They’re (mostly) working in Canada, have just been adopted in New York State, and are the centerpiece of Sen. Glazer’s SB 1327. They keep government out of decision-making and vary directly with journalist jobs.

The details matter, a lot. SB 1327 does the best job we’ve seen nationally at addressing some of the many nuances in how the local press works. Why? It’s the fruit of a lot of listening by legislators to a diverse group of publishers. Among its features: Providing funding for publishers who rely heavily on freelancers, providing higher payouts to the smallest publishers, incentivizing publishers to provide benefits to their teams, and more. The bill helps both for-profits and nonprofits, but should up the amount nonprofits get. It provides more incentives for new hires, as it should. Further, the bill needs a cap on credits so that the benefits to publishers of different sizes are more balanced. As Dick Tofel pointed out in a recent piece on New York’s payroll tax credits law, there’s still much to be figured out in the law’s implementation, and that is something to watch in California as well.

Maximize the number of supports of local California journalism. Would new state-driven support of local journalism be good? Of course. Would such support and continuing voluntary support from Google be better? It would. In the abstract, this is as basic as the diversified revenue streams that every news publisher needs. As this debate has dragged on, Google’s role has increasingly come up.

For a number of years, Google has voluntarily (whatever corporate motives you ascribe to it) significantly aided journalism innovation. In California, its ongoing Google News Initiative (GNI) and Showcase programs have benefited dozens of publishers, including my Lookout Santa Cruz. I’ve told Lookout readers how GNI programs helped us expand our Lookout in the Classroom program and integrate our tech stack. Google says it’s provided financial support to 200 California news publishers since GNI launched in 2018.

Google is talking with legislators about how it might continue those programs and get financial credit for them as well as other state programs it’s involved in. There is a lot of arcana in those talks, but the point for legislators and their staffs: Please consider how you can maximize the chances of local news revival success. In part, that means being smart about “negotiating” with the one platform that has stayed the course of real news aid.

Make sure significant money goes to paying California local journalists, when all this legislative dust settles. Getting a bill passed by both houses of the legislature is only one hurdle; two others remain. First, California Governor Gavin Newsom must sign it. Will he, if the platforms affected — two of whom are deep-pocketed potential sources of support for a 2028 presidential campaign — oppose it? I hope legislators crafting the final bill will have knowledge of the governor’s intention as they finalize it. Second, could litigation tie down the law’s implementation and freeze payments to publishers? Already, Maryland’s press-aiding legislation is in the courts. We can hope that legislative passage is more than a Pyrrhic victory.

Understand how this is part of a new emerging business model. If it’s well-constructed, this bill has the potential to be more than a Band-aid. With a five-year runway as proposed, known and predictable tax credits will become a meaningful part of workable business models. At Lookout, we combine advertising, reader revenue, philanthropy, content licensing, and our school access programs to provide five sources of revenue. Tax credits would be a big sixth source. At the level proposed, they could amount to 15 to 20% of our expense budgets. That would reduce the reliance on those other five and provide much-needed capital for growth. This is an important building block for 2025-2030.

Yes, this isn’t about small ball. It’s about seizing the moment to repopulate pervasive news deserts. At Lookout, we just announced our second market, in Eugene-Springfield, Oregon, and have started to outline a wider Lookout Local network. At Sen. Glazer’s press conference last week, Cityside (Berkeleyside, The Oaklandside, soon Richmond) CEO Lance Knobel spoke about how such funding could feed growth.

We can make this a bicoastal wave. New York State’s payroll tax credit law moved quickly through the legislature, given some great organization — and lobbying — by publishers. If California can move forward with complementary legislation and do no harm, we should see a bicoastal wave that provides a chunk of cash to ignite rebuilding. After more than 15 years of cutting, which I’ve covered voluminously here, it’s time to tell a different story.

Photo of Joshua Tree National Park by Doc Searls being used under a Creative Commons license.

POSTED     May 6, 2024, 12:34 p.m.
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