The Next Industry That's Too Big to Fail?

Bailout fever has hit the U.S., and we're all well aware of how government funds have been propping up entities that are considered "too big to fail," like AIG (NYSE: AIG  ) , Fannie and Freddie, and General Motors (NYSE: GM  ) . However, the most recent industry to get some government love may be the newspaper industry.

I don't believe in bailouts at all and have been staunchly opposed to the government funds directed to the financial and automotive industries. A bailout of the newspaper industry would add insult to injury, though. And there are signs that it may be coming to pass.

Hints of bailouts to come?
Silicon Alley Insider posted last week that Washington state's governor has approved a 40% tax cut to the state's newspaper concerns, which certainly implies a governmental "leg up" versus other companies.

Furthermore, apparently some lawmakers may be thinking about loosening up antitrust laws when it comes to newspaper companies collaborating to work on pricing power in online ads -- something that brings to mind the very real potential for collusion and price fixing. Fair? I don't think so. (It also brings to mind the Friedrich von Hayek quote I referred to when I wrote the article Trust vs. Antitrust last week -- in many cases, monopolies form because of government aid, contrary to conventional wisdom.)

Meanwhile, there's been some buzz about President Obama's comment at the White House correspondents' dinner that "a government without newspapers, a government without a tough and vibrant media of all sorts is not an option for the United States of America."

Those words give me the creeps. Linking the concepts of government and newspapers too closely sounds like an unholy alliance to me. True, a truly unbiased media can keep government in check, but it doesn't stand to reason that government would help it to do that. (And the words allude to a Thomas Jefferson quote, where he said he would choose newspapers without government rather than government without newspapers; somehow I don't think he meant government should be tied up with them, though.)

Granted, I enjoy BBC News from time to time, and I know many people who are huge fans of our own NPR. Then again, what I've noticed over the years when I've run across China's Xinhua News Agency's "news" is the chilling potential for media that's too directly linked to the state -- in other words, propaganda. Direct government involvement in the media is a dangerous thing, a slippery slope. Many people already talk about the mainstream media having political bias. But can you imagine if government was funding it?

Evolve or die
Newspaper companies such as New York Times (NYSE: NYT  ) and Gannett (NYSE: GCI  ) are most certainly struggling; even News Corp.'s (NYSE: NWS  ) collection of newspapers including The Wall Street Journal aren't thriving. (The New York Times did roll out some interesting digital innovations recently, although one might wonder whether that's too little, too late.) The troubles the industry faces may be sad, but there's no reason for panic about the state of our democracy.

After all, look no further than Google (Nasdaq: GOOG  ) to find all kinds of resources for current events. And Amazon.com (Nasdaq: AMZN  ) is giving a new way for consumers to digest news and blogs through its Kindle e-reader. Most newspapers have put their papers on the Web, and should probably ditch the newsprint altogether; of course, on the Web, they need to keep on their toes, since consumers have many more choices than simply being locked into the newspaper that lands on their front step every day.

Many bloggers do just as good a job of displaying investigative journalism and critical thought as old-school journalists and commentators do, some do even better. There is no shortage of commentary and news on the Internet, even as many newspapers struggle and some even fold.

Basically, when it comes to news and information, the market's working just fine. The fact that newspaper companies are struggling simply means people have turned to other sources and other means of consuming information. Newspapers, like any other industry, always needed to evolve or die, regardless of whether they were willing to see the writing on the wall.

Nostalgia's no reason to save this industry
Many people feel very emotional about the idea of folding newspapers, but the truth is, there is plenty of journalistic activity going on all over the Internet. The business model for traditional newspapers may be trashed, but digitally, media's hopping, and that's clearly the place where droves of people get their news and information these days. True long-term investors should want to find the up-and-coming companies that are looking toward the future; true long-term investors should also be infuriated if the government gives some companies an unfair advantage in the competitive landscape.

We already risk having too many companies get an unfair advantage from government funding and protection from their own mistakes. Meanwhile, there's absolutely nothing "too big to fail" about the newspaper industry. Media is vibrant and growing, except information's on the Internet, not on inky newsprint with information that's often stale before it hits the front door.

Let's hope lawmakers come to their senses, too, if they're planning on intervening to save the newspapers. Nostalgia is no reason for the government to give preferential treatment to save a dying industry.

Google is a Motley Fool Rule Breakers selection. Amazon.com is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns no shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (17) | Recommend This Article (32)

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  • Report this Comment On May 20, 2009, at 12:53 PM, jsl4980 wrote:

    Great article. So glad to hear someone making sense.

    The problem with politicians and newspapers is that most politicians are in the only demographic who subscribe to news papers (they're old). They don't know anything about this series of tubes the young kids call the interwebs. They aren't sure how to pick up a monitor the same way they hold a giant clumsy news paper.

    They'll miss the feeling of having cheap ink all over their hands. They love solving the puzzle of how to fold a news paper so you can read your article without the paper falling over. Boy it would be a shame to lose those advantages of cheap thin paper over a cleaner, faster, cheaper, more efficient distribution model... If we could only find a way to get this information to people cheaper and faster...

  • Report this Comment On May 20, 2009, at 5:40 PM, jesse2159 wrote:

    When I was in high school in the late 1950's, the students were required to read the New York Times every day. They could read any part of it that interested them. Since then, virtually every one of them went on to become sucessful, and all attribute that success to knowing what was going on in the world and who was making the changes that affected all of us. The death of newspapers is the death of our understanding of the world, and consequently, it will distort our decisions.

  • Report this Comment On May 20, 2009, at 6:07 PM, TomBe103 wrote:

    I agree with the second post. I also think that many users of e-news don’t consider the consequences of not having a good, viable printed news organ. Most of the bloggers out there second guess the newspaper journalist and are not held to any standards whatsoever when it comes to making comments, citing “facts,” or delivering “a story.” Nor do they face any consequences for posting totally false, and misleading information. Without newspapers and the print media’s “feet on the ground” approach to seeking out and verifying stories, facts and behind the scene news that we should all know about, we will be fed “news” of little to no consequence by a corrupted system of electronic media men.

  • Report this Comment On May 20, 2009, at 6:28 PM, peters46 wrote:

    I used to live in a big city with a good newspaper, which I read every morning. I now live in a little bitty town with only one small local gossip sheet calling itself a newspaper. News? I can get more news at the local restaurant. Real news? Not on TV or the radio. Internet. But there is a problem with that - is it accurate? No. Unbiased? No. At least with a newspaper there is, supposedly, an editor checking for spelling, grammar and accuracy. Oops, scratch spelling and grammar. Their competition on the internet doesn't check for those either, why should they? Search engines to check on accuracy? No - search engines search for fifty commercial links before coming anywhere close to looking for information links. When is the last time you typed a web address into a search line and they actually brought you the link? Not Google or MSN. Yahoo will. I don't know if there are any others that will. Blogs - suuurrre. They will tell me exactly what I want to hear, or what the advertisers or government want me to hear. NO ONE checking for accuracy. And it is only getting worse. The biggest problem with relying on the internet is that many people not only don't have it, but they don't have access to it. Many people have never even used computers. Forget them? Forget the old and disabled? Remind you of any relatives or friends? Sure, many old or disabled are as tech savvy as any 15 yr old. Many aren't, and never will be. They get along fine with newspapers. Horse shoes are silll made, because they still have uses. Even buggy whips are still made. Newspapers should not disappear. Nor should they get government subsidies - but neither should the internet.

  • Report this Comment On May 20, 2009, at 7:06 PM, mals wrote:

    What's wrong with bailout? If it is the right thing to provide health care to people who could not take care of their health because of bad habits, then it is the right thing to do to help out banks with CEOs whose collective IQ is less than 80.

    We are a nation of spoiled brats and that includes people and institutions. We deserve bail out because of who and what we are.

  • Report this Comment On May 20, 2009, at 7:26 PM, xetn wrote:

    Read the following articles to find out why bailouts are wrong generally, the effects of Japan's "bailouts and stimuli" and finally what is wrong with newspapers specifically:

    http://blog.mises.org/archives/009979.asp

    http://blog.mises.org/archives/009982.asp

    http://blog.mises.org/archives/009983.asp

    Maybe we can all learn something.

  • Report this Comment On May 20, 2009, at 11:14 PM, hometowntimes wrote:

    Newspapers and their online siblings will survive and feed one another with quality journalism and resources to support both community growth and the readers they serve. The downslide of the print news model due the financial constraints of the medium has created the greatest opportunities through localized online sites to foster and incubate both innovation and the next wave of emerging journalist talent. The real cost-benefits of new business models such as a very inexpensive franchise system - e.g. hometowntimes.com - leverages the opportunity presented by the departure from those institutions that haven't reacted to the opportunities created by the online solutions - particularly at the local/commmunity levels.

  • Report this Comment On May 20, 2009, at 11:29 PM, supereditor wrote:

    I'm glad to see not everyone was easily swayed by the writer of this article. The BIG fact that he/she failed to point out is that much of the news that bloggers write about was first presented in the traditional media.

    If newspapers go away, many important stories will never see the light of day because very few unpaid journalists will ever put in the investigative time needed to break a difficult story. Newspapers aren't perfect, and as they continue to cut staff they are making themselves less and less relevant. That said, they are still the best source for unbiased news because they are staffed mostly by professionals who are held to at least minimal journalistic standards.

    Bloggers hold themselves to whatever standard they see fit. If you find someone you trust, who provides all the news you need, that's great. But what are the chances of such a person popping up in every community in America ... with no money to be made for the effort. Bloggers will pop up in every community, yes, but you can bet they'll have agendas.

    Also, much of the news that you can read on Google and the other sources the writer mentions is compiled from professional newsgathering organizations, primarily newspapers. Take that content away and Google will no longer have anything valuable to report.

    I don't think newspapers should get a bailout because it would be a ridiculous conflict of interest. But they are already facing an even more frustrating conflict. As they struggle to survive they are becoming increasingly beholden to corporate America, which is far more dangerous than the government because the corporations own the politicians.

    If we, the people, let newspapers die, we will pay the price. But we are the only ones who can save them, and we should do just that.

  • Report this Comment On May 20, 2009, at 11:41 PM, supereditor wrote:

    Not to spoil your sales pitch hometowntimes, but I'm wondering why you are charging a franchise fee. I know college kids that have created more professional looking Web sites than yours, so why would a professional journalist or salesperson want to pay you for the honor of creating a startup that he/she could create on his/her own?

    The problem with online news isn't a lack of sites, it's the fact that few of them actually turn a profit.

  • Report this Comment On May 21, 2009, at 12:12 AM, ByronRandall wrote:

    "Many bloggers do just a good a job...as old school journalists"--have you lost your mind?

    Bloggers are not investigative journalists! Bloggers are parasites, feeding off the work of real journalists at (mostly) newspapers. They do very little if any investigation. Investigation requires funding and experience and a long term commitment.

    What will we have when newspapers are gone and bloggers don't have someone else's work to steal? That's when we'll have propaganda ruling the media. When no one works to get to the truth--it's too expensive--and bloggers regurgitate what the government feeds them.

  • Report this Comment On May 21, 2009, at 1:52 AM, mlaursen wrote:

    If my local paper failed, I don't know where I would go to get my financial news and insights!

  • Report this Comment On May 21, 2009, at 2:00 AM, mlaursen wrote:

    All through college I worked in a newspaper complaint department, taking calls from people who hadn't received their newspaper. I received maybe two calls that entire time from someone upset about not being able to read the day's news. I received thousands of calls about missing the comics, sports, crossword, movie reviews, and weekend sales ads.

  • Report this Comment On May 21, 2009, at 3:10 AM, grntree wrote:

    Newspapers are loosing subscribers because they are no longer printing the "NEWS". All we get is the left wing slant on ever story. New York Times are so bad it will never identify the political persuasion in any news story concerning a Democrat, but if it's a Republican, it is usually part of the heading, or prominently displayed in the first sentence.

    They won't even put a "(D)" in the article.

    Who's going to miss them?

  • Report this Comment On May 21, 2009, at 12:58 PM, 4wheeldrifter wrote:

    Sounds like an unholy alliance because it is. Government has no business in newspapers or any other "free speech" medium, especially not a medium that is largely (arguably) slanted in the direction of the current administrations political party.

  • Report this Comment On May 21, 2009, at 4:01 PM, robertf36009 wrote:

    I have said this before but it won't hurt to say it again. News organizations any and all of them have only one thing they can sell to be succesfull. Credibility. The New York Times (NYT) is on the verge of bankruptcy while the Wall Street Journal (WSJ) is adding subscribers. Why? Because the NYT has sold it's soul to the Soros group and lost thier credibility in the process. The NBC group (all of it) owned by General Electric (GE) is hemhoaging money While the Fox group is having a pretty good year. Why? For the same reason mentioned above. CBS and ABC aren't any better they don't have journalists any more they only have spin doctors. Does any one really think that George Steponallofus is a journalist? If you do call me I have this great investment plan involving news papers that will make me err I mean you rich.

  • Report this Comment On May 22, 2009, at 1:14 PM, Dolivaw wrote:

    I don't know if someone has mentioned this yet but the government cannot own (even partially) the media any part of it; at least not in a free country. We may become full fledged socilists b4 he is thru but we are still free; aren't we? Only in places like China, N. Korea and Cuba does this ocur.

    I mean talk about a liberal bias, of course some papers wouldn't have to change much.

  • Report this Comment On May 27, 2009, at 5:33 PM, Bonefish100 wrote:

    I will not buy a Kindle and take it to Starbuck's. I will not let the government dictate my news for me. I will not eat green eggs and ham while I read my beloved newspapers.

    However, what I'd like to see is a company created that would publish a real newspaper with national, international and regional news, with real content provided by real journalists. The company would owned by mainstream citizens, not conglomerates who try to control what we think. Say, for example, each stockholder would be limited to buying no more than $5,000 worth of stock in the initial offering and no person or entity would be allowed to ever control more than a 10% interest in the company. It would be neither left nor right, but would be dedicated to real news. I'd happily buy into a company like this.

    Is anyone out there considering this?

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