• by Erik Sass , March 24, 2009

First circulated in jest, then half in jest, the notion of a newspaper bailout is now dead serious with a proposal from U.S. Sen. Benjamin Cardin (D-Maryland), that newspapers receive tax exemption as nonprofit businesses if they elect 501(c)(3) status, like public radio and TV.

Choosing to operate under the designation "low profit limited liability companies" would exempt them from taxes and open them to investment from nonprofit organizations. This would prohibit them from endorsing political candidates.

It also would represent a fundamental change in their management and mission. After years as lucrative media cash cows producing profit margins of 20% to 30%, the switch to nonprofit status would alleviate corporate pressure, but would also raise issues surrounding advertising. How important would advertising revenue be for the bottom line? As nonprofit media, would they come under pressure from legislators to reject advertising from, say, liquor companies? Would the public accept corporate advertising in a tax-exempt business?

Whatever the answers to these questions, Cardin was emphatic about the need to save the dying medium. "The business model for newspapers -- based on circulation and advertising revenue, is broken, and that is a real tragedy for communities across the nation and for our democracy."

Remaking newspapers as nonprofits would almost certainly require big corporations to bow out, unless they have a philanthropic bent. Conversely, some nonprofit organizers have proposed a charitable role for Hearst in a new nonprofit publishing arrangement for the imperiled San Francisco Chronicle.

Not coincidentally, two of Maryland's biggest newspapers -- the Baltimore Sun and Baltimore Examiner -- are on the rocks financially; the latter has been threatened with closure.

"The measure is targeted to preserve local newspapers serving communities and not large newspaper conglomerates," said Cardin's statement. He added: "This may not be the optimal choice for some major newspapers or corporate media chains, but it should be an option for many newspapers that are struggling to stay afloat."