• by February 27, 2019

Free Press, a nonprofit group that challenges centralized control of media, this week called for a tax on targeted online advertising to fund journalism. The effort means well, but it could have unforeseen consequences on digital publishers.

The organization yesterday released a report titled “Beyond Fixing Facebook” that proposes a 2% tax on online companies that last year earned more than $200 million in digital-ad revenues, such as Facebook, Google and Amazon.

The proceeds would support local-news startups, sustain investigative projects, seed civic-engagement initiatives and efforts to diversify editorial voices.

The effort aims to address a “crisis in journalism” as newspapers close down and reporters get fired. Free Press cites data that indicates 20% of U.S. newspapers have disappeared since 2004, eliminating 200,000 newsroom jobs and leaving 900 communities without a local news provider.

The group estimates the tax would raise more than $1.8 billion a year for a Public Interest Media Endowment that provides grants for news and information projects.

“Think of it like a carbon tax, which many countries impose on the oil industry to help clean up pollution,” Timothy Karr, senior director of strategy and communications, stated. “The United States should impose a similar mechanism on targeted advertising to counteract how the platforms undermine journalism and amplify content that’s polluting our civic discourse.”

Market-based solutions are generally favorable to ones imposed by the government, and creating another bureaucracy that funds journalism projects sounds wasteful. I’d prefer to see publishers find other ways to compete with digital media giants without depending on a cross-subsidy scheme.

If there’s money to be made in journalism, entrepreneurial publishers likely will devise plans to create sustainable businesses from ads, subscriptions, events and premiums.

In the early 1990s, I lived in Budapest, Hungary, and worked as the first reporter for the Budapest Business Journal, the first English-language business newspaper in a former Eastern bloc country.

At the time, people thought we were crazy to start a publication whose audience was probably limited to an audience of 6,000 readers. But those ex-pats and English-speaking Hungarians were key decision-makers, making them an ideal target for B2B advertisers. We had to keep our overhead low and work relentlessly to produce a weekly edition.

In the United States, there may be reasons other than digital competition that has led local publications to shutter.

The loss of high-paying factory jobs in many communities and a shrinking middle class, particularly after China entered the World Trade Organization in 2001, has negatively affected broad swathes of the U.S. economy. The job loss was even felt in poorer communities near the U.S.-Mexican border where maquiladores, a factory in Mexico run by a foreign company and exporting products to that country, had thrived after NAFTA was enacted in 1994.

Unfortunately, subsidized journalism isn’t going to bring back communities of readers who have moved away to bigger urban centers to find jobs. It may also raise the cost of hiring reporters, which would have a negative effect on publishers not seeking grants.

Finally, any major company that depends on digital advertising is likely to line up against the proposal, including companies like Google and Facebook, two of the biggest corporate lobbyists in the United States. That political power doesn’t immunize them from public criticism, but it doesn’t hurt.