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Friday, January 28, 2011

The U.S. Newspaper Industry in Transition

Suzanne M. Kirchhoff
Analyst in Industrial Organization and Business

The U.S. newspaper industry is suffering through what could be its worst financial crisis since the Great Depression. Advertising revenues have plummeted due in part to the severe economic downturn, while readership habits have changed as consumers turn to the Internet for free news and information. Some major newspaper chains are burdened by heavy debt loads. Between 2008 and early 2010, eight major newspaper chains declared bankruptcy, several big city papers shut down, and many laid off reporters and editors, imposed pay reductions, cut the size of the physical newspaper, or turned to Web-only publication.

Newspaper publishers during 2010 saw some improvement in financial conditions, with many reporting higher profits, but the industry had not yet turned the corner. Advertising dollars were still declining and newspapers had not found a stable revenue source to replace them. As the problems continue, there are growing concerns that the decline of the newspaper industry will impact civic and social life. Already there are fewer newspaper reporters covering state capitols and city halls, while the number of states with newspapers covering Congress full-time dwindled to 23 in 2008 from the most recent peak of 35 in 1985.

As old-style, print newspapers decline, new journalism startups are developing around the country, aided by low entry costs on the Internet. The emerging ventures hold promise but do not yet have the experience, resources, and reach of shrinking mainstream newspapers.

Congress has begun debating whether the financial problems in the newspaper industry pose a public policy issue that warrants federal action. Whether a congressional response to the current turmoil is justified may depend on the current causes of the crisis. If the causes are related to significant technological shifts (the Internet, smart phones and electronic readers) or societal changes that are disruptive to established business models and means of news dissemination, the policy options may be quite limited, especially if new models of reporting (and, equally important, advertising) are beginning to emerge. Governmental policy actions to bolster existing businesses could stall or retard such a shift. In this case, policymakers might stand back and allow the market to realign news gathering and delivery, as it has many times in the past. If, on the other hand, the current crisis is related to the struggle of some major newspapers to survive the current recession, possible policy options to ensure the continuing availability of in-depth local and national news coverage by newspapers might include providing tax breaks, relaxing antitrust policy, tightening copyright law, providing general support for the practice of journalism by increasing funding for the Corporation for Public Broadcasting (CPB) or similar public programs, or helping newspapers reorganize as nonprofit organizations. Policymakers may also determine that some set of measures could ease the combination of social and technological transition and the recession-related financial distress of the industry.

Date of Report: January 11, 2011
Number of Pages: 28
Order Number: R40700
Price: $29.95

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