Protectionist laws will not save local news 
Photo 168999680 © Chernetskaya |


Protectionist laws will not save local news 

As is typical of protectionist laws, the small group of true winners would be those connected to the power that comes with writing the regulations. 

On June 15, the Senate Judiciary Committee voted to advance the Journalism Competition and Preservation Act (JCPA). The bill, long championed by Sen. Amy Klobuchar (D-Minn.) and this year co-sponsored by Sen. John Kennedy (R-La.), attempts to address the struggles of local newspapers and other media outlets that have lost advertising revenue in the age of search engines and social media platforms by mandating revenue sharing between firms like Google and Meta and local news providers.  

The convoluted process set out in the bill would give traditional media outlets like newspapers and broadcasters an antitrust exemption to form cartels and negotiate payments from “Big Tech” platforms for linking to their digital content. The collective negotiation and arbitration process imposed on tech platforms would likely lead to a “link tax,” or fee per link paid from platforms to content providers.  

Canadians face a similar controversy in the Online News Act. After Canada’s parliament passed the act this month, the country finds itself in a showdown with Google and Meta, both platforms threatening to block Canadian news sources from their platforms entirely rather than to negotiate payments to media outlets in exchange for linking to their content. 

The JCPA has an understandable political appeal. The message that local newspapers and other traditional local media are a bedrock of American society resonates with many. The impacts of changing technology and market structure on these firms and their employees are easy for any voter to see. Over 20 years, 2,000 U.S. newspapers have gone under. The industry’s employment and revenue have both fallen by about half

Local newspapers along with radio and television broadcasters have seen their distribution and advertising revenue models radically disrupted by internet technology. Newspapers once dominated the market for delivering print advertisements. Barriers to entry to start competing newspapers were high, due to upfront costs to launch the papers and build reader bases. The competitive landscape for radio and TV advertising similarly favored local incumbent firms. 

Most local newspapers and other media outlets now have a presence online with some from larger cities having a substantial online presence. But compared to the reach and targeting capability of search engines like Google and platforms like Facebook, local media outlets have mostly lost their competitive advantage. Annual print ad revenue for U.S. newspapers, which exceeded $36 billion in 2008, dropped below $10 billion by 2020 and is projected to continue falling. Meanwhile, total online ad revenue for all newspapers hovers around $5 billion annually, a paltry sum compared to the hundreds of billions of dollars seen by Google. 

Local media has not lost ad revenue because of anticompetitive practices by big tech. Rather, radical technological change created a new distribution model less advantageous for traditional outlets. This mirrors recent debates on protectionist tariffs in U.S. manufacturing. Economic development in poorer countries and technological change fueling globalization made manufacturing many goods cheaper abroad. Particularly starting with the Trump era, protecting both domestic manufacturing capacity and workers through tariffs became an appealing idea to many. 

The parallels between the JCPA and recent attempts to protect domestic manufacturing industries extend beyond their sources of political appeal. They also share much of the same fatally flawed economic logic.  

Like tariffs, the link tax envisioned by the JCPA is a highly blunt instrument, and there are multiple reasons for skepticism about its implementation. Will it succeed in getting support for the types of workers and organizations its supporters hope to protect?  

The unusual collective bargaining and arbitration process the JCPA proposes is a potential source of skewed incentives and uncertainty worthy of a separate article, but even creating the list of who receives the antitrust exemption to bargain collectively is no trivial matter. The JCPA bill imposes a 1,500-employee cap on who may demand payments from Facebook, Twitter, and Google for linking to their content. The cap, not found in earlier years’ versions of the bill, allows proponents on the left and right to tout the exclusion of Fox News and The New York Times, respectively. 

Those organizations eligible to receive the link tax often look much different than romanticized small and independent papers, newsrooms abuzz with activity from local journalists. Hedge funds and private equity firms now control about half of the local papers in the U.S., with anecdotal and statistical evidence both showing they make big cuts in full-time newsroom staff. Some fear the JCPA will incentivize further consolidation, with hedge funds buying up more local papers and cutting more local staff. 

Suppose that despite these hurdles, the JCPA succeeded in being implemented as largely as intended, with link taxes successfully negotiated between large online platforms and collectives of approved local news organizations. In this scenario, the bad economic logic of protectionism would truly have teeth, carrying a litany of unintended consequences in markets for local news and other media, as well as for journalists themselves.  

Protectionism often passes muster with voters because its downsides are difficult to see directly. The “Big Tech will pay for it” rationale of the JCPA echoes former President Trump’s oft-repeated dubious claim that “China would pay” for the tariffs charged to U.S. importers. Like any tax or fee, the platforms footing the bill will pass some of it along to others with whom they do business. Platforms transact with countless parties, and costs and red tape from the bill would reverberate throughout the online media ecosystem. In Meta and Google’s threats to pull Canadian and American news sources from their platforms, we see an example of such unintended (though easily anticipated) consequences. 

These immediate costs would likely pale in comparison to potential harms from the JCPA in the long run. Like the forces of globalization and development abroad so disruptive to U.S. manufacturing, the technological changes behind the disruption of local media’s advertising-based business model are irreversible. Sustaining a static vision of local media as it was prior to the internet means leaving companies dependent on government aid, and thus outlets will tend to focus their innovative capacity on sustaining that government aid instead of serving consumers better. 

A January 2023 letter from the seven media industry associations representing the proposed recipients of the link tax offers a preview of this future. The letter’s authors were not shy when invoking ideas of nearby heroes and far-away villains clearly analogous to protectionist rhetoric: 

“While America has long been a beacon of light when it comes to freedom of the press, that light has grown dimmer due to the monopolistic shadow of the Big Tech giants.” 

The United States needs a market for local news capable of adjusting to the changes wrought by internet search capability and social media. True adjustment requires innovation from firms experimenting with new business models and receiving market signals. The most the JCPA can provide, however, are firms whose continued existence depends on an arbitrary and politically engineered link tax. 

Let’s not, however, diminish the very real hit that local news organizations have taken, nor its consequences both for the production of local news and for the careers of journalists. We need not look further than old factory towns still lacking any factories, and the recent populist anti-trade backlash stoked by former President Donald Trump, to see that these processes can be long and difficult even if largely unavoidable. 

There is cause for optimism in differences between the challenges faced now by local journalism and those faced decades ago by U.S. manufacturers. Unlike traditional manufacturing, the most likely sources of innovation for local journalists in the age of technology are the journalists themselves. This is not due to any inherent difference between the skills of journalists versus other workers but in the nature of the service itself and the technology behind its disruption. 

The internet and social media already reveal a future for enterprising journalists and local news much less bleak than supporters of the JCPA imagine. Blogging, podcasting, and platforms like Substack are three examples of already well-established channels for local journalism. At an even more on-the-ground level, social media allows residents of neighborhoods, towns, and cities, to communicate and debate the topics most important to them. 

This process is still very much underway, and there are many unanswered questions about business models for journalists and their impacts on the free and accurate flow of information. But those questions will not be answered by keeping much of the country’s top journalistic talent tethered to firms dependent on government-engineered revenue-sharing schemes. In fact, artificially protecting these companies amid an unprecedented change will only slow that process, keeping both journalists and readers from fully engaging in innovative solutions and ultimately preventing some of those solutions from being realized. 

If passed, the JCPA would have at best a bumpy road to achieve its goal of revenue-sharing through its imposition of collective negotiation and arbitration. Were that goal achieved, consumers of news and other media content across the economy would foot some of the bill. And instead of reaping the rewards of many innovative minds experimenting with ideas in an admittedly messy process, we would be left with legacy organizations investing in lobbyists to write letters to the president about dimming beacons of light. As is typical of protectionist laws, the small group of true winners would be those connected to the power that comes with writing the regulations.