Should We Tax Big Tech Companies to Pay for Local Journalism?

A Q&A with FreePress executives Tim Karr and Craig Aaron

It’s not news that local journalism is in a tailspin.  Just this week, the Wall Street Journal reports that 1,800 newspapers have shuttered between 2004 and 2018.  Over the last decade there has been a 35 percent decline in the number of statehouse reporters covering local government.  Nicco Mele, director of Harvard’s Shorenstein Center on Media, Politics and Public Policy, predicts half of existing newspapers will vanish by 2021, turning even larger swaths of the country into “news desserts.”  

Much of this has been driven by the capture of the advertising market by the likes of Facebook and Google, who take a full 77% of digital advertising revenue in local markets, while billions in value have disappeared in the print advertising market.  Earlier this year when Facebook rolled out an experimental feature to highlight local news to users, Facebook couldn’t find enough local news to make it work.   

While the tech industry faces increasing calls for new privacy or antitrust regulation, these approaches won’t do much to build back America’s dried out journalism landscape.  That’s where a new proposal by the watchdog organization Free Press has another solution:  “The creation of a tax on targeted advertising to fund a public-interest media system that places civic engagement and truth-seeking over alienation and propaganda.”  

The proposal is laid out in a new white paper titled Beyond Fixing Facebook. The paper is worth a read, and raises a number of questions around how this approach would work, what is the appropriate or acceptable role of the government in managing funds for local journalism, and how realistic is such a proposal given the consolidated power of the platforms in question.

My Q&A with the paper’s authors, Free Press executives Tim Karr and Craig Aaron, follows:  

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Erik Martin:

At the heart of this white paper is a proposal for a new tax levied against large tech companies whose business models are built on targeted advertising, like Facebook and Google, and directing that tax revenue toward a new national endowment for local journalism and public media. What sort of precedent is there for this idea in the U.S. or elsewhere?

Tim Karr:

We compare the online-ad tax to a carbon tax, an excise tax on emissions that falls most heavily on energy-intensive industries. Policymakers then use the resulting revenue to offset the negative impacts of the polluters, investing in clean-energy programs and other efforts to combat climate change. In our case, the tax offsets the negatives of targeted advertising to fund another public good: independent, noncommercial journalism.

There are similar efforts to tax platforms in the works in Australia, Austria and the United Kingdom, which see a “digital services tax” as a means to support public-interest media. A number of other countries are weighing new taxes on platform giants, with proposals currently under consideration in Belgium, France, Italy, Malaysia, Singapore, South Korea and Spain, though they’ve yet to funnel the resulting revenue to publicly funded journalism programs. As our proposal gains more attention, we hope to see more governments adopt the tax-for-better-media approach.

Craig Aaron:

I’d also note that there is growing interest at the state and local level in finding ways to address the crisis in journalism. We worked to pass a bill in New Jersey to create a new “Civic Information Consortium” that will take public funds and turn them into grants supporting local journalism and civic-tech projects. It’s still getting off the ground and fully funded, but it’s the first effort of its kind and represents a major shift in the willingness of politicians and the public to rethink how we pay for the news we need to support a healthy democracy.  

Erik Martin:

In the report, you write that “Superficial fixes … are destined to fail. That’s because they ignore one fundamental truth: The creators of the most coercive social networks designed their platforms to work this way.”  You go on to say that “Asking a popular online platform like Facebook to fundamentally alter its advertising algorithms is like asking a tiger to lose its stripes.” So I take it you don’t think softer regulations aimed at fostering more “ethical” behavior by these tech companies would be adequate — could you elaborate on this?

Tim Karr:

Every regulatory proposal should be evaluated based on its particular merits. That said, we need to acknowledge that targeted advertising is a multibillion-dollar industry — with soaring profit margins — that’s going to be a reality of the digital economy for the foreseeable future. It’s the principal revenue engine of many of the wealthiest companies in the world today. The Silicon Valley entities that dominate this algorithmic advertising are beholden to their shareholders above all else. That is their only obligation.

Regulators would be wise not to pretend these public companies are motivated by anything more benevolent than this. Mark Zuckerberg’s claim that Facebook will help people “remake society in ways that have the potential to be profoundly positive” should be put in its proper context, as public-relations spin that will always get trumped by the company’s duty to increase shareholder value. Data-harvesting and targeted advertising are drugs that platform owners will be hard-pressed to quit.

On April 30, Alphabet, the parent company of Google and YouTube, reported that ad revenue grew company wide just 15 percent in the first quarter of 2019 versus the 24 percent growth it saw a year ago. As a result, Alphabet’s stock value dropped more than 8 percent in trading that day, wiping out more than $70 billion in market value. According to the Alphabet’s CFO, the revenue downturn reflected “changes that we made in early 2018.” Though she didn’t add further detail, these changes were part of the video-streaming company’s efforts to alter its engagement algorithms to stop harmful and extremist content from appearing in its feed of recommended videos.

This recommendation function is fundamental to keeping YouTube viewers engaged and on the site. But all too often it was surfacing videos featuring conspiracy theories, fake news and racist rants. The new algorithm instead directed viewers to  “authoritative” news sources featuring what the company considered to be accurate information.

“Ultimately, we believe that creating a noncommercial news distribution ecosystem is the most realistic way to escape the online dystopia of the attention economy.”

One unfortunate reality of social media, and something we touch on in Beyond Fixing Facebook, is that junk content has much higher audience engagement than straight news. YouTube’s change to algorithms resulted in a drop in viewer attention, which in turn hit the company’s bottom line. Doing right by society can be harmful to shareholder interests.

With billions in market cap gone, it’s reasonable to ask whether YouTube will continue efforts  to curb the spread of extremist content or return to a formula that benefits shareholders first. Ultimately, we believe that creating a noncommercial news distribution ecosystem is the most realistic way to escape the online dystopia of the attention economy. That’s why Beyond Fixing Facebook not only calls for funding of noncommercial and independent journalism, but also for investing in the the creation of  noncommercial social networks that don’t rely on data harvesting for income.

As a result we’re often cynical about policy initiatives that seek to fix Silicon Valley giants through incremental changes to their data-management and business practices. Facebook and Google have become influential players in Washington, deploying armies of lobbyists to manipulate lawmakers, draft legislative proposals and protect their financial interests. There seems little chance that we can legislatively ban the business model — mass-harvesting user data to capture attention and micro-target ads — in the short term. Taxing it to fund a healthier news creation and distribution ecosystem seems a better way forward.

Erik Martin:

The less focal part of your proposal is the idea of establishing a new Public Interest Media Endowment funded by this new tax.  You note that such an endowment could reshape public media as we know it (the targeted-ad tax revenue alone would amount to four times more than public media’s current federal funding level).  How do you imagine this Endowment operating?

Tim Karr:

We purposefully leave open-ended the details of the endowment’s structure and governance. We see the paper as the beginning of a deliberative process whereby stakeholders of all types — including journalists, advocates, technologists, lawmakers and the general public — hammer out the shape of the endowment and take ownership of the initiative.

To prepare for this process we did look at the governance behind the Corporation for Public Broadcasting (which has its share of problems) and also borrowed from our work on New Jersey’s Civic Information Consortium. Other models can be found in the governance of the National Endowment for the Arts and the National Science Foundation. Not to mention the public-funding models in operation in other countries.

Craig Aaron:

What we know from all those examples is that this is doable. Whether you fold it into an existing institution like the CPB with clear guidelines on how the money should be spent or create something brand new, the key will be funding a bunch of experiments at the local level. I think moving larger grants to then be redistributed by state or local institutions is a good idea. We must prioritize spending in communities of color and places that never benefited from the so-called good old days of journalism. And most importantly, we must build in public input and ascertainment requirements. We should survey the public on their needs, hold public hearings, and commit to transparency on how the money is spent and who is making the decisions.

“We should survey the public on their needs, hold public hearings, and commit to transparency on how the money is spent and who is making the decisions.”

Erik Martin:

Americans also tend to be a bit squeamish on the idea of government-funded media, even people who work in journalism and would benefit from this kind of policy. Are there any novel approaches to make sure this new endowment maintains independence, accountability and public trust?

Tim Karr:

Our experience is that people in the United States are supportive of the use of taxpayer dollars to fund public media. Consistently, surveys conducted by polling firms working for NPR and PBS demonstrate strong public backing for federal funding. Historically, Free Press member actions demanding that Congress restore full funding to the Corporate for Public Broadcasting are extremely popular.

That said, the squeamishness among some reporters is real, though we’re finding more and more of them support public funding as they realize that market economics alone won’t sustain a healthy news ecosystem in the United States.

Broad buy-in can be secured by engaging people as early as possible. We want news professionals and the public at large to take ownership of the ad-tax proposal in ways that make them authentic spokespeople and forceful advocates. Our approach in New Jersey — which culminated in passing state legislation to fund local, independent journalism — began by holding dozens of public discussions in communities across the state.

This successful model is guiding our approach to implementing a platform ad-tax on a national level. The next phase is to invest in a broad-based organizing campaign to compel both journalists and politicians to expand their views of what’s possible.

Craig Aaron:

There’s been a decades-long campaign to undermine public support for public media — and yet, as Tim notes, it still ranks among the most popular uses of public money even though the public vastly overestimates how much we actually spend. I think if we start treating the audience for news more like constituents than consumers that we’ll find they are willing to consider and even fight for quality journalism. The public is with us on this one, and it’s the hand-wringing journalists and skittish public-media execs who need to catch up.

Of course you need firewalls — especially when you are talking about government money. But the rest of the world has figured this out already. To me, the public trust question is more important but I see a million ways to give the public a stake in reimaging public media and a better view of how their money is spent. Most of them boil down to actually going out and talking to people about what stories should be covered, demystifying the newsgathering process, and giving folks ways to contribute.

There are so many great experiments already underway: Look at City Bureau in Chicago, which trains people to go out and document public meetings the newspapers don’t get to anymore. Look at Outlier Media in Detroit, which uses the tools of journalism to solve people’s housing problems. Look at the projects we’re working on here at Free Press in Charlotte, NC — where we’re bringing reporters and editors into barbershops and community centers — or in Newark, NJ, where we’re working to embed an organizer in the public-radio newsroom. One of the things I imagine the targeted-ad tax could support is efforts to engage the public.

Erik Martin:

At the end of the day, even with a $2 billion dollar infusion in public media and local news, private tech companies have massively larger resources and reach — they will still dominate the digital media landscape.  Craig, you gave a speech a few years back harkening to the story of David and Goliath as an allegory for the fight for net neutrality, is there any hope for David in the fight for media reform? Or is the idea that public media can “compete” with private enterprises a sort of forlorn idea?

Craig Aaron:

David wins sometimes! So many of these giants are ready to be toppled, and they got themselves in trouble because they got greedy and disconnected from the communities they’re supposed to serve. I happen to believe — and I think the examples from Europe and parts of Asia back this up — that a much more robust public media system will actually end up pushing the commercial side to do better news as well. Competition is good for everyone.

And a public alternative willing to cover stories and communities that the commercial system won’t will have numerous benefits as well. One of our biggest problems is the disappearance of commercial media from huge parts of the country. This proposals could start building oases in the news deserts.

“Mostly we just need to grab our slingshots and start flinging rocks out there. Inaction is getting us nowhere, and Goliaths like Rupert Murdoch and Mark Zuckerberg are going to trample any hope of democracy if we don’t start pushing back.”

But let’s be clear: Even our proposal isn’t enough to address the scope of the crisis in journalism in the United States.  It would take many billions more to address this. In the report we state that taxing the platforms shouldn’t be the only source of new funding for local or independent journalism, and such a policy must work alongside other measures and funding streams. We can’t give up on the belief that robust independent, noncommercial journalism is essential to the health of any functioning democracy.

And while our proposal suggests ways to fund the creation of more quality content, there are many sticky questions about distribution. That’s where the platforms of course have all the power, and algorithmic tweaks can erase your audience. So we have to fight for more transparency and accountability there, too.

But mostly we just need to grab our slingshots and start flinging rocks out there. Inaction is getting us nowhere, and Goliaths like Rupert Murdoch and Mark Zuckerberg are going to trample any hope of democracy if we don’t start pushing back.

Erik Martin:

The ideas you put forward are all meant to make large tech companies pay, while smaller enterprises, particularly professional news outlets who also engage in digital advertising, aren’t themselves burdened.  I’m sure this is a popular idea among news organizations, but some might say this kind of regulation could have a chilling effect on new or growing online enterprises. Have you gotten any response from the broader advertising industry or tech industry?

Tim Karr:

We’re ready to have these discussions. We see funding the antidote to toxic misinformation that’s spread by social-media algorithms as the cost of doing business, something these types of enterprises must factor into their business plans.

Erik Martin:

Do you envision this new targeted-ad tax going hand in hand with other kinds of regulations aimed at the platform companies?  or are there complementary regulations you would prioritize?

Tim Karr:

There are many legitimate concerns about the multiple threats posed by online platforms. Many advocates are rightly focused on improving user privacy. Others are calling for more aggressive antitrust enforcement. While we support many of these efforts, our focus in Beyond Fixing Facebook is on showing how to make the economic engine powering these platforms more accountable to the public while addressing the crisis in journalism these companies have worsened.

Craig Aaron:

We see this proposal as part of a broader set of need changes at the platforms — all of which will take more political will and public pressure. We’re leaders in a broad coalition pressuring the platforms to “Change the Terms” to combat hate speech. We’re pushing for stronger privacy laws and regulations. We challenge mergers and support stronger antitrust enforcement. If the FTC follows through with a $5 billion fine, that’s significant.

We’re going to need to go after the platforms on multiple fronts simultaneously. Right now, it’s too easy for companies like Facebook to split their critics and play them off against each other. We need to be talking a lot more about a unified strategy outside and inside Washington, though I see a lot of encouraging signs that is beginning to happen.

Erik Martin:

Given how much the U.S. under-invests in public media compared to other countries (we’re talking like 3-or-4 percent of what other western nations spend), how politically feasible is this kind of proposal?  Or, do you think there’s reasons this kind of proposal is more likely to succeed now if advocates frame it in a certain way?

Craig Aaron:

I think we’re at a moment for radical ideas — but unfortunately right now most of those ideas are coming from the right. We must expand Washington’s hopelessly narrow vision of what’s possible. And I believe the public is way ahead of the politicians on this one.

We gave the commercial system alone its chance, and we are living with the results. The strongest argument we have for investing in an alternative is what people get when they flip channels and flip on their phones. People distrust the media often for very good reasons. It’s not some failure of civics teachers, it’s a media system that has disconnected itself from local communities if they were even there in the first place. And right now, the propagandists and the demagogues are the ones filling the void.

But it doesn’t have to be that way. People will get behind a vision — and a media — if they can see themselves in it, if they’re given a stake in shaping it. Once they see the media isn’t just something that happens to them — but actually something they can create and influence — they will fight for it. In this country, we’ve had a failure of imagination when it comes to public media. This moment of crisis gives us the opportunity to reimagine the whole system. All the rest is organizing.