Philanthropic bailouts not an answer for news industry

By David Lei

Yale University Chief Investment Officer David Swensen and financial analyst Michael Schmidt wrote an op-ed in The New York Times late last month that caused quite a stir. No, their piece wasn’t about university endowments or the state of the economy. They reached outside of their immediate comfort zone and made a case for dramatically changing the newspaper industry’s business model.

Their argument is radical by the sheer scope of change it would involve: They believe that wealthy philanthropists ought to bail out the nation’s major national newspapers and set them up as endowed, nonprofit institutions.

It’s understandable why this idea has appeal. It’s old news that newspapers are facing massive declines in circulation and advertising revenue. Several are bankrupt or just on the verge. Employee layoffs in the industry are even worse than those in finance. (Needless to say, as former executive editor of The Daily Pennsylvanian and a finance concentrator, I find this a cruel irony.)

Though I agree with Swensen and Schmidt’s basic premise – the decline of newspapers will have deep, troubling consequences for our democracy – their solution is na’ve and plagued with problems. The most obvious is its underlying concession that newspapers will never find a profit-based business model.

But what worries me most is their lack of concern for newspapers. They don’t consider the “nation’s premier news-gathering organizations.”

They imply that local and regional papers will simply have to be sacrificed as we focus on saving The New York Times and The Washington Post.

That got me thinking about The Philadelphia Inquirer, which doesn’t quite make the cut.

Though it was once in the league of the Times, winning 17 Pulitzers in the 1970s and ’80s, the paper is long past its glory days. Still, it plays a crucial role in Philadelphia life. In particular, it keeps tabs on the city’s all-too-often corrupt government.

While I’m willing to wager that most Penn students don’t read the Inquirer on a regular basis, we need to care about its potential loss or decline. It’s cliche, but Penn doesn’t exist in a bubble. The Inquirer is our watchdog too – anything big in Philadelphia affects Penn. And while we don’t appreciate the paper now, we’ll miss it when it’s gone. And that is certainly a possibility.

An already ailing Inquirer, its sibling the Philadelphia Daily News and other related properties were purchased in 2006 by Philadelphia Media Holdings, a group of local investors led by Penn alumnus Brian Tierney. Tierney has come under criticism for several business decisions he’s made (namely, laying off staff) to turn things around.

I had the opportunity to meet Tierney nearly a year ago at an event co-hosted by The Daily Pennsylvanian and St. Anthony Hall.

Tierney spoke with great reverence about Sam Zell, the famous real estate magnate who had recently led a highly leveraged employee buyout of Tribune Company, which owns the Chicago Tribune and the Los Angeles Times. He remarked that Zell was doing what it took to save Tribune’s celebrated newspapers.

I wonder what Tierney would say about his hero now. Desperate to get out from under $13 billion in debt, Tribune filed for Chapter 11 bankruptcy protection late last year.

According to Bloomberg News, Philadelphia Media Holdingsfinds itself in a similar situation. In a maneuver intended to force the renegotiation of its debt terms, the company halted interest payments to its lenders last September. Due to breaches of its loan covenants, the company had already been in technical default since June.

The day the Inquirer fails – and I hope it doesn’t – will be a sad one for the city. In an e-mail, Penn artist-in-residence and Inquirer columnist Dick Polman said,

“Perhaps some online news sites might try to fill the vacuum – and I would expect that PMH’s would be one such outlet – there is as yet no business model that can support and pay a trained, experienced news staff.”

“This region has a highly educated, literate readership; only a newspaper can fulfill their needs,” he added.

I agree.

All else notwithstanding, I appreciate the discussion that Swensen and Schmidt engendered with their op-ed. The survival of newspapers is certainly a public-interest question.