Recalibrating News Media ownership

A paper presented at the Political Economy of Communication conference AUT University 15-16 September 2011. Published in Australian Journal of Communication 38(3) 2011.

Evolution has been at work in the complex world of news media since the first ‘news letters’ appeared in the middle of the seventeenth century. Content, appearance, scale, delivery and ownership have changed as a direct response to social, political, technological and economic development. Within the liberal model of media systems (Hallin & Mancini 2004, 198-248) there have been periodic recalibrations – significant structural changes – that have altered the role that news media have played. They have fostered ‘golden ages’ and eroded them, they have created and shifted power, and they have made fortunes and lost them. These fluctuations can be seen as manifestations of the techno-economic paradigms postulated by long wave economic theorist Carlota Perez (2002), whose mapping of financial bubbles and crises has revealed a repeated pattern that explains the interaction of technology and finance over the past 240 years.

Perez has mapped five successive technological revolutions. A recent analysis shows the fifth revolution – the Age of Information and Communication Technology – has now passed through what Perez describes as the frenzy bubble associated with the installation period of a techno-economic paradigm and has reached a turning point (Perez 2010, 7). That juncture, in common with those in preceding paradigm shifts, will lead to institutional and policy innovation designed to facilitate the full deployment and exploitation of information and communication technology.

There are clear links between the “five great surges” identified by Perez and the historical development of the news media. The Industrial Revolution brought with it the steam-powered printing press; the surge that created the Age of Railways delivered the means for wide-spread distribution and social change that created a free press; the Age of Steel, Electricity and Heavy Engineering not only produced more efficient presses and fast type-setting but turned newspapers into businesses ruled by powerful families; the Age of Oil, Automobiles and Mass Production provided the means to create and feed lucrative mass markets in print and broadcasting; and the Age of Information and Telecommunications revolutionised the production and cost structures to such an extent that news media companies became share market darlings before the Internet threatened their future. Such parallels suggest that the news media also have now reached their own turning point and must consider fundamental institutional and structural change, or what Perez calls “institutional recomposition” (2002, 57).

There are numerous illustrations of the parlous state of the traditional mainstream news media in general and newspaper in particular. A combination of factors, from injudicious borrowing that funded successive mergers and acquisitions to the undermining by the Internet of previously monopolised advertising markets, have attested to the fact that the wheels have fallen of mainstream media’s business model. This is not, however, reason to suppose that the news industry as we know it is destined for extinction. A report by the Reuters Institute at Oxford University in November 2010, entitled The Changing Business of Journalism and its Implications for Democracy summed up the present reality: “…despite deterministic (and often fatalistic) claims to the contrary, there is still time for the business of journalism to reinvent itself and move into the twenty-first century, provided media managers, professional journalists, and policy-makers and the citizens they represent are willing to learn from different developments around the world” (Levy & Nielsen 2010, 1).

The normative role of journalism in a democracy is well established (e.g. Baker 2002, 2007; Schudson 2008). Conscious of the current shortcomings of the mainstream news media, Curran (2002, 217-247) proposes a ‘third way’ working model of a democratic media system, at the core of which are public service organisations (modelled on Germany’s devolved public television system) and which are surrounded by four peripheral sectors: Civic, social, private and professional media. In the model, civic media support activist organisations while social media represent minority interests and receive state support in the interests of plurality. The private sector makes the system “more responsive to popular pleasures” and tends “to privilege right-wing perspectives”. The professional sector is under the control of professional communicators or is organized to give such professionals maximum freedom and is derived from “the de-politicised, British model of public service broadcasting, during its hey-day”. Curran admits that this part of his model “may seem especially fanciful”.

It may be less fanciful today than when the model was proposed a decade ago. A weakened business model has made the news media less attractive to investors and sent executives into cost-cutting spirals when faced with high debt and low growth. Meanwhile, the hyper-competition in a diminishing market that dumbed down newspapers and pushed them increasingly toward being entertainment vehicles reached its nadir with the phone hacking scandal and closure of News International’s News of the World. Collectively, these factors call into question the compatibility between large profit-driven corporations and serious ethics-driven journalism. This paper contributes to the debate by exploring an alternative to profit-seeking public shareholding as the optimum form of private sector news media ownership. Such an alternative ownership structure would sit comfortably in Curran’s professional sector. Even in the absence of full implementation of his ‘third way’ – which I view as unlikely given the dominance of private enterprise – the creation of such a sector offers a much-needed opportunity to re-create some of the “hey-day” that Curran and many others yearn to see again. It is opportune to consider it while the news industry undergoes a recalibration to make the transition to the deployment phase of Perez’s fifth revolution in which technology-based organisations will reach their full potential and maturity. In the process, however, profit-driven media companies will leave gaps as they move away from news dissemination in pursuit of the most lucrative sections of the information industry.

Those gaps will be filled without, I suggest, the need for the type of interventions that Keane envisages (1991). Nor, at the risk of modifying Curran’s model, do I see the professional sector as necessarily being publicly funded (as he suggests) or broadcasting based. Part of the vacuum may be filled by strictly commercial entities that find a more cost effective way of delivering abandoned services, while other needs may be satisfied by contributions to blogs and other social media. There will, however, be a significant deficit in those areas that are best served by professional journalists in sufficient numbers to attract the attention of policymakers and the powerful but which are unable to satisfy the high expectations of investors. How will organisations be structured to meet these needs? Evidence suggests that the answer may lie in bodies under trust ownership, working to a model of sustainable commitment to a set of pre-determined journalistic ideals and a level of commercial sufficiency that replaces investor-driven profit imperatives.

The foundation – organisations in which public service attributes of journalism are institutionalised under trustee governance – already exists. They include the Guardian (London), Irish Times (Dublin), and the St Petersburg Times (Florida). Each has a form of ownership that carries with it finite obligations to serve the civic purposes of journalism, although the manner in which they are ingrained is unique in each case. The Guardian and Irish Times are in formal trust ownership while an educational institution owns the St Petersburg. The Scott Trust enigmatically requires the Guardian to operate “as heretofore”, which successive generations of trustees and editors have interpreted as adherence to the liberal principles set out by former owner-editor, the civic-minded C.P. Scott. The Irish Times is bound by a set of editorial objectives contained in its company articles that specifically includes “the support of constitutional democracy through governments freely elected”. The St Petersburg Times is bound to civic purpose by a combination of its ownership by the prestigious Poynter Institute and a culture, carried from one chief executive to the next, based on a set of principles laid down by its benefactor, Nelson Poynter.

In each case, the newspaper is operated as a commercial enterprise that is designed to return a profit. Such surpluses cannot, however, be dispersed to private investors by way of dividend but must be reinvested or used for charitable purposes. The former Manchester Guardian and Evening News Limited has developed into a diversified group committed to supporting the Guardian “in perpetuity”. The Irish Times, too, has other assets purchased in a more buoyant climate. In both cases the over-riding requirement is the maintenance of the flagship. The St Petersburg Times has an arms-length association with its owner (to preserve the Poynter Institute’s tax status as a journalism education institution) and pays an annual sum to the institute to fund its operations. The principles of trusteeship – which in these cases are centralised on the need to sustain the newspaper and its journalism – force the boards of each organisation to take a conservative fiscal line that precludes the type of excessive borrowing that has bedevilled their publicly listed and private equity counterparts.

In each case, unique circumstances led to this unconventional form of newspaper ownership. It is difficult to determine the situation that would lead to other major publications following suit because very few newspapers remain in traditional private ownership (although some are at the mercy of private equity investors) and share market investors in media companies are not known for the collective philanthropy that could gift a newspaper to a trust. However, the small group of trustee-led newspapers has been joined by a recent alternative that serves as an adjunct to mainstream news media. Found predominantly in the United States, these are relatively small investigative units that are not in formal trust ownership but which operate under what is clearly a form of trustee governance. The oldest is the Centre for Investigative Reporting, established in California in 1977, which has since been joined by scores of local, state and national enterprises that depend on philanthropic grants or association with journalism schools. Arguably at the pinnacle is ProPublica, a Pulitzer Prize winning New York organisation with a staff of about 40 journalists that was founded in 2008 by former Wall Street Journal executive editor Paul Steiger to augment the investigative journalism of mainstream media. The governance structure of these units tends to develop – either from the outset or over time – into a form of trusteeship, in part to satisfy the form of funding and also in recognition of the cooperative nature of many of the endeavours.

I believe that between these two structures – the large newspaper trust and the small non-profit (largely digital) investigative unit ­– lies a self-sustaining trust-based private enterprise organisation that can populate Curran’s professional journalism sector and contribute to the industry recalibration that must include alternatives to the current commercial model if serious professional journalism is to survive in a recognisable form. Given sources of funding a trust could buy a medium-sized newspaper, the market value of which could be much diminished. Or such an organisation may well eschew the traditional print medium and opt instead for a subscription based digital iPad/tablet application that can deliver the depth and gravitas of a text publication without the high start-up, production and distribution costs of a newspaper. A subscription model, supplemented by advertising, may not satisfy shareholders intent on double-digit annual growth but it could generate sufficient revenue to sustain a credible newsgathering staff. Broadcasting would not be excluded from such a model and could, in fact, be a means by which the public service broadcasting activities of TVNZ7 in New Zealand could be continued after the government and Television New Zealand abandon it in 2012.

An obvious question arises: Why establish a trust, with its legal costs and obligations, rather than simply start a cooperative? The International Co-operative Alliance defines a cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise”. It does offer a form of ownership that could be employed in the professional media sector (until 2010 – when a group of investors came to its financial rescue – the journalists on the French newspaper Le Monde held a controlling interest that saw it function in many ways as a cooperative) but a trust structure has a number of additional attributes that overcome the weaknesses of a cooperative, in which self-interest can still play a part.

A trust is essentially “an equitable obligation binding on one person to deal with property for the benefit of another” (Gunasekara et al. 1994, 201), although within that requirement there may be a high degree of flexibility in determining how that obligation should be discharged. For example, the phrase “as heretofore” required the Scott Trust, owner of The Guardian, to exercise a degree of interpretation. Generally, however, trust deeds set out the terms of the arrangements and the duties of trustees on whom the trust assets are nominally settled but who must act in the interests of the beneficiaries.

The key issue in the establishment of a news media trust will be the intentions of its creators. Trust deeds and kindred mechanisms are only as altruistic as their creators intend them to be and Hannsman and Mattei are on solid ground when they say that “the protean nature of the trust makes it particularly well-suited to efforts at fiscal and regulatory avoidance” (1998, 479). Langbein (1995, 627) states that “the distinguishing feature of the trust is not the background event [that leads to its creation], not the transfer of property to the trustee, but the trust deed that defines the powers and responsibilities of the trustee in managing the property”. Any media trust aimed at serving Curran’s professional sector will need to have a clear codification of what the trustees must do, can do, and must not do in pursuit of its journalistic ideals.

Countless volumes have been written on fiduciary duty, and the judiciary has left trustees in no doubt as to their solemn and onerous obligations. The duty of care and financial responsibilities placed on trustees are important – the former because it establishes the standards against which a trustee’s actions are measured (Haley & McMurtry 2006, 350), and the latter because of their particular significance in media trusts. Trustees have a duty of care to avoid loss or injury as a result of their actions in relation to a trust, and the test of their conduct varies depending on their status. The test for amateur trustees is whether these are the actions of a normal prudent person, while paid professional trustees are expected to have exercised the special skills and judgement they profess to possess. The distinguishing factor here, however, is the effect that the trustee’s duty of care has on business investment. An 1886 judgement decreed that investments by trustees required not only normal prudence but the added care “an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide” (Lindley L.J. in Re Whitely (1886) 33 Ch. D.347 at 355 quoted in Haley & McMurtry 2006, 350). Failure to meet such a standard could render a trustee personally liable to make good any investment losses. Haley and McMurtry state that this duty of care prevents trustees from engaging in speculative investment, a temptation from which some private and listed media companies have not been immune.

All fiduciary relationships are based in law on uberrima fides (the standard of utmost good faith) but central to the fiduciary duties of trustees is the additional dictate that they do not profit from their positions, aside from an annuity. This disengagement from personal gain differentiates trustees from company directors. The common practice of company directors also being shareholders, produces an incentive to maximise returns to enhance share prices and dividends, which directly benefits the director. Trustees must avoid such self-interest. To illustrate the prohibition on profit-taking: If trust-owned shares are used to vote a trustee on to a company board, the director’s fees must be paid to the trust and any director independently elected to a company board must exercise particular care to avoid conflicts of interest. Unless expressly permitted by the trust deed, trustees acting in a private capacity cannot buy trust property even if a fair market price is offered. The cumulative effect of the fiduciary provisions is to require trustees to act only in the interests of beneficiaries and potentially to suffer legal redress if they fail to do so. It is for good reasons that the duties of trustees have been described as “…an irreducible core of obligations” (Millet L.J. in Armitage v Nurse, quoted in Haley & McMurtry 2006, 349).

However, trust ownership is not an instant panacea nor is it a guarantee that a news organ will fulfil journalism’s primary purpose – providing citizens with the information they need to be free and self-governing (Kovach and Rosenstiel 2001, 17). The history of journalism is peppered with legal arrangements designed to preserve power. The publishers of the Yorkshire Post, for example, could refuse to register shareholders who did not have conservative opinions, and the major contemporary media families – such as the Sulzberger (New York Times) and Harmsworth (Daily Mail) families – have trusts designed to preserve the trans-dynastic nature of their holdings rather than the quality of journalism in their publications. Even the well-meaning people that devised a new form of ownership for the Guardian, Irish Times and St Petersburg Times inadvertently created minefields for their trustees to negotiate (Ellis 2011 forthcoming).

The formal structure of a news media trust will require skill and a willingness to learn from the past. The manner in which these three publications coped with trustee governance is instructive and each can contribute elements to a media trust blueprint. An examination of the history of the three newspapers and their parent organisations allow us to draw some general conclusions about the manner in which trusts and trust-like structures need to be constituted. For example:

  • Circumstances dictate the nature of trustee ownership (the St Petersburg Times was secured according to Nelson Poynter’s wishes because he was able to vest its ownership in the non-profit educational institution he founded).
  • Tax law is a deciding factor in how the organisation is constituted (the Scott Trust in 2008 was re-formed as a company – the Scott Trust Limited – to avoid future potential tax liabilities but preserved all of its trustee governance)
  • Family/former owners may exercise a hold on leadership unless constrained by a trust deed or articles (both the Scott and Irish Times Trusts have been victims of such domination in the past).
  • Clear demarcation is required between trustee and executive roles to ensure that trustees govern and executives manage the business (the Irish Times board of directors and management were given greater control over day-to-day business by altering the company articles to limit the role of trustees).
  • Business and editorial transparency are not guaranteed by trust-like status and should be explicit requirements (the Guardian has an excellent record on both counts while the Irish Times and St Petersburg Times meet only statutory obligations on financial disclosure).
  • Dominant editors play key roles in pursuit of trust objectives and each of the newspaper is now characterised by strong editorial leadership, albeit with very different personal styles (the chief executive and editor-in-chief of the St Petersburg Times has extraordinary powers including the right to appoint his or her successor).
  • Public service and editorial independence can – and should – be enshrined in trust deed or company articles (the Irish Times’ memorandum of association sets out the company’s object as follows: To publish the Irish Times as an independent newspaper primarily concerned with serious issues for the benefit of the community throughout the whole of Ireland free from any form of personal or of party political, commercial, religious, or other sectional control. It is followed by five civic-minded editorial policy objectives and editorial commitments to accuracy and fairness, responsibility and plurality).
  • Editorial departments cannot be isolated from financial realities and in hard times must accept reduced budgets (all three newspapers offered voluntary redundancy following the financial crisis of 2007 but did so in ways that were supported by staff).
  • Trust-owned newspapers are more likely to preserve core editorial functions (in June 2011 the chief executive of the Guardian Media Group, Andrew Miller, stated that the Guardian’s editorial budget in 2011 and 2012 would remain unchanged in spite of a £33 million loss on the Guardian and the Observer).

It remains to be seen whether disclosure of the full extent of phone hacking – and possibly other illegal practices – leads to an across-the-board public disdain of journalists. Should that occur, professional journalists and the organisations in which they are employed would be faced with a herculean task to restore confidence. It would not be sufficient for journalists and proprietors simply to state their good intentions for the future: A deeply sceptical public would require more concrete proof of institutional change. Such proof might be found in a trust deed with binding journalistic objectives and policies, administered by trustees – immune from the influence of others – who are bound to uphold it.

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