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Cooperatives Could Save Newspapers & Minnesota's Economy

March 06, 2009 By Lee Egerstrom, Economic Development Fellow

Minnesota farmers would save Minneapolis and St. Paul newspapers in a New York minute if the publishing and media worlds' market failures become worse.

How? By forming one or more new cooperatives, of course.

That is the history of the Upper Midwest for the past century, both "uptown" and out in the country. But it is especially so for farmers in Minnesota, North Dakota, Wisconsin and Iowa. Along with farmers in Texas, they lead the nation in forming farm supply, marketing, services and finance cooperatives to overcome problems with markets.

This is recalled here because the Star Tribune in Minneapolis is in Chapter 11 bankruptcy reorganization. Newspapers are starting to shut down presses in various parts of the country. The financial future and future ownership of the St. Paul Pioneer Press appears less threatened, but the groundswell of problems within the news industry isn't comforting for any news consumer, and problems in other regions of the country could yet spill over on St. Paul as well.

This would have farmers looking for cooperative options, concedes Don Overlie, who with his wife Barb operate a farm at Lake Crystal. "We depend on news," he said. And what's more, he added, there is an economic connection between reader and newspaper that shouldn't be overlooked amid concerns about the flow of reporting and news.

In weak economic times like now, Overlie noted, "The (advertising) coupons in a newspaper more than pay for the cost of a subscription."

That brings the diverse functions and business structure of a newspaper into focus, and begins to point at all the stakeholders that have interests in their newspaper whether they are shareholders or not.

Mike Bucsko, chief executive of the Newspaper Guild of the Twin Cities' unit of the Communications Workers of America, said employees of the Twin Cities newspapers are meeting with people involved with the business, investment and civic sectors to ready stand-by plans should "the worst" happen.

The "worst" has happened in Denver, where the Rocky Mountain News recently folded. Newspapers in Portland, Maine, and Seattle, Washington, are exploring community-based ownership models in last-ditch efforts to keep publishing. Debt burdens at publishing companies threaten the continued existence of historic newspapers all across the nation - from Baltimore, to Chicago, to San Francisco.    

This represents what Minnesota farmers would call "market failure" or "market imperfections," the historic driving forces behind pooling resources and sharing risks to create or rescue a market or set of services.

National journals, such as Editor and Publisher magazine, and foundations that support journalism are engaged in exploring alternative ownership structures that might work to rescue failing newspapers. Market failures abound, coast to coast.

Given the heritage of the Upper Midwest and Minnesota in particular, Bucsko said the Guild and concerned citizens are looking at cooperative models - both as legal entities and as operating concepts.

"What we really need is for experts to step forward and say, 'This model, or these models, would work,'" he said. 

There is ample expertise scattered around Twin Cities law firms, accounting firms, service providers such as HealthPartners, agricultural co-ops such as CHS and Land O'Lakes, cooperative finance and mutual insurance companies, and cooperative development organizations. There are civically engaged foundation that might even step forward to help enlist the expertise to find and draft workable models for communities and their newspaper stakeholder interests.

But having resources isn't enough. National newspaper trends show there must also be a generally accepted sense of urgency if resources are to be brought together in a timely manner. That starts at understanding how newspapers impact all phases of community life. 

Stakeholders Can Become Shareholders
The following are brief descriptions of stakeholder groups that have much at risk in the future of newspapers. They could become investors and partial shareholders in a hybrid cooperative newspaper company.

Advertisers - Much attention has been given nationwide to the movement of paid classified advertising from newspapers to often free exposure on Web sites. While that is a revenue problem for newspapers, the decline in display and pre-printed advertising is more a problem with the national and Minnesota recession, said Marilyn Clements, a former newspaper business executive who now works at the Minnesota Newspaper Guild in the Twin Cities.

What is usually overlooked is the importance of "brand," or "image" advertising that is addressed to important economic demographic groups that coincidentally are newspaper readers, she added. Moreover, she said, newspapers have the distribution mechanisms in place to bring important pre-printed ads, the "circulars" or "supplements" tucked into newspapers to the targeted demographic groups at cost-effective and efficient rates - important information flows for businesses and for the local and regional economies. 

Communities and community leaders - This stakeholder group is the hardest to recognize and define. Civic groups, however, are stepping back and appraising the importance of their local newspapers as their continued existence is being threatened.

New forms of business ownership, such as Vermont's L3C low-profit, limited liability companies, and Minnesota's 308B cooperative business structure, appear to provide models that would allow outside investors with cooperative stakeholders to jointly own media companies. Included in the groups of investing stakeholders would be foundations and nonprofit organizations that normally don't take equity stakes in for-profit companies.

Bill Mitchell, writing online for the Poynter Institute, sums up the objective of diverse investor groups in looking at the L3C model. In words that would apply to the Minnesota co-op law as well, he said:

"The new hybrid model makes it easier for companies to attract investors with different objectives and expectations. It also addresses a fundamental conflict of publicly traded news companies: the obligation to increase shareholder value while spending what it takes to provide communities with the journalism needed to inform civil life."

That article, "L3Cs a 'Low Profit' Business Model for News," shows how diverse groups such as for-profit investors wanting 10 percent returns can be partners with "socially-beneficial" enterprises wanting a more modest 3 percent return and charitable investors willing to accept only 1 percent returns on investments. 

Employees - No group of stakeholders have as obvious a dependency on newspapers. There are employee stock option plan (ESOP) methods for taking an equity stake in newspapers. In some cases, such as the San Juan Star in Puerto Rico, employees have taken over ownership. In most cases, however, employees would be an equity shareholder group within a larger media company.

While ESOPs are usually the way employees are organized for holding company equity, there are other available co-op models patterned after farmers' producer cooperatives. No additional elaboration will be offered here because media employees in the Twin Cities are exploring potential investment options, said the Guild's Bucsko.

Readers - Entire treatises abound on how American democracy depends on journalism, and especially on newspaper reporters and editors. Without reviewing the literature on the subject, the bottom line is that newspapers provide the bulk of factual and analytical information whether accessed through old technology - the printed page - or through "free-rider" new technologies that simply grab and disseminate others' research, writing and analysis.

Readers do have a stake in providing intellectual property rights to journalists and newspapers if the supply of quality journalism is to be sustained - here in Minnesota and everywhere else. Therefore, it would be wise for newspaper readers to ask themselves what farmers would do? A readers' cooperative based on use (perhaps acquiring shares though a surcharge to the subscription rate) could provide capital for newsrooms in much the same way grain farmers acquire equity when marketing through local grain (elevator) associations affiliated with CHS Inc.   

Minnesota 2020 would go farther and suggest a cooperative response to intellectual property rights problems. The Minnesota Newspaper Association and its counterpart organizations in other states should form a cooperative to protect the journalism content of the states' daily and weekly newspapers. Accessing the news stories could require a fee or a fee structure through the cooperative, and newspapers would be compensated based on the number of "hits" from subscribing readers to the online offerings.

How radical would this be for newspapers that now mostly give away the content they've invested in? Robert Shaw, former head of the Minnesota Newspaper Association, reminds us that Minnesota does have a cooperative heritage in newspaper publishing and journalism. The newspaper at Bagley is a community co-op, he said. And the Associated Press is a newsgathering and sharing cooperative for members that is the second-oldest continuing cooperative business in the United States.     

Vendors / Suppliers - This is a larger group of stakeholders than most newspaper readers would have reason to recognize. Technology suppliers, paper suppliers, ink and printing equipment suppliers, food service purveyors, and utilities providers ... the list is long. Most of these vendors sell products such as IT equipment, software and publishing supplies that are not interchangeable with other industries; a lost newspaper client / customer would represent complete market failure.  

There are secondary suppliers within any community that also have much at stake. No effort to list them will be offered here, but newspapers are labor-intensive and therefore impact the economic activity of banks, credit unions, real estate brokerages, entertainment venues, insurance and other services, and retail establishments of all types.

A Call to Action
Given their historic "watchdog" role, newspapers should not and probably cannot seek operating government subsidies like in some European nations. Politically, it would be hard to image such a system working anywhere in the United States.

That means community leaders through the stakeholder groups cited above and the foundations and nonprofit organizations that support the broader community must seek ways to cooperate - regardless of legal structures chosen as the workable model.

This means a "ground up" response from stakeholders. That has always been the backbone of cooperation.

Should the cooperative model succeed in saving Minnesota's newspapers, then why not other businesses? In this economic climate, let's put all options on the table.

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