Bankrupt Newspapers Leave Employee Unions and Government Corporation Holding the Pension Bills

It has not been a good month for newspaper unions at bankrupt newspaper companies or the government corporation that insures pension funds. As part of their reorganizations, a number of bankrupt newspaper firms are not paying money owed union pensions or are quietly letting the guaranty pick up the tab for retiree costs.

• Unions of Philadelphia Newspapers LLC (The Inquirer and The Philadelphia Daily News) were forced to accept 12 cents on the dollar for the $12 million the bankrupt company owned to employee pension plans as part the reorganization plan.
• The Chicago Sun-Times off-loaded $49.1 million of its underfunded pension obligations for 2300 retirees and employees to the Pension Benefit Guaranty Corp. The paper and it suburban subsidiaries were purchased out of bankruptcy without the new owners assuming the pension obligations.
• The Dayton News Journal dumped $15.4 million in underfunded pensions payments on the Pension Benefit Guaranty Corp. , which will ensure 1,100 current and former employees receive benefits owed to them. The newspaper and its assets were purchased out of bankruptcy by Halifax Media, but it did not take on the pension liability.

The Pension Benefit Guaranty Corp. is a federal corporation designed to protect pensions when company-run pension funds collapse or cannot pay agree benefits.

These types of problems occur when money due for benefits is not paid into pension funds or money is removed from company-run funds by the company. When this occurs companies use the money for other purposes: increasing liquidity, paying bills, giving executive bonuses, etc. However, this creates problems if the company ceases operating or if liabilities of underfunded pension obligations weigh too heavily on the balance sheet.

Existing laws allows employers to take money from company-run funds if they are overfunded, but do not require them to immediately fully fund them when they are underfunded. Overfunding and underfunding, however, are normal conditions caused by fluctuations in stock and bond markets in which pension funds are invested. Because overfunding and underfunding tend to even out over time, companies using the funds like a bank can create problems. Even when pension funds are not run by companies, delays in paying obligations create problems if the company closes or goes into receivership.

Newspapers across the U.S. have carried large stories about pension payment problems at other bankrupt companies, but coverage of the problems at their newspaper colleagues have drawn scant attention.

Competitive Struggles Among Television Platforms

Since the emergence of cable and satellite television services there has been struggles among platforms to increase their attractiveness to audiences and to draw market share from terrestrial television in developed nations. These struggles have had affected content producers, broadcasters, platform operators and regulators attempting to fashion socially optimal broadcasting systems.

In the first competitive struggles between terrestrial broadcasters and cable operators, broadcasters controlled the highest quality contemporary programming and cable operators primarily competed by offering a wider variety of channels and providing premium movie channels. In many locations broadcasters actively sought regulatory policies to keep their channels from appearing on cable in order to reduce its attractiveness as a competitor.

As cable matured and satellite services emerged, the nature of the struggle shifted as greater subscription and advertising revenues allowed cable networks to offer higher quality contemporary programming. In this competitive phase, terrestrial, cable and satellite operators began struggling for exclusivity of content that would drive audiences to the platforms. Gaining exclusive rights to first broadcast runs of motion pictures, sporting, musical and other events, and high quality original programs became primary goals. In this environment, producers of content and owners of event rights sought to maximize their returns across the platforms. while platform operators sought to maximize their returns by gaining market power through exclusivity. This led to negotiations based not only on transmission rights but exclusivity rights as well, which dramatically pushed up costs of some content—especially sports rights.

As cable garnered a larger audience share, broadcasters that had previously been opposed to carriage of terrestrial signals on cable because asking regulators for ‘must carry’ rules to require cable operators to carry terrestrial channels so they could have additional access to audiences or audiences in places their terrestrial signals had not previously reached. This was especially useful for advertising supported channels, both public service and commercial.

In recent years, the widespread success of cable and satellite platforms and the shift of wealth from terrestrial to other platforms has led broadcasters to demand payments from cable and satellite platform operators for carrying their channels. The newer platforms are resistent and in some nations the struggle over payments remains on-going.

The digitalisation of terrestrial, cable, satellite, and broadband platforms has now created multiple opportunities of distribution of audiovisual materials and is creating a new environment in which additional competitive struggles are taking place among platform operators. At stake are the significant potential gains from advanced paid video-on-demand services and IPTV. Platform operators—DTT, cable, satellite, and telecommunications firms that offer broadband services—are now struggling to ensure that they are not competitively disadvantaged compared to other operators. Operators that control or have high market power over platforms, especially broadband links and systems needed for advanced services or interactive DTT services, will have significant advantages in the next generation of services. Consequently, there is a great deal of effort on the part of major platform operators to acquire access to all platforms and services through ownership, alliances and joint ventures and in many cases there are outright efforts to control those platforms and servcies.

The trajectory and outcome of this competitive struggle is particularly important because it will have significant impact on the range of services and costs for services available to the public. These developments also have significant importance for the relationship between content producers and platform operators because the means of compensation is likely to evolve from current transmission rights and exclusivity rights payments to one involving revenue and profit sharing. This has significant implications to the funding and ways that contemporary terrestrial television programming is created and role of terrestrial broadcasters in the new environment.

Getting It Wrong: The FTC and Policies for the Future of Journalism

Following hearings on the state of newspapers this past year, the U.S. Federal Trade Commission staff has now prepared a discussion paper of potential policy recommendations to support the reinvention of journalism.

It is a classic example of policy-making folly that starts from the premise that the government can solve any problem—even one created by consumer choices and an inefficient, poorly managed industry. Most of the proposals are based in the idea of using government mechanisms to protect newspapers against competitors and to create markets for newspapers offline and online.

The FTC’s staff ignores the fact that most newspapers are profitable (the average operating profit in 2009 was 12%), but that their corporate parents are unprofitable because of high overhead costs and ill-advised debt loads taken on when advertising revenues were peaked at all time highs. It also fails to make adequate distinction between longer term trends affecting newspapers and the effects of the current recession. The staff thus blends the two together to give a skewed picture of the mid- to long-term health of the industry.

Policy alternatives suggested by the staff for consideration include:

• Limiting fair use provisions of copyright and providing new protection for “hot news,” which would give first news organizations to distribute a story a proprietary right to the facts in their article
• Providing a variety of types of subsidies for news providers
• Changing tax exempt status laws to make it easier to obtain not-for-profit status and funds from charitable donors
• Taxing advertising, spectrum, internet service provision, consumer electronics, and cell phones to provide funds for news organizations
• Creating new antitrust exemptions allowing price collusion and market division

It is hard to ignore the irony and incongruities of a government agency whose purpose is to protect competition and effective markets suggesting anti-competitive practices and taxes that will have negative effects on consumers, competitors, and other companies. Setting those aside, however, none of the suggestions deal with the real underlying economic and financial problems of the news industry: that fact that many consumers are unwilling to pay for the kinds of news provided today and that news organizations need to radically change their management practices and begin reducing organizational inefficiencies.

If commercial news enterprises can’t effectively manage themselves, compete in markets for their products and services, or find effective business models for themselves, why does anyone think that bureaucrats in the government have any ability to solve those problems for the news industry?