Tax-exempt model suggested for struggling media companies amid COVID-19 advertising 'free-fall'

The Broadcasting Minister has confirmed a package is coming to help media companies from the impact of COVID-19, and it has been suggested a new tax-exempt investment model could be the answer long-term. 

Broadcasting Minister Kris Faaoi told the Epidemic Response Committee on Wednesday that he has spoken with several media companies in New Zealand to discuss the impact of COVID-19 and a relief package is expected this week. 

He said the Government will deliver short-term and long-term packages that will meet their immediate and long-term needs, to ensure the fourth estate in New Zealand is sustainable with foreign actors like Facebook eating up some ad revenue. 

As an independent witness to the committee, media commentator and former editor of the New Zealand Herald Gavin Ellis, made some suggestions to save New Zealand's media landscape, with advertising in "free-fall". 

Ellis said media companies are experiencing a "dramatic loss of cash flow" with the drop of ad spending during the lockdown. He said he is "disturbed" at how the Government advertises on platforms like Google and Facebook and not just local. 

That was echoed by Michael Anderson, CEO of Newshub owner MediaWorks, who said if the Government has a choice between advertising with a local or global platform, it should "absolutely go to local". 

And with the public flocking to traditional media outlets when the coronavirus pandemic emerged, and conspiracy theories linking 5G to COVID-19 spreading on social media, Ellis said New Zealand's traditional media is more important than ever. 

"The public need to access timely, factual information, from trustworthy sources at a time when social media is awash with rumour and falsehood."

The L3C model 

Ellis pointed to the L3C model in the United States he said was created for rest homes - businesses that were "providing a public service but their viability was put into question by the taxes they had to pay". 

An L3C, or low-profit limited liability company, is described as a for-profit enterprise that has a goal of performing a socially beneficial purpose, instead of maximising income, and Ellis says it could be applied to traditional media companies.

"People who invested somewhat altruistically in them could get a small return, roughly what they would get from a bank deposit, and in return for that, those companies pay no taxes," Ellis explained. 

"That's the sort of future I see for news media so that they are sustainable but they are not in a capitalist sense viable opportunities for normal rules of capitalist investment... they require a more altruistic placement of money."

Ellis highlighted the ownership structure of The Guardian as a successful model for media. Its Scott Trust ownership model means any financial gains go into journalism rather than shareholders' pockets.  

"Some people could not understand why anybody would want to forgo the traditional right of ownership. They did, and of course, The Guardian has gone from strength to strength," Ellis said. 

"It requires a different type of thinking but it also means that traditional media companies rather than going bust, they become self-sustaining but low-profit enterprises, trusts if you like."

Ellis' advice comes as traditional media companies in New Zealand - like many other industries - have been hit by the economic fallout of coronavirus. 

MediaWorks asked all staff to take a 15 percent pay cut, the New Zealand Herald's owner NZME announced plans to axe 200 jobs, while Stuff says its revenue has more than halved. 

A major shock to the media landscape came earlier this month when magazine distributor Bauer Media folded, prompting some backlash at the Government's decision not to allow magazines and newspapers to be distributed during the lockdown. 

When confronted by this, Faafoi said: "Whether we like it or not or whether the entities like it or not there is an advantage that broadcast or internet media have in a COVID world - they don't require any contact."

He said minimisation of movement and breaking the virus' chain was of utmost importance, so the decision was made that magazines and community newspapers weren't considered essential services "because of the physical nature of their delivery". 

Bauer's owners in Germany rejected the Government's wage subsidy scheme offer, Faafoi said, and while he said he felt for the staff and titles, and acknowledged the cultural significance of the magazines, the owners "made up their mind".  

Last month the Government decided to allow the distribution of physical media material that served non-English speaking communities or rural areas where connectivity is limited, as long as they practised measures to minimise the spread of COVID-19.