Government aid could save U.S. newspapers, spark debate

By Robert MacMillan - Analysis

NEW YORK (Reuters) - Connecticut lawmaker Frank Nicastro sees saving the local newspaper as his duty. But others think he and his colleagues are setting a worrisome precedent for government involvement in the U.S. press.

Nicastro represents Connecticut's 79th assembly district, which includes Bristol, a city of about 61,000 people outside Hartford, the state capital. Its paper, The Bristol Press, may fold within days, along with The Herald in nearby New Britain.

That is because publisher Journal Register, in danger of being crushed under hundreds of millions of dollars of debt, says it cannot afford to keep them open anymore.

Nicastro and fellow legislators want the papers to survive, and petitioned the state government to do something about it. "The media is a vitally important part of America," he said, particularly local papers that cover news ignored by big papers and television and radio stations.

To some experts, that sounds like a bailout, a word that resurfaced this year after the U.S. government agreed to give hundreds of billions of dollars to the automobile and financial sectors.

Relying on government help raises ethical questions for the press, whose traditional role has been to operate free from government influence as it tries to hold politicians accountable to the people who elected them. Even some publishers desperate for help are wary of this route.

Providing government support can muddy that mission, said Paul Janensch, a journalism professor at Quinnipiac University in Connecticut, and a former reporter and editor.

"You can't expect a watchdog to bite the hand that feeds it," he said.

The state's Department of Economic and Community Development is offering tax breaks, training funds, financing opportunities and other incentives for publishers, but not cash.

"We're not saying 'Come to Bristol, come to New Britain, we'll give you a million dollars,'" Nicastro said.

The lifeline comes as U.S. newspaper publishers such as the New York Times, Tribune and McClatchy deal with falling advertising revenue, fleeing readers and tremendous debt.

Aggravating this extreme change is the world financial crisis. Publishers have slashed costs, often by firing thousands in a bid to remain healthy and to impress investors.

Any aid to papers could gladden financial stakeholders, said Mike Simonton, an analyst at Fitch Ratings.

"If governments are able to provide enough incentives to get some potential bidders off the sidelines, that could be a positive for newspaper valuations," he said.

NEWSPAPERS ARE DIFFERENT