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By Tim Hunt

AB5 could be death knell to printed daily newspapers

Uploaded: Oct 1, 2019

Newspaper readers and publishers can thank the state Legislature and Assemblywoman Lorena Gonzalez in particular for destroying what’s left of their business model.

Online advertising, dominated by the “Duopoly” of Google and Facebook plus Craig’s List, has greatly diminished advertising revenue. Craig’s destroyed the formerly very profitable classified category in the 2000s and other revenue has continued to fall.
As revenue has dropped, so has the reporting staff as publishers strive to stay in the black and in business.

The one solid market that exists for print daily newspapers is Baby Boomers and the Greatest Generation. Folks in their 50s and younger, with rare exceptions, are not interested in print publication preferring digital news on their phones.

Gonzalez, a labor organizer before being elected to the Assembly from San Diego, ramrodded AB 5 through both houses in the Capitol building. It codified and modified a California Supreme Court decision that defined the rules about whether workers are employees or contractors (freelancers).

It’s been widely followed by interested parties because it was aimed, in particular, at ridesharing companies Lyft and Uber. Both companies use independent contractors to move passengers. It’s an open question how they will try to comply with the law, but one provision—that contactors are not engaged in the primary business of the corporation—will be quite troublesome.

Publishers, according to Jim Ewert, the general counsel of the California Newspaper Publishers Association, face two major challenges.

1. The law puts extreme limits on freelancers who typically have worked on a per piece basis (that’s how the Weekly compensates me). Under the new law, If a writer or other designated freelancer contributes more than 35 pieces per year (less than once a week, it should be noted) then they must become an employee or must set themselves up as their own business (either sole proprietorship, limited liability company or S corp) and market and advertise their services beyond a single publication. An LLC or S corp requires the stiff $800 annual fee to the state for the “privilege” of doing business here and paying taxes here.
2. More challenging for daily papers or those not delivering through the mail, it requires the distribution force to be employees. Traditionally, publishers have contracted with independent distributors who then contract with carriers to deliver the papers. In the challenging last 15 years, most distributors have consolidated to delivering several publications to generate more revenue as the number of subscribers has dropped. This will not take effect until 2021, giving publishers a year to convince legislators to change the law or figure out a different distribution method.

Gonzalez was lobbied hard by the publishers’ group, but was intractable to say the least. Ewert indicated she didn’t seem to care about the impact on the industry. He told me, “Not only unsympathetic, but hostile. Accusing newspapers of exploiting individuals. She had no understanding of how distribution networks operate in 2019.”

Her legislation, absent an innovative delivery solution, likely will spell the end to the daily printed newspaper. There’s no way publishers can afford to make the delivery force employees and deliver papers at a price consumers will pay.

At its height, publishers grossed about $49 billion in revenues in 2007. That’s fallen to $25 billion in 2018. Readership has plunged from more than 63 million to 30 million over the last 45 years. Although digital revenue has increased, it still made up just 30 percent of ad revenues in 2018.

In short, the printed paper still is producing 70 percent of the ad revenue.

“Print revenue still drives bottom line,” Ewert said. Revenue on print side subsidized digital transition. Fewer readers, fewer eyeballs means lower ad revenue. Less revenue means fewer journalists in the whole domino effect. This argument was unpersuasive with author.”

Eliminate print and the impacts are devastating, particularly for community newspapers. The national publications will survive—it’s the ones tied to the community that will suffer.

All thanks to a labor organizer turned legislator—exemptions were carved out for other industries such as real estate agents, hairstylists, doctors, insurance agents, securities brokers, accountants and barbers.

Clearly, publishers lack clout in the Democrat-dominated houses of the Legislature and in the governor’s office.