https://orcid.org/0000-0002-4583-7643
ABSTRACT
As traditional local media decline, how might state and local governments provide support for local information infrastructure? We offer a proposal for states (or communities) to tax digital entertainment and then leverage existing community media centers (CMCs) to facilitate the distribution of the proceeds to local media outlets. Compared to other public subsidy plans, this approach is viable nationwide without federal action and offers several advantages that could lead to more immediate and durable support for local information infrastructure. To contextualize our proposal, we model both the possible revenue generation and distribution of funding that would result from its implementation.
Local news and information are vitally important to the civic and democratic health of communities, but their commercial prospects in the United States continue to worsen as digital media displace traditional local media outlets in people’s daily routines.1 Prompted especially by the decline of local newspapers, calls for public intervention in the local information marketplace are growing louder.2 For example, Pickard suggests that it “is time to re-envision what journalism should be” before pitching the creation of a public media system funded with tens of billions of taxpayer dollars.3 Along these lines, a report from PEN America suggests that while public funding of local news is not “. . . the solution to the local news crisis. It is, instead, part of the solution.”4 In addition, recent proposed federal legislation tentatively recognizes this issue: the Future of Local News Act (2021–2022) sought to establish a committee to study the crisis while the Local Journalism Sustainability Act (2021–2022) outlined a $250 per capita tax credit for subscriptions to local media (as well as some additional subsidies for local media).
Despite some bipartisan enthusiasm, recent proposals for public funding of local news media face serious political and practical obstacles. Federal funding for the Corporation for Public Broadcasting and other public media has long been tenuous5 and, at approximately $3 per capita in recent years, pales in comparison to public-funding levels in many other nations like Australia ($36 per capita), Canada ($27 per capita), or the United Kingdom ($81 per capita).6 Plans (like Pickard’s7 or McChesney and Nichol’s8 proposals) that call for more than 50 times as much money to be annually appropriated for local media face a difficult journey to realization. If such funding were made available to communities across the country through federal action, its expenditure would be a tremendous task: developing an efficient and equitable system from scratch could take many years. Meanwhile, the impact of smaller interventions like federal income tax credits is unclear: many households in the United States do not pay federal income taxes and it is not clear that, for the remaining households, a tax credit would catalyze substantially more personal spending on local news media.9
With these hurdles in mind, we propose an alternative mechanism for the public funding of local news and information providers. Rather than a federal intervention, we call for states and/or cities to levy their own taxes upon digital entertainment goods (like songs purchased from iTunes) and services (like Netflix and Spotify), and then use a portion of the proceeds to support local media, particularly preexisting community media center (CMC) infrastructure. For over 50 years, CMCs across America have monitored local governments, facilitated neighborhood-level dialogues, and produced media projects that address immediate community needs and interests. Altogether, CMCs have been an important foundation of public, educational, and governmental (PEG) information infrastructure in countless communities, nationwide, for decades. Despite these contributions, CMCs are at risk today as their traditional source of funding (a surcharge on cable-TV subscriptions) dries up—but they still provide a unique, participatory foundation for attempts to bolster local information ecosystems.10 They offer both boots on the ground and relevant expertise that could, with a refreshed funding model, be used to enhance existing local PEG informational services while also developing the necessary systems to distribute new public support to other local information providers. This approach, viable without federal action, notably connects funding for vital local information infrastructure to the robust (and growing) market for digital entertainment.
Unless active policy remedies that address the decline of traditional local media are implemented, it is likely that the public sphere will lack local information infrastructure necessary for a functional democracy in more and more communities nationwide.11 Though the market sustained local media during the 20th century, there is no guarantee that it will do so going forward. At least in the short-term, it is improbable that a single funding system for local news will replace the traditional ad-subsidy model.12 Rather, states and local communities must address this problem on their own, leveraging their existing resources to develop solutions appropriate to local conditions.
To conceptualize the utility of a digital entertainment tax, we begin this article with a review of the local information infrastructure landscape and then outline several recently proposed tax-based funding options for local news and information infrastructure. We then compile subscription and revenue data from top-tier, high-earning digital entertainment companies. This provides a basis for exploring a basic forecast of the proceeds that a digital entertainment tax could generate. In sum, we describe a potential policy option that state (or local) governments could adopt to address contemporary, local information needs.
The Importance—and Perilous Future—of Local Media
Local media make many important contributions to society. To start, the quality of local governance is shaped by the presence of an active local news media. Journalists provide oversight through both routinized beat reporting and ad hoc investigations.13 This scrutiny encourages public officials to tend to their responsibilities and avoid corrupting influences. In fact, recent research demonstrates that local borrowing costs increase when local newspapers close because lenders expect a higher percentage of loans to sour as a result of worse government performance.14 Even more directly, local news informs and facilitates political participation: when newspapers close or reduce their coverage, evidence shows that citizens know less about local politics and are less likely to vote.15 In addition, local governments allocate resources differently as a result of voter turnout,16 so a reduction in voting strikes at the very core of responsive democratic governance.
Beyond the realm of local politics, local news media make many other vital civic and social contributions.17 Healthy communities require citizen engagement in a variety of ways: parents must sit on school boards, residents must volunteer for police oversight commissions, and neighbors must petition for safe crosswalks across busy roads. Such civic engagement requires access to local news: How can a citizen participate in a civic opportunity without first knowing that it exists? Though information can spread through social media or interpersonal interactions, research shows that newspaper closures are followed by a decrease in civic engagement.18 Even more fundamentally, local news helps knit people together so that neighbors share information, activities, and a sense of attachment.19 In other words, local news encourages the development of community. Without local news, research suggests that negative outcomes like social isolation and the loss of civic pride are more probable.20
Recent scholarship also illustrates the contributions local news make to a healthy national political environment. Local newspapers are less partisan than national newspapers, which sets a tone that is more conducive to cooperation and compromise.21 When informative local newspaper coverage exists, voters are more likely to split gubernatorial and senatorial tickets and vote for candidates as a result of their individual traits and not simply their party designation.22 But, when local newspapers close, voters become more polarized as they rely on other (often national) information sources.23
Despite these demonstrable benefits, the production of local news has precipitously declined in the United States. Since 2004, nearly one-third of all newspapers nationwide have ceased publication.24 The newspapers that remain are often hollowed out, continuing to market a product that contains less local news produced by ever-fewer journalists.25 These debased newspapers eke out a profit for their owners, but often at the expense of the civic and political benefits previously described. In the face of ubiquitous online and mobile communication, the traditional advertising-driven business model for local newspapers is not tenable. Even when people do seek local news online, recent research suggests that aggregators like Google News divert web traffic and advertising dollars away from local news outlets.26 And, in addition, local broadcast outlets face ownership, audience, and programming challenges that undermine their ability to invest in local journalism.27 Though local television news still produces substantial advertising revenue (particularly during national election years), viewers are drifting away and conglomerate owners are reducing resources for local reporting in favor of syndicated content.28
Many actors, with many different economic models and aspirations, are attempting to fill the void that is growing as traditional local media collapse.29 For example, conservative operatives funded with dark money recently funded hundreds of partisan websites that emulate local newspaper homepages.30 Perhaps more altruistically, in some cities, wealthy individuals have purchased newspapers (like the Philadelphia Inquirer) and then donated them to endowed foundations. Meanwhile, across the United States, out-of-work journalists are creating local digital news nonprofits that cobble together financing by attracting foundation support, organizing ticketed events, attracting small donors, etc. Though there are examples of new business models for local media that work in specific circumstances, a clear, replicable model—for-profit or nonprofit—to fund local information infrastructure in the 21st century through the private sector is elusive. In the midst of this bleak commercial media landscape, local cable-based community media offer an alternative foundation for the provision of local news and information.
Community Media Centers as Critical Infrastructure in Need of Support
PEG access television is a type of geographically defined community media that traditionally promotes civic participation via local cable channels.31 According to the Alliance for Community Media, 1,600 entities—mostly nonprofits, government departments, and public schools—operate 3,000 PEG channels today across the United States. Three quarters of PEG operations are situated in suburban, exurban, and rural localities, have small budgets (ranging from $75,000 to $300,000 annually), and are managed by one to three staff members. Some operate one “Community TV” or “Local Access” channel; others are responsible for programming multiple P, E, and G channels. Philadelphia, like Boston and Chicago, exemplifies an urban scenario in which the PEG channels are managed independently. The Philadelphia School District, Drexel University, La Salle University, Temple University, and Community College of Philadelphia each operate an educational channel; PhillyCAM, a nonprofit corporation, manages the local public access channels; and the city government programs its own channel, PHLgovTV.
A primary concept that defines the public access side of the PEG channel model is “freedom from the cable operator for grassroots, decentralized media.”32 Some scholars, like Ralph Engelman,33 once saw public access—in its nascent form—as a radical, new journalistic approach unhindered by mainstream media politics. But others have suggested that public access never became a viable option for independent, alternative journalism as some anticipated.34 Before online platform communication and smartphones, local access television was a primary way for communities to document civic life, circulate commercial-free messages, articulate alternative views, and foster community self-structuring.35 As the digital media landscape has evolved, “more and more PEG access stations have embraced the term community media centers (CMCs) to describe the shift from a focus on cable access television to a multiplicity of forms, including broadband Internet platforms.”36 These modern CMCs play an integral role in what communication scholars have described as integrated, neighborhood-level storytelling networks.37 CMCs, akin to public libraries, function as communication nodes through which individual residents and institutions circulate information and stories for local consumption. These centers provide a physical space where neighbors participate in skill-building workshops, attend small-group meetings, post community bulletins, and discuss civic matters. And, in places that do not have a local national broadcast news affiliate, CMCs typically assume the responsibility of providing local election day coverage, candidate forums, and nonpartisan video production services for campaigners.
The rapid growth of networked communication technology in the early 2000s gave rise to new concerns about traditional access media’s ability to adapt and thrive in digital media ecosystems.38 “Why do we still need public access television when there’s YouTube?” became a prevailing question. To keep relevant, CMCs today do much more than operate a simple cable access channel: they also simulcast local programming via third-party streaming apps, offer media and technology literacy workshops, oversee youth development programs, provide tech support for seniors, manage low-power FM radio stations, support productions for non-English-speaking communities, and host local journalism experiments. During the pandemic, CMCs helped communities stay informed and connected while transitioning to virtual public life.39 They also have a notable recent track record of providing crucial services that benefit marginalized communities in the digital age.40
CMCs use project-designated and general operating grants to expand the scope of their community services; nonetheless, the bulk of funding for CMC/PEG infrastructure comes from fees allowed by provisions of the 1984 Cable Act.41 This landmark legislation enables state and municipal governments to create local franchise authorities (LFAs) and tax the gross revenue cable companies earn from paid television services sold in their local jurisdictions. Although the “franchise” and “PEG” fees that emerge from the 1984 Cable Act are somewhat obscure, they are the primary financial support for local information resources, such as PEG channels, and they provide operational and capital funding for CMCs. Because these fees were indexed to the cost of cable television, the revenue they yielded increased over time with the rising cost of cable subscriptions. But today, this funding is threatened by consumers’ migration to digital services like Netflix and Hulu, which are not subject to traditional franchise or PEG fees and are completely untaxed in many places. As consumers switch to broadband-dependent services, cable revenue—and in turn support for PEG infrastructure—is gradually eroding. Some 2,500 local operations existed during PEG TV’s peak in the 1980s and 1990s. But fickle local politics, financial challenges, telecom policy shifts, and organizational leadership problems collectively have, since the late 1990s, prompted many operations to scale back services drastically or close shop altogether.
CMCs, in all, excel at helping their neighbors illuminate local identity, animate social action, and mediate political public dialogues.42 Yet, like local newspapers, their traditional funding model is threatened by the rise of digital media. The collapse of local CMCs, as local newsrooms at print and broadcast media continue to dwindle, would exacerbate an existing local information infrastructure crisis. Thus, finding viable funding options for the future is critical. With this need in mind, we next review several recent proposals for the public subsidy of local media.
Possibilities for the Public Subsidy of Local Media
With the decline of traditional sources of funding for local information infrastructure, calls for public funding of local media in the United States are increasingly common.43 Internationally, there are examples of strong public subsidies for local media. In Norway, decades-old press subsidies provide basic funding to about 150 newspapers across the country44 and Canada has implemented several public-funding mechanisms for local media since the 2008 economic downturn.45 In practice, there are tentative steps in the United States too: with bipartisan support, New Jersey invested $5 million of state funds (drawn from the proceeds of a spectrum auction in which the state sold broadcast rights controlled by a PBS affiliate) in a Civic Information Consortium designed to leverage local universities to build local information infrastructure.46 And, at the federal level, several bills—the Future of Local News Act, the Local Journalism Sustainability Act, the Journalism Competition and Preservation Act, and the Local News and Broadcast Media Preservation Act—were introduced in recent years. These bills advanced a variety of tools—protection from antitrust laws to allow local media to collectively negotiate with digital platforms like Facebook, tax credits for consumers who purchase local news subscriptions, the elimination of media ownership limits enforced by the Federal Communications Commission (FCC)—designed to indirectly subsidize local information infrastructure. Still, they fall far short of the ambition of some activists who call for public investment in local media of as much as $34 billion annually.47
In outlining their Local Journalism Initiative, McChesney and Nichols call for an annual appropriation from the federal government of 0.15 of 1 percent of GDP to support local journalism nationwide.48 These funds would be distributed proportionately to each county by population and voters would then select organizations to receive their county’s funding. Pickard arrives at a similar sum, advocating for a mechanism to support journalism in the United States that draws “. . . a budget of $30 billion from the treasury on an annual basis . . .” or is a “large public media trust supported by multiple revenue streams,” including “foundations and philanthropists, already-existing subsidies, and other sources.”49 Pickard also suggests that platform monopolists (like Facebook and Google) could be charged a tax on their earnings to support journalism—an idea that echoes suggestions by Waldman50 and Bell.51 Thinking even more broadly, Karr and Aaron52 propose a tax on targeted online advertising as a means of funding digital journalism—though it may not be legal to tax online advertising under current federal law.53 Perhaps partially in response to these suggestions, the Biden administration’s Build Back Better proposal initially included $1.67 billion allocated over five years to bolster local news operations by creating tax incentives for employing journalists—but the bill stalled in Congress and the overall amount was still far below the sums discussed by the aforementioned proponents of local journalism.54
Proposals for federal funding of local information infrastructure face several common legislative and implementation challenges. To start, large public subsidies for news organizations face strong headwinds from those who do not trust the news media, the government, or both. Opposition on the political right is clear and strong, even though some recent federal legislation is sponsored by Republicans like Rand Paul.55 If Congress passed some form of public subsidy, the obstacles of moving from concept to practice remain. McChesney and Nichols56 outline a plan that requires each county in America to hold an election online and through the mail every three years (which may not align with existing electoral cycles) for voters to directly decide how to allocate funds to organizations that apply for consideration. Logistics, voter turnout, and the added cost of administering such elections loom as obstacles. Pickard engages with the complexity of moving toward a public model for local media: the scale of the challenge is daunting and he advocates for “. . . a public media consortium comprised of policy experts, scholars, technologists, journalists, and public advocates” to navigate the nuances of funding, equity, representation, independence, and access.57 In short, even if the federal government made money available to support an ecosystem of local information organizations, a great deal of work would remain to make such a system functional.
Meanwhile, rather than approaching the challenge of funding local news from a top-down perspective, Galperin’s58 vision for community information districts (CIDs) works from the bottom-up. The idea of a CID is modeled on local improvement districts (LIDs): special tax assessments for all residents of a geographic area triggered by a referendum or imposed by elected leaders in order to produce funding that is used to address a specific local need. By using CIDs, communities could assess their own local information needs and then create a local tax to produce the necessary funding. There are key advantages of such an approach. First, a CID could be established by a community (potentially even a district that is a part of larger city) without federal or even state support. As such, a CID gives communities a route to funding that might face less political opposition. Second, a CID could be designed to exempt certain residents—perhaps those with lower incomes, for example—with equity (or another goal) in mind. Third, the idea of a CID is flexible: local communities can adapt and adjust the framework over time as needed. Galperin’s CID proposal is modest in scale compared to Pickard or McChesney and Nichols: he suggests that an annual tax of just $40 per household could yield an operating budget large enough to support a small local information operation.59 For example, a community with 12,500 households would have $500,000 to support a newsroom or other information services and infrastructure. A CID would not be frictionless though, especially in communities that do not have an existing local income tax. Creating the infrastructure to collect and enforce compliance with a unique tax—either a flat household fee or a graduated income tax—is a burden that may be especially challenging for small communities.
Taxing Digital Entertainment Media to fund Local Information Infrastructure
Building from these possible public funding models, we see a tax on digital entertainment goods and services as a viable way to fund local information infrastructure. Taxes currently apply in most locales to the consumption of physical entertainment goods as well as cable television; we advocate for states (or local jurisdictions) to determine tax rates for digital entertainment as consumers shift from physical media (like CDs and DVDs) to their intangible replacements (entertainment downloads and streams). As part of these taxes, state (or local) governments should define a system to distribute (at least a portion of the) proceeds to local information infrastructure—utilizing existing CMC capacity for organization and grant making when possible. By developing tax and distribution systems in tandem, state (or local) governments would create a durable, consistent, and substantial revenue source to support local information infrastructure. Such funding would address the funding crises facing commercial local media as well as CMCs while leveraging the remaining human and structural capital tied to those institutions.
Though the federal Internet Tax Freedom Act prohibits state or local taxes on Internet service, these jurisdictions do have the authority to tax digital entertainment goods and services provided certain conditions are met according to the Congressional Research Service.60 Specifically, such a tax must not be discriminatory: in other words, if a similar good or service exists offline, taxation of the online version should not be greater or in any other way pejorative. Many states—including California and New York—do not tax digital audio or video entertainment.61 When digital entertainment goods and services are taxed, the most common approach is to extend the applicability of existing sales taxes; for example, Minnesota, Connecticut, and Tennessee have done this.62 There are also examples of both states and cities that have existing taxes that target digital entertainment goods and services specifically. Florida’s Communication Services Tax (CST) applies a surcharge to communication services of all sorts, including long-distance phone calls and cable television service.63 In recent years, the CST has been extended to streaming digital services like Spotify and YouTube Premium. The CST is set at a higher rate than the statewide sales tax (which is 6 percent); it varies by locale, but often approaches 15 percent. Meanwhile, in 2015, the city of Chicago extended a 9 percent “amusement” tax that historically applied to live entertainment so that it would apply to streaming services as well.64 After litigation, the legality of the amusement tax extension was affirmed—and Chicago’s neighbor to the north (Evanston, IL) adopted its own 5 percent streaming amusement tax. Though there is some complexity—especially in states that already tax digital entertainment—there are also legal paths to tax digital entertainment.
In short, a digital entertainment tax is a straightforward and legal approach that follows historical precedent. Sales tax generally applies to the purchase of physical entertainment media—books, movies, and music—nationwide, with the revenue flowing to the general funds of city and state budgets. Subscribers to cable television paid fees that supported local budgets—and often were legally required to be used in support of PEG channels and facilities. In states or communities that do not already tax digital entertainment, tax policies should be adapted to the digital age and there is an opportunity to support local information providers in the process. States and communities that are already taxing digital entertainment have blazed a trail—and they may also adjust their laws to use these taxes to support local media. But what are the potential proceeds of such a tax? Are they substantial enough, in disparate communities, to provide meaningful support for local information providers? In the following sections, we outline and describe a basic revenue forecast that addresses these applied considerations.
Model Development
To explore the potential of a digital entertainment tax policy approach, we gathered subscription data about 12 major digital entertainment companies’ businesses and modeled the potential proceeds of a tax placed on these services.65 There are innumerable streaming entertainment services available today; we limit our projections to 10 of the largest, most well-known audio/video services though, in the aggregate, services we exclude like HBO Max, Paramount+, Peacock, Sony VUE, Apple TV, and Amazon Prime Video also offer a substantial revenue opportunity.66 That said, in addition to common on-demand streaming audio and video services like Spotify and Netflix, we include the so-called “synthetic” cable services like Sling TV and Hulu Live (which offer access to traditional cable channels through an Internet connection) and we model potential revenue from the two major satellite TV providers (which were traditionally excluded from taxes levied by local cable franchising authorities). Beyond the audio/video entertainment providers we examine, many other digital entertainment environments—videogame services, metaverse platforms, etc.—charge subscription fees and/or offer digital entertainment goods for sale. We do not assess services like Twitch here, but they also offer a growing revenue opportunity and are taxed inconsistently, if at all, at this time. In sum, rather than focus on the breadth of entertainment activity that occurs online—social media posts, the creation and consumption of memes, etc.—we model revenue that could be derived from the direct purchase of streamed (and satellite) audio/video entertainment because these exchanges provide a clear, present, and legal (under current interpretations of the federal Internet Tax Freedom Act) economic opportunity for states and locales.
The quarterly (and annual) financial reports provided to shareholders by publicly traded companies like Spotify and Disney are the foundation for our modeling.67 We sought two key pieces of information (current as of December 2021) for each service that we assessed: the number of subscribers in the United States and the monthly average revenue per user (ARPU). These two datapoints allow us to estimate the annual domestic revenue each company derives from the service(s) it offers and, from there, predict the potential tax proceeds that would flow from taxing those service(s). We provide tax revenue estimates for specific geographic areas, at three different tax rates, according to the proportion of the U.S. population that lives in each selected area. In this modeling, we assume even subscriber distributions nationwide, though this approach excludes likely geographical variance in subscriptions associated with factors like the residents’ income level and their access to broadband Internet service. For example, people who live in rural areas are less likely to have access to adequate broadband services to which, in turn, may reduce the number of streaming services they subscribe to and thus limit the revenue available from taxes levied upon those services in rural areas.68 But, those same people may be more likely to subscribe to satellite television services—yielding the opposite tax outcome.69 In sum, though these revenue estimates do have some clear limitations, they still provide a foundation for assessing the scale of potential funding available from taxes that target digital entertainment goods and services. And, by focusing only on a select subset of major streaming services and satellite television providers, we offer conservative estimates of the revenue that states (or locales) could collect from broadly applied digital entertainment taxes.
Potential Proceeds of a Digital Entertainment Tax
Gross nationwide expenditures on digital entertainment are vast (Table 1). As a result, the potential proceeds that could be collected from digital entertainment taxes is, in the aggregate, substantial. If laws are written to be inclusive of streaming video, streaming music, satellite television packages, and the purchase of downloadable books, music, or videos, the addressable economic activity across the country is well in excess of $50 billion annually. Just aggregating revenue from the 12 services we research shows annual revenue approaching $75 billion. The cumulative total for all such services may already be greater than $100 billion annually. This figure will continue to grow as audiences transition away from traditional media goods—printed periodicals, cable television—to digital alternatives.
According to our modeling, even a very small tax—1 percent—on just the industry leaders in streaming audio, streaming video, synthetic cable, and satellite television would yield in excess of $700 million per year if applied nationwide. A larger tax would generate billions of dollars annually: a 5 percent tax (mimicking the traditional franchise fee model applied by local cable franchising authorities) would generate more than $3.5 billion in the aggregate nationwide. A tax that roughly equaled the typical sales tax—7.13 percent nationwide according to the Tax Foundation70—would produce total tax proceeds of more than $5 billion per year nationally.
Overview of Digital Entertainment Domestic Revenue and Potential Tax Proceeds
| Service | U.S. Subscribers | Monthly ARPU | Annual Revenue | 1 Percent Tax | 5 Percent Tax | 7.13 Percent Tax |
|---|---|---|---|---|---|---|
| Netflix | 67,457,296 | $14.78 | $11,964,226,019 | $119,642,260 | $598,211,301 | $853,049,315 |
| Disney+ | 38,472,720 | $6.68 | $3,083,973,235 | $30,839,732 | $154,198,662 | $219,887,292 |
| Hulu | 40,900,000 | $12.96 | $6,360,768,000 | $63,607,680 | $318,038,400 | $453,522,758 |
| ESPN+ | 21,300,000 | $5.16 | $1,318,896,000 | $13,188,960 | $65,944,800 | $94,037,285 |
| Hulu Live | 4,300,000 | $87.01 | $4,489,716,000 | $44,897,160 | $224,485,800 | $320,116,751 |
| YouTube TV | 5,000,000 | $64.99 | $3,899,400,000 | $38,994,000 | $194,970,000 | $278,027,220 |
| Sling TV | 2,486,000 | $30.00 | $894,960,000 | $8,949,600 | $44,748,000 | $63,810,648 |
| Spotify | 46,812,960 | $4.88 | $2,741,366,938 | $27,413,669 | $137,068,347 | $195,459,463 |
| Apple Music | 28,000,000 | $5.00 | $1,680,000,000 | $16,800,000 | $84,000,000 | $119,784,000 |
| YouTube Music/Premium | 20,000,000 | $9.99 | $2,397,600,000 | $23,976,000 | $119,880,000 | $170,948,880 |
| DirecTV | 15,000,000 | $137.64 | $24,775,200,000 | $247,752,000 | $1,238,760,000 | $1,766,471,760 |
| Dish Network | 8,220,000 | $96.00 | $9,469,440,000 | $94,694,400 | $473,472,000 | $675,171,072 |
| Total | $73,075,546,191 | $730,755,462 | $3,653,777,310 | $5,210,286,443 |
| Service | U.S. Subscribers | Monthly ARPU | Annual Revenue | 1 Percent Tax | 5 Percent Tax | 7.13 Percent Tax |
|---|---|---|---|---|---|---|
| Netflix | 67,457,296 | $14.78 | $11,964,226,019 | $119,642,260 | $598,211,301 | $853,049,315 |
| Disney+ | 38,472,720 | $6.68 | $3,083,973,235 | $30,839,732 | $154,198,662 | $219,887,292 |
| Hulu | 40,900,000 | $12.96 | $6,360,768,000 | $63,607,680 | $318,038,400 | $453,522,758 |
| ESPN+ | 21,300,000 | $5.16 | $1,318,896,000 | $13,188,960 | $65,944,800 | $94,037,285 |
| Hulu Live | 4,300,000 | $87.01 | $4,489,716,000 | $44,897,160 | $224,485,800 | $320,116,751 |
| YouTube TV | 5,000,000 | $64.99 | $3,899,400,000 | $38,994,000 | $194,970,000 | $278,027,220 |
| Sling TV | 2,486,000 | $30.00 | $894,960,000 | $8,949,600 | $44,748,000 | $63,810,648 |
| Spotify | 46,812,960 | $4.88 | $2,741,366,938 | $27,413,669 | $137,068,347 | $195,459,463 |
| Apple Music | 28,000,000 | $5.00 | $1,680,000,000 | $16,800,000 | $84,000,000 | $119,784,000 |
| YouTube Music/Premium | 20,000,000 | $9.99 | $2,397,600,000 | $23,976,000 | $119,880,000 | $170,948,880 |
| DirecTV | 15,000,000 | $137.64 | $24,775,200,000 | $247,752,000 | $1,238,760,000 | $1,766,471,760 |
| Dish Network | 8,220,000 | $96.00 | $9,469,440,000 | $94,694,400 | $473,472,000 | $675,171,072 |
| Total | $73,075,546,191 | $730,755,462 | $3,653,777,310 | $5,210,286,443 |
Note. Data as of December 2021. Figures for Netflix, Disney+, Hulu, ESPN+, Hulu Live, Spotify, DirecTV, and Dish Network are modeled from data provided in public SEC filings. Figures for YouTube TV, Sling TV, Apple Music, and YouTube Music/Premium are modeled from data provided in corporate statements and news reports. The ARPU for YouTube TV, Sling TV, Apple Music, and YouTube Music/Premium is set to the minimum subscription charge in lieu of specific public data.
A tax on digital entertainment could, in the aggregate, support the largest public investment in local information infrastructure in generations. As Table 2 shows, taxing digital entertainment would generate meaningful revenue in states (or communities) of all sizes. In the largest states like California or New York, such revenue could easily reach hundreds of millions of dollars per annum if the rates mirrored the traditional cable franchise fee or sales tax. Even in the smallest states like Wyoming or North Dakota, a tax on digital entertainment spending would yield more than $1 million per year even if the levy was set at only 1 percent. For just a 1 percent tax on digital entertainment, midsize states like Oregon and Iowa could reap $7–$10 million annually to support local information infrastructure. If passed at the local level, taxes on digital entertainment could offer substantial revenue even to small communities. A community of just 30,000 people that imposed a 1 percent tax on digital entertainment could expect proceeds in excess of $65,000 per year. A 5 percent tax in a community of just 60,000 people could generate more than $650,000 per year. In short, taxing digital entertainment is a clear revenue opportunity for states and communities.
Potential Annual Revenue for Specific Geographical Areas from Digital Entertainment Tax
| Place | Percentage of U.S. Population | Revenue from 1 Percent Tax | Revenue from 5 Percent Tax | Revenue from 7.13 Percent Tax |
|---|---|---|---|---|
| California | 11.82 percent | $86,392,900 | $431,964,498 | $615,981,374 |
| Iowa | 0.96 percent | $7,030,443 | $35,152,213 | $50,127,056 |
| North Dakota | 0.23 percent | $1,706,261 | $8,531,307 | $12,165,644 |
| New York | 5.98 percent | $43,674,224 | $218,371,120 | $311,397,217 |
| Oregon | 1.28 percent | $9,349,079 | $46,745,397 | $66,658,936 |
| Wyoming | 0.17 percent | $1,274,394 | $6,371,971 | $9,086,430 |
| 30,000 people | 0.0090 percent | $66,053 | $330,266 | $470,960 |
| 60,000 people | 0.0181 percent | $132,107 | $660,533 | $941,919 |
| 150,000 people | 0.0452 percent | $330,266 | $1,651,332 | $2,354,799 |
| Place | Percentage of U.S. Population | Revenue from 1 Percent Tax | Revenue from 5 Percent Tax | Revenue from 7.13 Percent Tax |
|---|---|---|---|---|
| California | 11.82 percent | $86,392,900 | $431,964,498 | $615,981,374 |
| Iowa | 0.96 percent | $7,030,443 | $35,152,213 | $50,127,056 |
| North Dakota | 0.23 percent | $1,706,261 | $8,531,307 | $12,165,644 |
| New York | 5.98 percent | $43,674,224 | $218,371,120 | $311,397,217 |
| Oregon | 1.28 percent | $9,349,079 | $46,745,397 | $66,658,936 |
| Wyoming | 0.17 percent | $1,274,394 | $6,371,971 | $9,086,430 |
| 30,000 people | 0.0090 percent | $66,053 | $330,266 | $470,960 |
| 60,000 people | 0.0181 percent | $132,107 | $660,533 | $941,919 |
| 150,000 people | 0.0452 percent | $330,266 | $1,651,332 | $2,354,799 |
Note. Estimates assume even distribution of subscriptions nationwide.
Possible Benefits of a Digital Entertainment Tax-Based Subsidy for Local Information Infrastructure
The collapse of local information infrastructure is a crisis for communities across the United States and beyond. The digital, often social, media that audiences are turning to instead of traditional local outlets do not offer the local information resources that citizens need to sustain an effective, just democracy within their communities. And, as advertising and subscription business models fail for local media, philanthropy and innovation are not filling the growing local information void despite countless good-faith efforts. Public support, though politically difficult in the United States, increasingly appears to be an important option for stabilizing the broad availability of local information. Fears about the autonomy and accuracy of publicly funded media outlets are valid, but they are not insurmountable: international examples of best practices exist and safeguards can be put in place such that the audience trusts government-funded media.71 Such concerns should not stymie the development of a public funding model for local information infrastructure in the United States.
Taxing digital entertainment to fund local information infrastructure is practical, expedient, and follows several established precedents. To start, the general legality of taxes on digital entertainment, including streaming services, is well-established as remissions made by many companies for revenues collected in Chicago, Florida, and other places demonstrate. Netflix and Spotify already have the technical mechanisms in place to collect taxes from customers in specific areas and direct the proceeds to state (and local) governments—which offers a substantial logistical advantage in comparison to a CID-subsidy approach. Additionally, sales taxes traditionally applied to the purchase of entertainment media goods and there is little rationale to exclude intangible mediated entertainment from taxation. Why should a sales tax apply to the sale of a physical record but not the same music purchased from iTunes as digital files? Why should subscribers to HBO through a cable package pay franchise and PEG fees while subscribers to HBO Max—which they can watch on the very same TV—pay no taxes at all? In a way, legacy media outlets leveraged the public’s interest in entertainment—sports sections, sitcoms—to fund news gathering. Though digital entertainment companies largely eschew the news business, taxing their operations to ensure access to local information resources echoes the public-interest system that the FCC designed for commercial broadcast media in the 20th century.
Even if a tax on digital entertainment cannot plausibly produce as much public funding as Pickard72 or McChesney and Nichols73 call for, the amount of money available could be impactful. Well-established, prize-winning local news nonprofits like the Voice of San Diego and MinnPost operate with staffs of 15–20 people and annual budgets of about $2 million each.74 Traditional CMCs like Public Access Northern Dutchess Area (PANDA) TV in New York function on a budget that is less than $100,000 per year while even large, well-funded CMCs like Open Signal in Portland, Oregon, have annual budgets of about $2 million per year.75 These CMCs provide community members with access to basic information—like recorded city council meetings—as well as media technology and training. In other words, our research suggests that a tax on digital entertainment could support dozens of disparate local media outlets in average-sized states like Oregon or Iowa—and many more in the largest states. Thinking even more granularly, in small communities preserving a local media operation with just one or two employees can be the difference between recording, distributing, and archiving city council meetings, and maintaining no public record of governmental proceedings. A digital entertainment tax that yields just $60–100k per year in a small community could sustain information infrastructure that is vital to good governance—and at risk of disappearing without a new source of support.
Encouraging states (or locales) to tailor and implement their own versions of a local information public subsidy offers many advantages. First, local control can help allay concerns about bias and provide a foundation for the public to trust sources supported by subsidies. Second, people within states (or communities) can determine the precise tax levels and distribution mechanisms following local preferences. Agile local actors—who must be held accountable—are better situated to build the necessary public support to create, refine, and sustain a subsidy model for local information infrastructure. Third, federal legislation is not needed, and individual states (or communities) can take immediate action. Finally, if and when possible, allocating funding to, and through, existing CMCs bolsters existing infrastructure and gives the implementation of this approach a running start compared to many other possible approaches to public funding of local media. In some cases, CMCs already have existing grant-making systems in place and are overseen by community-led boards.76 State and local decision-makers are well-placed to identify existing systems and resources most likely to make a subsidy model successful. From state to state, the legal environment for a digital entertainment tax differs—but it is an option worth exploration.
The Allocation of Potential Proceeds to Support Local Information Infrastructure
Creating a digital entertainment tax does not, in and of itself, bolster local information infrastructure. First, as has already been demonstrated in many states, the proceeds of such a tax can simply be absorbed by a general operating budget without any consideration of local media. With this in mind, we argue not just for a digital entertainment tax—but for a plan to provide public subsidy for local media that draws its revenue from such a tax. From this starting point, developing systems to equitably distribute the proceeds is vital.
Using publicly funded broadcast affiliates may seem like an ideal way to locally distribute a public subsidy for community communication infrastructure. However, leveraging CMCs is, for many reasons, a more sensible approach. First, the allocation of funding generated by a digital entertainment tax should be made available to a range of recipients: commercial local media, local public media, digital start-ups, etc. CMCs are already engaged in some form of public grant-making—often to redistribute PEG funding for nonprofit or public institutions to acquire media technology.77 The presence of existing boards—at times already elected by the public—and systems to apply for and distribute funding could expedite the implementation of a new public subsidy for local information operations. Additionally, CMCs are especially adept at engaging ordinary people in a variety of manners: as students, teachers, storytellers, volunteers, etc. CMCs are lively gathering places and information hubs that help communities maintain a strong sense of local identity.78 They traditionally serve diverse communities and provide vital access to equipment, education, and networking opportunities that professional public media (like NPR or PBS affiliates) usually do not. These aspects of CMCs’ infrastructure are relevant and worth building upon. As City Bureau’s Darryl Holliday79 argued that local newsrooms that connect with existing civic assets, like CMCs, to animate the participatory and distribution of accurate, trustworthy, locally relevant information will “build a future for local media as a true public good.” But, the continued existence of CMCs is threatened by the ongoing collapse of their traditional funding model, which is tied to declining cable-TV subscriptions. Thus, tying the distribution of a public subsidy to CMCs would shore up existing local information infrastructure while also offering practical advantages for supporting new institutions.
Still, the road ahead to implement a system of public subsidies of any kind for local information remains challenging. Generating citizen support for a digital entertainment tax is a challenge—even at the state (or local) level. In a recent study on PEG communication lobbying in Maine, Lyell Davies80 emphasized that focused “civic” activism is necessary to pass community media-related legislation at the state (or local) level. Pressing economic and social concerns—like public safety and homelessness—are more visceral than communication policy, and prioritizing debates over an information subsidy is a struggle. As Kim and Ball-Rokeach81 and Friedland82 argue, the lack of vibrant local information resources impedes the public’s ability to address collective problems. Those looking to build public support for local information infrastructure may find themselves facing a catch-22: they lack the local media resources to build support for local media resources. And, as Susan Forde83 suggests, there is little evidence of lasting, notable partnerships between journalists and public access media operations. Tying the two together in a new public subsidy model will require compromise. That said, the emergence of pervasive digital platform communication may motivate practitioners in both camps to figure out how they can be relevant, engaging, and financially stable in the digital age—even if it requires some discomfort.
A new tax policy that provides subsidies for local information infrastructure will not likely prove to be an immediate panacea—whether in the form of a digital entertainment tax, a CID, or a federal intervention.84 Local media face crises beyond funding: to start, they struggle to capture audience attention and earn the public’s trust. With this in mind, any public subsidy model should be open to allocating funding to local information infrastructure broadly—not simply propping up legacy media. Participatory budgeting could be a tactic to increase both attention and trust; in general, public participation should be a key consideration for implementing a subsidy model. Thinking of a public subsidy as part of a collaborative or communal approach to bolstering local information infrastructure helps broaden our conceptualization of the subsidy’s potential—it can generate more than news articles most people ignore—and positions a subsidy as one of many potential pillars of support for local media going forward.85
Limitations
Though we advance the possibility of a public subsidy for local information infrastructure that is funded by a digital entertainment tax, this policy and our work are not without limitations. First, a digital entertainment tax that functions like a sales tax is regressive in nature and may be burdensome to some subscribers. It would be very difficult to means-test such a tax—especially in contrast with a CID-type tax that functions more like an income tax. As such, in some circumstances, a community may prefer the CID-type approach. That said, the additional cost for an average subscriber of Netflix would be less than 15 cents per month for each percent of tax applied to their subscription. A subscriber to two or three streaming services paying a 5 percent tax might pay an additional $1–$2 per month. And, of course, consumers of the analog equivalent of these services—people who buy CDs and DVDs or subscribe to cable television—are already subject to similar taxes. As New York City’s Independent Budget Office observed, “Taxing physical media goods while leaving digital goods tax-exempt makes the general sales tax more regressive as higher income individuals are more likely to consume digital goods given their greater access to the Internet and ability to make purchases online.”86
Meanwhile, even if some states (or communities) do develop a new subsidy model for local communication resources, many others will not without federal action. Disparities among states could be exacerbated. Similarly, rural–urban divides could be further sharpened if public investments are made by cities in local information infrastructure but not by towns in more sparsely populated areas. If a statewide tax-subsidy model is implemented, a strictly proportional distribution of resources may also compound regional gaps in local information infrastructure if the bulk of subsidies flow into major cities (where most taxpayers live). Commercial media tend to be concentrated in the largest communities, which may attenuate the need for subsidy in some cases. And, if a statewide tax is seen as primarily benefitting urban areas, a public subsidy model could enflame intrastate tensions that are increasingly arranged along an urban–rural split. The equity of a digital entertainment tax is a vital concern: even well-intentioned policies can have negative consequences and there is opportunity for further research that considers the possibilities of unwanted outcomes here.
Setting the conceptual limitations of our proposal aside, our modeling also has constraints. In short, accurate information about the subscribers and revenues generated by streaming services is often very difficult to obtain. Many services are provided by large global conglomerates—like Apple or Comcast—that carefully limit what information they reveal to the public. For some services—like HBO Max—it is impossible to even estimate the number of subscribers who have signed up for the digital product (because only the total number of HBO subscribers, including cable subscribers, is disclosed). Apple and Amazon are even less forthcoming. Consequently, the estimates here are driven by a convenience sample by necessity. They should best be seen as a general yardstick to estimate the scale of possible revenues—not a precise prediction.
Conclusion
As Pickard87 and other communication historians illustrate, there is a long history of public interventions to increase access to democratic information resources in the United States. Discounted rates for periodicals to be mailed, public service requirements for broadcast media businesses, payment by states and other public entities to local newspapers for the publication of official notices: in many ways, large and small, government has long cultivated vital community information infrastructure. Meanwhile, the collapse of traditional local news media is well under way and major destabilizing effects are already visible. Reality-denying content from fringe for-profit media businesses and social media personalities pushed the United States to the brink of a coup in 2021.88 Democracy requires broad access to legitimate information: not ensuring the availability of factual, reliable information may lead to further dire consequences. Intervention in the increasingly toxic public sphere is necessary: the marketplace alone is not meeting society’s democratic needs.
States and communities can generate funding to swiftly bolster their information infrastructure by enacting legislation to tax digital entertainment goods and services. Revenue from such taxes could be flowing within months of a law’s passage and, by leveraging existing CMCs, it could be allocated to local media resources shortly thereafter. This approach to a public subsidy for local information infrastructure is within immediate reach for communities large and small. Such a model is not the only path forward for local information infrastructure, but it is a tool that concerned citizens and public officials may be able to use to increase their own agency in facing this crisis.
FOOTNOTES
Forman-Katz and Matsa; PEN America.
Olsen, Pickard, and Westlund.
Pickard, 10.
PEN America, 75.
Benton.
Neff and Pickard.
Pickard.
McChesney and Nichols.
Scire.
Ali, Media Localism; Rhinesmith.
Thorson et al.; Abernathy.
Hamilton.
Kaniss; Schudson.
Gao, Lee, and Murphy.
Hayes and Lawless, “As Local News Goes”; “The Decline of Local News”; Peterson.
Hajnal.
Stamm.
Shaker.
Rothenbuhler et al.
Mathews.
Darr.
Moskowitz.
Darr, Hitt, and Dunaway.
Abernathy.
Ewens, Gupta, and Howell; Sullivan.
Fischer, Jaidka, and Lelkes.
Pew Research Center.
Blankenship and Vargo.
Sullivan.
Bengani.
Fuller.
Ibid., 6.
Engelman.
Forde.
Aufderheide; Halleck; Kellner.
Rhinesmith, 484.
Ball-Rokeach, Kim, and Matei; Friedland.
Breitbart et al.; Davitian and Peterson; Sherwood; Waldman, “The Information Needs of Communities.”
Haywood, Aufderheide, and Sánchez Santos.
Crittenden and Haywood; Chen et al.; Fuentes-Bautista.
Stewart and Shaker.
Ali, Media Localism; Higgins; Stein.
Pickard.
Bjorgan and Moe.
Schmidt.
Baldridge.
McChesney and Nichols.
Ibid.
Pickard, 170.
Waldman, “Opinion.”
Bell.
Karr and Aaron.
Walczak.
Edmonds.
Ibid.
McChesney and Nichols.
Pickard, 173.
Galperin.
Ibid.
Ball.
Video games are commonly treated as software in most locales and thus taxed differently than other forms of digital entertainment. The recent rise of online gambling is also a developing area of tax policy that exists separately from the more traditional forms of mediated entertainment.
Bologna, “Taxing Tech Giants.”
Bargar.
Bologna, “Sony Settles ‘Netflix Tax’ Debt.”
The purchase of digital entertainment goods—songs, ebooks, and television episodes—is a relevant source of potential revenue as well but we do not model its value here for two reasons. First, the leading digital entertainment business model is streaming today—which suggests that evaluating streaming services will capture a large share of potential tax revenue. Second, the sale of such goods is dominated by major digital stores run by companies like Apple and Amazon that do not generally disclose the revenue generated by specific products or product categories. This opacity sharply limits outside analysis.
We modeled the revenue for the largest streaming audio and video providers we could: many streaming services are owned by large conglomerates that do not disaggregate the sources of their revenue or provide other necessary details to estimate the number of paid subscribers in the United States. We elected to focus narrowly on producing the most reliable estimates we could rather than broadly generating estimates that were based on poor data. As a result, we likely underestimate the full scale of potential revenue from a digital entertainment tax.
In some cases, we use figures drawn from news reports in lieu of information from quarterly reports. Some large companies—like Apple and Google—do not provide clear information about each of their products in their public disclosures. In the context of their overall businesses, the contribution of their streaming services may be relatively small even if they generate more than $1 billion annually in the United States.
Ali, Farm Fresh Broadband.
Lieser.
Fritts.
Nielsen, Schulz, and Fletcher.
Pickard.
McChesney and Nichols.
MinnPost; Voice of San Diego.
Kemble; Scott.
See the Mt. Hood Cable Regulatory Commission’s grant program for an example of this.
One such example can be seen in the process followed by the Mt. Hood Cable Regulatory Commission in Oregon. Other examples of regranting programs include Access Humboldt (Eureka, CA), Northampton Open Media (Northampton, MA), and Community Media Access Collaborative (Fresno, CA).
Ali, “The Last PEG or Community Media 2.0?”; Media Localism.
Holliday.
Davies.
Kim and Ball-Rokeach.
Friedland.
Forde.
Meese.
Olsen, Pickard, and Westlund.
New York City Independent Budget Office, 3.
Pickard.
Hawkman and Diem.
