November 29, 2021

Media Decoder Blog: The Breakfast Meeting: Bribery Inquiry at The Journal, and Taking Aim at Cable TV

A United States government inquiry into News Corporation broadened last year after the Justice Department investigated claims that Wall Street Journal employees in China bribed local officials with gifts in exchange for information, Christine Haughney writes. The Journal broke the news of the investigation on Sunday. Paula Keve, a spokeswoman for The Journal, said that the company was conducting its own investigation and had found no evidence of impropriety. The bribery accusations came out of a broader investigation into News Corporation’s practices, and Ms. Keve suggested that the claims had been made to discredit The Journal’s reporting.

Barry Diller, the chairman of IAC/InterActiveCorp, has built a long career out of harnessing paradigm shifts in the television world, David Carr writes, but his latest project, Aereo, is stirring up more controversy than usual. Aereo uses antenna farms to capture broadcast signals that can then be streamed on a user’s Internet device, sowing chaos, disruption and turmoil for the cable industry because it allows viewers to access shows without rebroadcasting fees. Aereo gained a big legal victory last summer when a judge declined to issue an injunction against it. An appeal was filed, and a decision is expected in coming months, but Aereo and its backers are not going to wait. The service will roll out in 22 American cities, aiming a missile at the heart of the television business.

Matthew Keys, the 26-year-old social media editor for Reuters who has been charged with helping hackers get into the Web site of The Los Angeles Times, has become the latest lightning rod in the battle between proponents of Internet freedom and the Justice Department, Amy Chozick and Charlie Savage report. Mr. Keys’s indictment says that he provided a username and password to hackers who changed a headline on The Times’s site. The headline was soon changed back, but Mr. Keys faces three charges, each of which could result in $250,000 in fines, and possible prison terms of up to 10 years. The scale of the potential punishment relative to the actual harm caused has drawn comparisons to Aaron Swartz, who committed suicide after he faced steep penalties on charges of breaking into a university system to download an archive of scholarly papers, and new calls for revised hacking laws.

Local TV news broadcasts are suffering from the “shrinking pains,” according to a report by the Pew Research Center, Brian Stelter writes. Local TV news has cut back on stories about government and crime, shortened the length of stories over all and devoted more time to segments about weather, traffic and sports reporting, which now use up 40 percent of airtime. The study did find a robust public appetite for news, particularly for digital news sources, which are used by 50 percent of Americans.

Andrés Rodríguez, publisher and founder of SpainMedia, has a lot at stake when the Spanish-language edition of the business magazine Forbes hits newsstands, Raphael Minder reports. SpainMedia is swimming against a tide that has driven many other Spanish media entrepreneurs out of business amid a recession and credit squeeze, but Mr. Rodríguez remains sanguine about the prospects of paper. Spain is the first foray by the family-controlled Forbes into Western Europe; Forbes already published 26 other licensed editions of its magazine, including several in East European countries like Poland and Romania.

The South by Southwest music festival in Austin last week is really two festivals in one, Jon Pareles writes. One is the festival of the up-and-coming, weary musician trudging from stage to stage, while the other is a giant promotional engine. This year’s SXSW was perhaps as recognizable for big names and big productions with corporate tie-ins, like Prince and Justin Timberlake, as it was for the undiscovered artists.

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A Small City’s Depleted Pension Fund Rattles Rhode Island

The impoverished city, operating under a receiver for a year, has promised $80 million worth of retirement benefits to 214 police officers and firefighters, far more than it can afford. Those workers’ pension fund will probably run out of money in October, giving Central Falls the distinction of becoming the second municipality in the United States to exhaust its pension fund, after Prichard, Ala.

“Time is running out,” warns Robert G. Flanders, the state-appointed receiver, who recently closed the public library and a community center to save money. He has no power to cancel the city’s contracts with workers, so instead he has begun approaching retired police officers and firefighters with what he describes as “the Big Ask”: will they voluntarily accept smaller benefits in the name of saving Central Falls?

Some of the retirees are in their 90s, and Central Falls, like many American cities, has not placed its police and firefighters in Social Security. Many have no other benefits to fall back on.

State lawmakers are trying to contain the damage, mindful that it would be a bad time for any state to seek help in Washington. Last month they rescinded an offer of state aid to Central Falls, just after Moody’s downgraded the city’s credit to “possibility of default.”

But the state still has risks related to the woes of its municipalities, risks that have gone largely unnoticed because it is not as big as, say, Illinois and California. Several other Rhode Island cities are sinking under big debt burdens. Even Providence, the capital, risks running out of cash in September, according to its auditor, and if it scrapes by until October, it must then come up with $60 million for its own municipal pension plan.

Some analysts fear that a Central Falls bankruptcy, and a whiff of other problems out there, could scare nervous investors away from bonds issued by Rhode Island’s other municipalities, perhaps setting off a chain reaction that could push the state itself to the brink. There is a precedent: the last American state to default on its bonds, Arkansas in 1933, got in over its head by trying to help struggling municipalities.

More recently, when local governments have veered toward bankruptcy — Orange County, Calif., in 1994; Cleveland in 1978 — neighboring municipalities have found it harder to sell their own debt. During the New York City fiscal crisis of 1975, New Jersey suddenly found its bonds harder to sell.

“That type of contagion is what you’re trying to avoid,” said James E. Spiotto, a bankruptcy specialist at the law firm Chapman Cutler, who is not involved in Rhode Island’s problems.

Rhode Island has an investment-grade credit rating, but it is in no position to bail out a string of teetering cities, or take over their shaky local pension funds the way the federal government does when some companies go bankrupt. The state treasurer, Gina M. Raimondo, says Rhode Island must first stabilize its own pension fund, which continues to require more and more cash each year, despite four overhauls since 2005 that were supposed to get the cost under control. The Securities and Exchange Commission is investigating. If the state turns out to have understated its commitments, it could deliver a new jolt to bond markets still nervous after two traumatic years.

Lawmakers in Rhode Island are trying to reassure investors. On July 1 they passed a law giving certain bonds, known as general obligations, legal priority over all other payments that municipalities must make, including retirement benefits. The measure, awaiting Gov. Lincoln Chafee’s signature, also requires Rhode Island’s cities, towns and districts to dedicate their general revenue to paying bondholders first, and to raise property taxes as much as necessary to make all payments to bondholders on time.

It gives less secure types of bonds priority, too, and makes local officials personally liable for any losses they cause by failing to comply with the new requirements.

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