Troubling news

Dr Eric Crampton
29 April, 2020

When the facts of the world change, business models must change to keep up. Legislating the world back to the way it was rarely turns out well, and cobbling together regulatory and tax measures to return the media funding environment to the 1980s seems like a mistake.

Last week, Newsroom co-editor Mark Jennings wrote that the Government to make Google and Facebook an offer they couldn’t refuse. Either ‘voluntarily’ cough up $100 million to fund news in New Zealand, or face a rather punitive regulatory framework.

It is hard not to sympathise with news producers. The basic funding model on which media operated successfully for decades has ended, and few have found ways to make it work. Shaking down tech companies, though, does violence to the rule of law and has worrying echoes of US President Donald Trump’s threats: Do as I wish, or face the wrath of the state.

But the collective failure of news organisations to find ways of making things work points to an underlying problem – and different kinds of solutions.

For decades, news operations worked with an odd kind of product bundling. There was a huge demand for classified advertising, and for getting other advertising in front of people. Newspapers bundled news and sports content with both types of advertising, and the whole thing worked. The underlying demand for news was never huge, but both types of advertising heavily subsidised the production of news. So subscribers never had to pay anything like the full cost of news production.

The 2000s and 2010s brought disintermediation and new technology platforms. Classified ads disappeared from US newspapers with the rise of Craigslist and eBay, and then in New Zealand with TradeMe.

Those platforms are far more effective ways for buyers and sellers to discover each other, to find prices and to complete transactions.

Similarly, online advertising platforms can be far more effective for commercial advertisers than buying an ad in the newspaper. Rather than hope that somebody looking at the page is in the market for the thing you’re selling, you can target ads to people searching for those things.

Technology changed everything and there is no going back. On the surface, it can feel like Google or Facebook are stealing advertising revenue that newspapers deserved. But no advertiser owed newspapers – or anyone else – their advertising dollars. And, rather than parasitising media, snippets of news served up by search engines do more to drive people to media websites than to cannibalise those revenues.

As Crikey’s Bernard Keane explained last week, a German newspaper’s complaints about Google’s use of snippets led Google to stop showing them at all – and led to a near 40 percent drop in search referral traffic and an almost 80 percent drop in traffic from Google News. If snippets of news discourage people from following links, this little German experiment suggests otherwise.

Imposing a licensing fee on the snippets served up by search engines would be more likely to end the use of those snippets in countries imposing that charge than it would be to provide a miraculous new business model for a struggling industry. There just is not the complementarity between advertising and news there once was. Trying to legislate it back into being will not work.

The media should look instead to the underlying problem.

Economists distinguish between demand and effective demand, where the latter is a demand backed up by a real willingness to pay. There just does not seem to be enough effective demand for the extent and depth of journalism those with big appetites for news have come to expect.

During the era in which bundling advertising with news worked, the lack of effective demand for news was less of a problem. Now, it means shrinking newsrooms.

That would not be a problem on its own. But there are reasonable ‘public good’ aspects to a thriving news sector. If an investigative journalist exposes a city councillor’s corruption, the benefits extend far beyond that newspaper’s subscribers being better informed. Worse, the benefits of being better informed have always been just a little ephemeral.

Sure, there is prestige in being able to hold one’s own in conversations about current events, but most of us really could ignore almost everything that’s going on in politics, and in policy, and in sport, without really noticing the loss.

It is then no surprise that the most typical findings of the academic literature on voter knowledge are that voters know very little.

This is hardly a new phenomenon. Even in the heyday of journalism, in 1964, well before the great decoupling of newspapers from classifieds and other advertising, only 38 percent of surveyed Americans knew that the Soviet Union was not a member of NATO – despite that the Cuban Missile Crisis had almost brought the powers to nuclear war only two years earlier.

And so we get to the nub of the problem. For most people, there is little personal benefit in getting the kind of information provided by serious journalists. So there is less effective demand for news than would be ideal, both because serious journalism directly provides benefits in democratic accountability, and because a better-informed voter base is likely to yield better outcomes at the ballot box.

There are two basic ways of trying to solve the problem. News producers could be directly subsidised, whether by philanthropists or by taxpayers. Or the rewards for being better informed could be strengthened. Let’s take each in turn.

Last year, the Stigler Center for the Study of the Economy and the State’s Final Report on Digital Platforms suggested taxpayer-funded vouchers could help fund news. Under this scheme, each adult would receive a $50 voucher to be used as a donation to their favourite news outlet. The proposal has a lot of advantages over other forms of state-funding. Rather than the Government or a panel of anointed experts doling out the money, individuals would reward outlets they most wish to support.

The proposal is interesting. The authors have thought through most of the obvious objections. But while the scheme would help reward the investigative journalism so important for democratic accountability, it would not do as much to encourage people to read the stories.

There is another way of encouraging people to pay a bit more attention to the world around them.

Growing up in Canada, radio stations often ran contests where they would phone someone at random and give them a prize if they could name the song the station had just played. It encouraged people to pay a bit more attention.

Imagine if the Government allocated $36.5 million to a prize pool. Every day, the editors of the various news outlets overseen by the Media Council would submit skill-testing questions drawn from the more important stories they had recently produced. Every day, some lucky Kiwi would get the phone call promising a $100,000 prize for successfully answering one of the questions of the day – with calls continuing until someone got the prize.

Suddenly, knowing what’s going on would matter for more than just water cooler kudos. Even if the odds of getting the call were low, the pain of getting the call and not knowing the answer would encourage paying attention to current events. That would help to drive subscriptions to the news outlets providing the news and build a better-informed electorate.

That seems more promising than letting the Government adopt mafia-style standover tactics to force tech companies to fund journalism.

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