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The Struggle of Privatized Media & News
Part 2 of an analysis of the role of media in society and the challenges of funding quality journalism in the modern capitalist markets.
If you haven’t already, please check out part 1 of this series before reading this article.
Struggle in the Modern Era
Historically, news agencies’ business models have relied on advertisers to cover production costs and pass distribution costs onto consumers (Steven Pearlstein on Newspapers (Optional), 2013). Pearlstein argues that this model has been unsuccessful in the modern era. This is largely due to three factors:
- Readers have migrated to free, online sources of information.
- Mass retailers have been exchanged in favor of specialty retailers, reducing the number of potential advertisers.
- The remaining advertising firms have migrated to larger online marketplaces, e.g., Google, social media, and eBay.
Therefore, several outlets have struggled to be profitable as Google and Facebook dominate the advertising market. The effect of this can be blatantly observed. New digital revenues in the U.S. only account for 1/10 of lost legacy revenue (Nielsen, 2017). And ⅔ of employment in news and ⅓ of newspapers in the nation have been lost since 2005 (Bauder, 2024).
Limited Access & Competition Reduction
“Although easy to transmit, knowledge can be expensive to produce” (Domain et al., 2003). The same is true for news in the digital age. In the absence of ad revenue, several firms have opted for another market-driven model. Subscriptions. While people historically have paid for news, (1) the availability of free substitutes via the Internet has increased price elasticity and (2) the price barrier itself has increased as the burden of production costs has shifted to readers. Therefore, fewer people are willing and able to overcome the access barrier.
The result is that news agencies can further prevent free-riding via exclusion and internalize a greater share of the benefits. However, by limiting the number of people that can access these articles, major outlets also limit the positive externalities produced (Lemley, 2004). Reapplying Lemley (2004) to news, control over these positive externalities may enable firms to raise prices above marginal costs, leading to deadweight loss. Therefore, subscription models aren’t socially optimal.
Furthermore, there are very few, select organizations that can effectively implement a subscription model. Outlets producing important local stories don’t have the resources or readership to do so. In the U.S. the struggle of local papers has resulted in one-newspaper towns and news deserts (Fig. 2). This has placed daily news in a crisis, excluding several communities from local, daily coverage.
Reduction in Idea Diversity
The reduction in access to accurate news reporting has been followed by a reduction in the diversity of ideas. This concern has been a persistent issue in the U.S. In the past, advertisers wielded their bargaining power to discourage papers from publishing contrarian ideas that conflicted with the advertiser’s brand (Pickard, 2022). This effectively filtered out viewpoints and reduced information diversity.
The modern market faces the same challenge with different dynamics due to the reader-revenue model.
- Outlets tailor content to readers’ beliefs to create credibility, reinforcing confirmation bias (Gentzkow et al., 2005).
- Mainstream, professional outlets seldom provide opinionated viewpoints (Cereon, 2015).
- Outlets favor government interpretations of information (Bennett, 1990).
These characteristics endeavor to guard against marginalizing the median voter. Downs’ (1957) expansion on the median voter theory suggests that this group represents the bulk of voters. Therefore, outlets are incentivized to align themselves with these individuals, their beliefs, and the officials they elect to create credibility and maximize readership. This may disempower partisan ideas, which may either question the government or readers’ existing assumptions. The result is an increase in homogeneity and limited access to certain views in the marketplace of ideas.
Biased Production
Private media content isn’t immune to manipulation by other individuals or institutions, i.e., media capture. The modern market is largely made up of family-owned enterprises with large concentrations of ownership (Djankov et al., 2003). The ownership share of these wealthy media-owning families incentivizes misreporting since these families are entitled to a greater share of the resulting rents than median voters are (Corneo, 2005). Therefore, per Corneo (2005) media companies will pursue a greater level of misreporting than desired by “ordinary people”, for whom the marginal cost is greater than the marginal benefit. This is the benefit of control.
Demsetz & Lehn (1985) found that ownership concentration was associated with benefits to control, especially in unpredictable environments. For the media that may entail controlling the ideological content of the outlet, distorting information to earn a profit, and/or supporting an external party.
Besley & Prat (2006) suggest that the latter is illustrated by Italy. The FIAT group owned two of the nation’s largest three newspapers until 2003, both of which are considered pro-government. The group also benefited from “a restriction on car imports from Asia, a subsidy for new car purchases, or large investments in road construction”. Moreover, there are several instances in which media has been monetarily bribed by politicians, including Peru’s Fujimori (Mcmillan & Zoido, 2004). But perhaps the most concerning form of content manipulation to capture profits has been the rise of sensationalism, bias, and clickbait (Fig. 3)(Stiglitz, n.d.). Per Stiglitz (n.d.) this optimization for viewership rather than quality is a reapplication of Gresham’s Law: “…bad ideas…drive out good ideas”.
Conclusion
Ultimately, news agencies’ commitment lies to their profit-seeking foundations rather than to the public and societal welfare. For this reason, should the owners be able to derive greater rents from misreporting or being captured by another entity than what would be generated by accurate reporting and reader-revenue models, the firm will opt for the former. This will grow increasingly true, especially as the news becomes less profitable but is still used as a tool by political actors to grow power (Nielsen, 2017).
