Subsidized vs Directly Purchased Media

In the last two entries, I looked at an over­all tri-dimensional model of the media land­scape and delved in fur­ther into the enter­tain­ment vs. infor­ma­tion axis. In this entry, we will look at the sec­ond dimen­sion cov­er­ing how media is financed.

The many faces of sub­si­dized media

Do you buy the media you con­sume or is the media you con­sume sub­si­dized in some way?

For the most part, one could argue that, in the United States, media is sub­si­dized. When men­tion­ing that word, most peo­ple will think of gov­ern­ment sub­si­dies but, while such sub­si­dies exist in coun­tries like the UK (eg. the BBC) or France (eg. France 24), the sub­si­dies tend to come from more com­mer­cial sources.

We will look into that type of sub­si­dies a bit later but let’s first look at one form that peo­ple sel­dom con­sider as a sub­sidy: advertising.

In the USA, such sub­si­dies come in the form of adver­tis­ing, which often rep­re­sents the largest part of the rev­enue pie for news­pa­pers, mag­a­zines, tele­vi­sion, radio, or web media. The cost of a par­tic­u­lar item is gen­er­ally lower than one could find in Europe and con­sumer behav­ior treats such media accord­ingly, as a poten­tially dis­pos­able con­sumer good to which lit­tle value is given. This cre­ates a par­tic­u­larly tricky sit­u­a­tion for most media out­let as they are see­ing their adver­tis­ing mar­gin erode, the result of greater effi­cien­cies and return on invest­ment pre­sented by web media.

Gen­e­sis of low ad rates

In a way, such wound is self-inflicted. Once upon a time, in the early days of the com­mer­cial web (a bit over a decade ago), tra­di­tional media looked down on the new media. They treated it as some­thing of lit­tle value and many of the larger media out­lets decided to toss their online space as a free­bie in exchange for richer ad buys in tra­di­tional media. Of course, they con­tin­ued to apply the same ROI met­rics to this emer­gent form of media, forc­ing many of the online com­po­nents of larger cor­po­ra­tions to fig­ure out way to make their cost struc­ture more effi­cient while pre­sent­ing adver­tis­ers with a bet­ter value than their offline brethens.

I remem­ber find­ing myself in sev­eral meet­ings, when work­ing either as a full-time employee or con­sul­tant to media out­lets small and large, in meet­ings where tra­di­tional media sales­peo­ple would “toss in online for free.” Even­tu­ally, adver­tis­ers started demand­ing online media and con­tin­ued ask­ing for lower costs on it, cre­at­ing a prisoner’s dilemma sce­nario for most media orga­ni­za­tion as they all knew that the ads could go to their com­peti­tors if they didn’t acqui­esce to the deal. Online media was now seen as inex­pen­sive and, save for a few pub­lish­ers who argued based on the merit of deliv­er­ing a nar­row but highly tar­geted audi­ence, cost remained low while inven­tory con­tin­ued to be very high.

Then came Google, which not only showed that online media could stay cheap but could also be offered on a per­for­mance basis, leav­ing adver­tis­ers with close to a dollar’s worth of value for every dol­lar they spend, some­thing that just wasn’t true in the offline space. It was then only nat­ural that the price pres­sures that had dri­ven online media down be applied to all media.

This is slowly send­ing media orga­ni­za­tion into a death spi­ral as low ad costs force a reduc­tion in costs asso­ci­ated with pro­duc­ing media con­tent, which results in a low­ered inter­est in that con­tent from con­sumers. Those con­sumer have eye­balls which the media com­pa­nies are try­ing to sell to adver­tis­ers and when those go away, it puts even fur­ther pres­sure on media cost. I call this the ad rate death spiral:

Why ad rates keep going down

And that’s the first prob­lem with the cur­rent crop of ad-subsidized media: the model is just not sus­tain­able because the cost of pro­duc­tion for most media can never go to zero.

So where does that leave most media organization?

Advo­cacy Media

One option is to go with a dif­fer­ent sub­sidy source. For exam­ple, some orga­ni­za­tions could get rid of the pre­tense of impar­tial­ity and look to get sub­si­dized to advo­cate a par­tic­u­lar view­point or phi­los­o­phy. In Europe, for exam­ple, many pub­li­ca­tions receive sub­stan­tial parts of their fund­ing from polit­i­cal par­ties. They are pro­pa­ganda tools of those par­ties used to fur­ther the party’s agenda. While they are not fully sub­si­dized by those par­ties, they are known to present a view­point that’s in line with the party’s ideals.

While many would argue that this could not work in the United States, there are sub­stan­tial prece­dent to high­light that this, in fact, is an avenue that more media orga­ni­za­tions could explore. The fed­er­al­ist papers, for exam­ple, were largely embrac­ing a set of ideals from a lim­ited con­stituency and were largely funded by those who espoused the ideals pre­sented. In fact, one could argue that most news­pa­pers have, at one time or other, been tools of cer­tain polit­i­cal forces. To carry such alliances on their sleeve might actu­ally result in a more diverse and bal­anced set of stories.

Non-Core Media

A dif­fer­ent solu­tion is to look at media as an non-core adjunct to a cor­po­ra­tion, there to give the cor­po­ra­tion a sheen as a cor­po­rate cit­i­zen that does good. Where it not for its pre-existing his­tory as media com­pany, one could argue that the Wash­ing­ton Post is now such a cor­po­ra­tion, as it derives bet­ter mar­gins from the ser­vices it offers through its Kaplan test prepa­ra­tion orga­ni­za­tion than it does from its news and media oper­a­tion. The issue one could find with such bal­ance is that it works as long as the share­hold­ers are happy with the idea of a non-financially opti­mal media oper­a­tion. This sit­u­a­tion does not seem like a sus­tain­able model in the long run because it could expose such cor­po­ra­tion to the chances of a take-over or change in own­er­ship con­trol through acqui­si­tion. No fam­ily, no mat­ter how much of the cor­po­ra­tion stock they con­trol, is so vir­tu­ous that it might not break at a cer­tain price point, as was wit­nessed with the takeover of Dow Jones.

Paid Media

Another route would be to change the pub­lic they serve com­pletely by embrac­ing their con­sumer as the peo­ple they sell to.

The rea­son I cre­ate that dis­tinc­tion is that cur­rently, most media is not look­ing at their con­sumers as the cus­tomers they are serv­ing. In adver­tis­ing, the actual cus­tomers of media com­pa­nies are the ad agen­cies and ad buy­ers, with the media con­sumer being the goods sold and the con­tent being there solely as a way to deliver more eye­balls to the adver­tis­ers. By mov­ing to consumer-focused media, orga­ni­za­tions could rad­i­cally rede­fine the rela­tion­ship they have with the peo­ple who con­sume their con­tent, treat­ing them as cus­tomers instead of products.

Of course, the model may not work for every­one as it requires a change in the way the media prod­uct is mar­keted. When shift­ing to “paid media” where the con­sumers pays a fair value for the media they con­sume, the prod­uct posi­tion has to be one of value to the con­sumer. Bloomberg can deliver such value to the peo­ple who pay thou­sands of dol­lars yearly for access to their prod­uct because the con­tent is of value to those con­sumers. NPR tries to posi­tion its pro­gram­ming as being a lifestyle choice by its con­sumers, ask­ing them in pledge dri­ves to join the NPR tribe by pay­ing for some of the pro­gram­ming (but let’s not fool our­selves, NPR is more of a hybrid model as its “sup­port­ers” can include large cor­po­ra­tions that con­tribute to show their “social responsibility”).

Con­sumer Reports is another exam­ple of such “paid media” as are smaller pub­li­ca­tions like Lapham’s Quar­terly, for example.

What are the challenges?

The chal­lenge pre­sented by the paid media model is one of how much? How much can one charge and how much can one cover. And this comes back to the ques­tion of con­tent value to the con­sumer. Cer­tain tribes can exist but how does one cover the “impor­tant” sto­ries? Is that some­thing that can only be done via advo­cacy type media? Or is there a dif­fer­ent model that mixes parts of sub­si­dies with higher paid models?