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?

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Subsidized vs Directly Purchased Media. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

How it started

When I first started classifying media as entertainment vs. information, I was looking for a basic answer as to how to resolve the contradiction of having organizations like CNN, MSNBC, and FoxNews, classified in the same category as Bloomberg News, the Wall Street Journal, or the Financial Times. Each seemed to appeal to a certain audience and each of the audiences seem to be very distinct and thus interested in very different things.

For example, the sexual behavior of many politicians may serve as great meat for the 24-hour-newscycle of cable TV channels but financial newspapers would pay scant attention to them. On the other hand, in-depth analysis of the decision making process around changes of 5 basis point in an interest rate might garner an audience in the financial world but may only merit a 15 second mention on some cable news channels. That disconnect seemed to only get sharper over the last year, as the world economy teetered on the brink of total financial collapse but most of the TV channels seemed more interested in attacking or praising a particular political point of view.

Why this axis?

Answering a question about where on the entertainment vs. information axis a particular media organization can fall gives us insights into some of their potential business strategy.

The production or discovery of facts or information is generally a more time-consuming and/or costly production than the production of opinion or entertainment. For a simple measure, think of the cost of a reporter doing an investigate piece either in a war theater or about a financial institution; Having thought of that reporter, now think of a different reporter interviewing a TV or movie star who is promoting the latest vehicle he/she is in. Because the motivations are different and the amount of work to feed those motivations is different, the business model needs to be different.

Entertainment

As I mentioned earlier, I consider organizations like Fox News, MSNBC, and CNN to be more deeply ingrained in the entertainment side of the house.

This, by the way, is no accident: Rupert Murdoch is a savvy media man first and a politician second. He was the first in his industry to realize that it would be cheaper to put opinion on the air and focused on delivering such opinions to what was then an under-served customer  niche: people who are of more conservative leanings. This is why Fox News can exist under the same roof as the definitely racier and more left of center fares delivered on the Fox TV network. The network appeals to a different audience but, by serving both, a near-full coverage is achieved in terms of advertising reach.

The recent success of MSNBC in reproducing the FoxNews model but for the more liberal audience seems to validate the model: Keith Olbermann is the Bill O’Reilly of the left.

But one must realize that the value of entertainment as a business model is driven by the idea of maximum return on investment: the production costs are cheap, the consumers are aplenty and while they may not be willing to pay, someone is generally ready to subsidize the lower costs in exchange for access to that audience. For example, book publisher love giving their authors away for free interviews if they can get them because it helps promote their books; movie and TV producers push their stars to give interviews for free too so the movies and TV shows they are in get an audience (a form of virtuous circle of entertainment); and political parties or organizations pushing a particular political agenda are happy to deliver “research” and “experts” that can be used to produce news-like segment.

Because most media organizations in the United States are profit-driven corporations, the appeal of those lower production cost is hard to resist.

The challenge to that segment of the axis is that entertainment is based on the available mind share one can capture. Every time an audience member is moved from one TV channel to another, or from an internet site to another, the place where he/she was loses some value. And, in recent year, the mind share and attention share traditional media used to get has been diminishing because new form of entertainment have arisen. The sheer volume of videos posted on YouTube alone means that, even if 99% of them are awful, 1% will find an audience and drive it away for whatever period of time the end consumer is engaged with that one percent.

So the margins on entertainment media are bound to become a little tighter in the future which will push that end of the media spectrum to move further and further into the sensational and traffic-generating space. This, in turn, could mean more of a focus on formulaic type of content that is known to appeal to a broad segment and hoped to appeal to a wider one.

Information

But information driven media is different. Information tends to be something that is actionable and therefore something that is more valuable. When people speak of information media, they generally focus on the business-focused content category. But why do so?

A lot of information is usable to someone. For example, I am sure that politicians enjoy sentiment-related information (poll numbers, data on how the population feels about an issue); gamblers find use for sports-related information; medical professionals and other scientists keep up with research in their field to come up with more breakthroughs; companies, of course, need industry-specific information to better position themselves.

But professionally created and vetted information is expensive to produce. In the past, such information was produced and vetted by a cadre of professionals with deep knowledge and some level of recognition within the arena they would cover. On the more extreme end, the producers were the subject of the news themselves (for example, most of the scientific journals are written by the scientists who have done the research in the first place).

And the other interesting thing about information is that it can have some stickiness.

But the tricky part is that most information is of no interest to most people. And some information may be of value in terms of public good but not necessarily of actionable value for most people. That, unfortunately, is the case for most of what is presented as “news” in newspapers. Town councils, officials corruption, issues surrounding policy making are things that need to be covered in order to create a proper functioning democracy but have little value outside of having a properly functioning democracy. And few people are willing to pay to keep democracy working.

Enter two new phenomenons: the wisdom of crowds, and the self-correction of personal interest. Let’s assume for a moment that crowds can actually be led one way or another. But, as we all know, for every action, there is an equivalent reaction. So we could extend on the idea that any system is bound to eventually become self-adjusting when all interests start fighting for its own share of whatever is at stake. On most policy issue, there will be two sides, with each side arguing passionately that its position is the correct one.

So one could assume that the self-interest of individual sides could lead to the rise of advocacy media or at least politically-aligned media. In such a model, “information” may be gathered and presented by self-interested parties. The consumer is then left to evaluate the pieces of information aimed at him/her and see if it confirms his/her own biases or is or isn’t more factual. This, by the way, is a model that exists in a lot of democracies around the world (France, where I originally lived, still has newspapers that are clearly aligned with political parties) and I would argue that the penny press was probably more akin to this model than what we know today as newspapers.

This brings another qualifier on the information slide, which would allow us to analyze the level of bias in a piece of information. Some may argue that doing so would be abandoning the concept of objective reporting but I would argue that such concept has been largely a chimera: whenever a reporter chooses one quote over another, or frames a questions in a particular way, he/she imbues the reporting with some form of bias.

What’s the take-away?

Entertainment and Information are important dividers in assessing media property. Understanding that divide can help us better under the potential risks or reward associated with such. Entertainment media is cheap to produce but does not necessarily create real value; Information media (which may have differential level of biases) is not only valuable in both short and potentially longer run but could be dependent on a self-interest effect.

In the next entry, I will examine how the media is paid for and what that may mean for some segments of the industry.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Entertainment vs. Information. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Media as a Mode of Delivery

In most of the conversations about media, the discussions centers on modes of delivery. People talk about television, radio, newspapers, magazines, or the Internet as media. Under that definition, the way a piece of content is transported appears to define what that piece of content is. It’s an odd approach that seems to put more emphasis on the how than on the what, that really believes that the envelope is more important that the message it carries and this offering seems like a flawed assumption in many ways.

It would seem foolish to consider the telephone a media form so why do we treat the television or paper as components? They are channels and nothing more and the hand-wringing around delivery to those channels seems based on the flawed assumption that the mode of transport is more important than what is transported.

There is an inherent danger in that flawed assumption as previous industries which failed to recognize the business they were in found themselves displaced and ultimately delivering value into the hands of a single player that concentrated its power by offering itself as the primary toll-gate on another form of distribution. The music industry circa 2001, for example, believed that it was in the business of moving plastic goods known as CDs and let Apple take what was written on those plastic goods, the music that is ultimately the value created, and delivered it over the internet. To this day, many in the music industry still believe that CDs are how music ought to be distributed, leading to such high performance act as Danger Mouse’s decision to just release a blank CD-R when the labels wouldn’t let him release the CD otherwise.

Today, newspapers are focused on finding better ways to move paper; magazines are focused on increasing profit margins against physical goods; TV channels are still arguing over number of viewers in a single sitting and radio is partly organized around two competing models: one where people and corporations pay in a coop form to get some form of programming created and distributed and another where advertisers count numbers of earlobes they are reaching. Even on the internet, some people still believe that the passage of masses by a web site has some level of importance.

In each case, the players are focused on the distribution and not the product and yet, the distribution medium is only one end of a relationship that needs too.

In the Middle

Because if you look at the core definition of a medium, it’s something that’s in the middle.

But in the middle of what? Trying to assess this becomes a little more difficult. Obviously, a good is produced and it is consumed. Focusing on that equation may get us closer to establishing the right model for media in the future because it forces us to admit that what we know today as media is not a single thing but a variety of things:

• On one dimension, it could be listed as going from entertaining to informative
• On another, it could go from being considered as purchased or subsidized
• On a third axis, it could be treated as mass generated or professionalized

In three simple dimension, we can break down most of the known media industry.

For example, take newspapers: They strive to be middle of the road between entertaining and informative, with a bias towards the front section of the newspaper being informative and the back section being entertaining; They also range from the completely subsidized approach (free advertising sponsored newspaper) to the heavily subsidized model (most newspapers). And most tend to be more professionalized, with professional editors and reporters building most of the content.

Magazines run the gamut, but largely focus on entertainment (the delivery of information is generally left to a much narrower portion of the market knows as newsletters); they are, for the most part heavily subsidized goods and mostly professionalized.

In the TV space, the news channels tend to be moving further and further into the entertainment arena (I would group opinion as a form of entertainment); They are 90+ percent subsidized as their main goal is to serve the advertisers and only a portion of their revenue is coming directly from consumers through some of the cable system carriage fees.

In radio, NPR is balancing between entertaining and informative; the interesting thing is that it is the closest thing to a purchased good as the group tends to attempt to get its consumers to ante up for their consumption; and it mixes mostly professionalized goods with mass-generated content (call-in shows, for example). Other “news” station tend to focus on the entertainment part of the equation (talk radio is focused on keeping its audience as engaged as possible) and fully subsidized (advertising based) and mostly mass generated (talk show host merely serve as the forum administrator ensure that like minds confirm their own bias or vent to each other).

On the Internet, diverse sites can run from pure forms of entertainment (celebrity or gossip blogs, for example) to heavy information delivery (generally more niche focused publication); they are also all over the place in terms of models, ranging from the fully subsidized model to the fully purchased one; and one could argue that they tend to also run the gamut in terms of mass-generated vs. professional production.

While I have given you a short preview of each of the dimensions, I would like to focus the discussion around particulars so I will delve further into each of the three dimensions in the next few entries.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The Three Dimensions of Media. You can follow him on twitter here or receive his weekly newsletter by subscribing here.