Should tech companies fund journalism?
Understanding the battle between publishers, politicians and tech platforms.
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The coronavirus pandemic has led to devastating job cuts in the publishing industry- The Economist, Condé Nast, Quartz, BuzzFeed, Vice, and Protocol, to name just a few. Let’s be fair though, the pandemic just added fuel to a raging fire.
To understand the reason for the job cuts let’s take a step back and look at the business model followed by publishing houses.
Most publishing houses follow a legacy business model. Broader based publications (think about those given out for free or at a very low cost) earn via advertising dollars. Therefore, they try and reach a broader reader base to demand revenue from advertisers based on their sheer reach.
Quality content came side by side with ads. The thicker the publication, the more it earned from ads. In the times of COVID-19, the revenue from advertising has fallen leading to shrinking newspaper sizes, as it costs more to print a page versus the revenue it brings in. This impacts their online presence too as the content could be of lower quality to drive page views.
Other publishing houses focus on subscriptions to get a bulk of their revenue. In the case of subscription driven newspapers like New York Times, The Washington Post, The Wall Street Journal, prices have more than doubled in the past decade to compensate for falling advertising revenue.
Price elasticity of demand comes into play here. Increase in subscription price leads to a drop in readership numbers resulting in lower ad revenue.
Majority of the revenue for most big publishing houses comes from advertising dollars. Subscriptions have always been a secondary source.
What is happening to the advertising dollars?
While publishing houses followed their legacy business models, technology first companies swooped in to offer streamlined viewership, demographic and location-based data which was a better mouse trap to the advertisers.
Publishing houses focused on content to drive revenue. Unfortunately, over time they missed the opportunity to better identify and target readers which were sought after by the advertisers.
The game changed from having a higher “potential customer” base to a more “active reader” base data.
How has the industry changed?
Facebook and Google are now dominating the field by focusing on providing better data insights as can be seen by the revenue they partake.
The change in power has been noticed by politicians across UK, Europe, Canada and Australia. It brings into question whether Facebook and Google are abusing their dominant position to eat a bigger piece of the advertising pie?
How are the platforms monetizing the content?
Google is an aggregator, for e.g. when you search for “car bombings” it will show you 8 links to newspaper articles about car bombings.
Publishers accuse Google of carrying their copyrighted content, but not paying them for the same while benefiting from the higher number of users they serve. The searches help Google build user profiles which helps in ad targeting.
This also extends to Google news, wherein they feature articles as per their user profile. They have not yet monetized Google news in any direct way.
The publishers want to be compensated for their articles displayed on Google's real estate. Google remarks they are an aggregator, they assist in discovery and directs the traffic to the publisher. The publisher can then monetize via ads or subscriptions.
Facebook prioritizes user content over third party information. But how it decides what content to show to users and how often can greatly influence the amount of traffic a publication ultimately gets.
The algorithms followed by Google and Facebook are not public knowledge which increases regulatory mistrust.
What are the Regulatory Issues being raised?
Given recent history with Facebook, politicians have raised questions regarding mis-information campaigns, privacy, access of user data, transparency of ranking algorithms and abuse of dominant position.
Politicians seek to correct the power imbalance between media and big tech companies by way of introducing “snippet tax”. The tax would be used to fund journalism -which has taken a hit due to monopoly power enjoyed by big tech.
The intention behind the suggested tax is to bring down two birds with one stone. Governments have been clamoring to increase regulations on the tech giants which would lead to them breaking up. The second reason being, funding publishers to incentivize them to produce high quality journalism.
One of the main issues which merit further discussion is the advantage tech companies enjoy. Publishers have accused them of manipulating ranking algorithms which leads to less traffic on the publisher’s web site thereby -abusing market dominance.
Photo by Jean Wimmerlin on Unsplash
Opinion
The publishing industry was hemorrhaging money since the boom of internet. Just because it is losing business to tech giants does not mean the publishers should be compensated.
For example, automation killed a lot of jobs; the people who did lose their livelihood had to upskill and find new jobs which were created by automation.
The industry business model was not sustainable and in a capitalist economy only the strong survive.
The struggle to keep true journalism alive and regulating tech are two separate conversations. By forcing one to pay another creates a dangerous dependency. At a time when we need honest journalism to hold tech accountable for its actions.
Google has very few competitors and none with its sheer reach across the world. This gives it clear advantages when it comes to pricing its services. Google has made it nearly impossible for publishers and advertisers to do business with each other except through Google.
Has Google abused its dominant position? That I believe is a question for regulators to answer and not politicians.
We need to understand what is best for the ultimate consumer- the readers. Not the politicians seeking to “regulate” the freedom of the internet, not the tech companies seeking power and profit, not the advertiser concerned about targeting its demographic and lastly not the publisher struggling to keep afloat.
Ultimately there is a balance which needs to be found.
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