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?

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