Think about markets to understand the news business

Using economic theories with critical thinking is a trend that has become more popular in the last few years. Books like Freakonomics, where everyday situations are analyzed from an economic perspective, are teaching readers how to look at situations in a way that makes sense in economic world.

James Hamilton is a professor of Public Policy, Economics, and Political Science at Duke University. In his book, All the News That’s Fit to Sell: How the Market Transforms Information into News, he examines how economic forces affect the media. By taking this economic approach when analyzing the state of the media, Hamilton believes we can arrive to conclusions that will improve the industry. Hamilton spoke last week to journalism students at USC Annenberg.

When evaluating the continued decline in interest for hard news, Hamilton first takes a look at the industry under an economic lens – analyzing the possible theories of why the current market does not provide the adequate amount of coverage in this area.

Rational Ignorance
When people are seeking information, they usually fall under one of the following categories: consumer, worker, audience member and voter. As a worker and consumer, readers seek out information they either need to do their job, or information they need to achieve a particular goal. As an audience member, readers are looking for information that will entertain them, such as YouTube or TMZ. Voters are those who seek information simply for the sake of being informed, and usually the victims of rational ignorance –when people choose to remain uninformed due to the lack on the return on the time invested learning about a particular topic.

For example, if a person spends a significant amount of time researching a presidential candidate, his vote will most likely not have a direct influence in the election outcome. Therefore, many readers choose not to demand detailed political information, and instead let others do the work. This is also where the media falls short in balancing the information people want and the one they need. If the demand for hard news is not there, media outlets will tend to focus on other subjects.

Inadequate Investments, High Costs of Hard News Coverage, and Advertising Bias
As the demand for hard news coverage decreases, profit-driven broadcasters and news media will not want to invest their money in these types of stories. Network evening news are extremely market driven, and networks usually focus on attracting marginal viewers, which make up about 40 percent of the market. So even if the average loyal network news viewer enjoys having hard news coverage, networks are not focused in keeping them, but instead working diligently to capture those casual viewers.

As far as advertising goes, not all viewers have equal value. If a certain group of women in their 30s, who statistically make up the majority of the purchasing decisions, desire more specialized coverage, advertisers will favor this group.

Journalists as Celebrities
As media outlets fight for ratings and readership, they often attempt to make their anchors and reporters into familiar faces – therefore building a sense of comfort and loyalty with their audience. Often, time spent on turning a reporter into a celebrity has a tendency to neglect hard news coverage.

Content, Conduit and Conglomerate Ownership
If a cable company owns the news network as well, it is possible that they will prevent others in the news business to enter their market. It is important for audiences to analyze content and medium and recognize where there may be possible conflicts of interests.

Also, with more local newspapers transitioning to big corporations, the focus of the news often shifts from providing the public a service to maximizing profits.

So how do we fix this?

Hamilton believes that they key lies in changing the incentive of media outlets, and consequently, changing the incentive to seek information. He proposes the following:

1. More media outlets should be operated by non-profit entities. By taking the profit out of the equation, companies can focus on the public interest.
2. Subsidized information creation. Foundations should be able to subsidize information analyses, training for reporters covering hard news, and providing journalists with lowered costs when acquiring government information.
3. Encourage family ownership of news outlets. Families may be willing to compromise a portion of the profits for the sake of providing the public with the information they need. The government should provide incentives so that families remain in the business of news and in turn, provide hard news coverage.
4. Public policy should encourage more partisan information. Currently there are restrictions on how much money parties can spend on public information. If these were removed, information would reach more potential voters through advertising.
5. Government subsidy for information creation and infrastructure. In addition to providing funding for political and government information, government should invest in improving the current way information is distributed.

When asked about possible influences and bias, which could happen with partisan coverage of news, Hamilton believes that as long as institutions are transparent with their goals and identity, the public can draw their own conclusions.

Overall, Hamilton’s economic view of the media industry can provide us with insight on how we can combat the challenges we encounter as journalists. By taking a macroeconomic approach and focusing the attention on the media outlets, we can hopefully achieve a balance in providing the public with the appropriate information.