Green Ink on the Mediocracy

Media Concentration and 'share of revenue'

If you mention that you are campaigning for new EU rules on media ownership, a common reaction is “That’s an insane idea.” A number of objections are frequently raised. 

  1. •We don’t need Media ownership restrictions; the Internet is taking care of plurality issues.

  2. •Why should this be an EU-wide rather than a national issue? 

  3. •Doesn’t it play into the hands of powerful media corporations?

Here I will try to respond to each.

Thanks to the Internet, we don’t need Media ownership restrictions 

When news proprietors also own other large commercial operations, there is an incentive to use their news organisations to act in their wider interests. This is why so many newspapers are run at a perpetual loss – their value is not in their own business model but in what they can do for other interests.  The Scott Trust for example, which owns the loss-making Guardian newspaper, exists to promote the ‘liberal interest’.   

These news organisations promote the interests of their proprietors mostly by hiring editors and journalists who share their views, and through the mild self-censorship of journalists and editors who naturally do not want to displease their employer. There is no need for conspiracy; it is an organic process. Those who work for newspapers don’t feel censored; they are just doing their jobs. But when a few tycoons own the whole industry, and editorial control is concentrated into the hands of two or three like-minded individuals, who therefore have enormous sway over politicians, the difference between editing and censorship is academic.

So each news organisation has a natural blind spot around the interests of its owners, (which often includes the interests of its advertisers). We therefore need a plurality of different interests and must not allow any single one to dominate. That way each news organisation can shine light into the blind spot of the others. It is insufficient therefore to have a large number of media outlets that all share the same minority interest and the same blind spot, so they must have not only different owners, but also different ownership structures.

In a perfect world, every conceivable interest of each citizen would be represented, and some people argue that the Internet has created just such a utopia with everyone able to publish their concerns on blogs such as this one.  Sadly though, blogs like this one have a readership of my parents.  We need editors, aggregators, search engines, publishers, people with twitter followings and all the other filters that save us from wading through terabits of random irrelevance. (If by luck you are not one of my parents, thanks for coming!). 

Italy is one of the clearer examples of the dangers of concentrated media power, and yet Italy has many more than the average number of newspapers with a diverse group of owners. It also has lower than average newspaper readership. It is not the number of different news sources that is important, but the distribution of the audience among them. Your propensity to vote for Berlusconi is closely correlated with the time you spend watching television. 

People will argue that Beppe Grillo and his 5star ‘movement’, which won 25% of the vote while shunning all
 television appearances proves the democratic power of the internet.  Berlusconi‘s grip may have weakened as television has given some ground to the Internet, but as I write this, he has retaken the lead in the opinion polls, and new elections are imminent. Consolidation of online media may not yet have reached Berlusconi levels, but tiny marginal costs mean that the economies of scale and the power of brands that drive it are if anything even greater online. If left to themselves, market forces will drive the Internet into the hands of a few colossal firms.
Bepe Grillo

Surely though, the zero distribution costs, and the ease with which anyone can set up a website available to the whole world mean that there are very low barriers to entry, and will ensure vigorous competition? 

Yes, price competition in the media is vigorous, partly thanks to low entry barriers and the Internet, but the problem with media monopolies is not that they have pricing power, but that they have political power, and the more intense the competition, the more economies of scale force consolidation, and the more political power is concentrated.

There may be more and more platforms for sharing information, and the ‘long tails’ of the distribution of a global market for entertainment may provide more demand for obscure products, and therefore diversity, but in the mainstream popular part of the market, where politics happens, margins are minuscule and scale is everything. 
The Long Tail

The primary purpose of a firm is to make a profit. When competition is fierce, there is no room for secondary purposes. The entertainment market may be serving customers efficiently, but news is not a segment of entertainment.   News is what the public needs to know to make democratic choices. News is something we need other people to know.  We all benefit from living in a well-educated society, and news is almost by definition the part of education that creates the most public benefit. 

News is not just ‘something somebody doesn’t want you to know’ it is also something everybody else needs you to know.

But there is little incentive for us to take the trouble to make fully informed democratic choices individually, particularly when we know that most others don’t. Profitable media companies don’t waste resources creating content that doesn’t sell.

Milton Friedman wrote in 1955:

  • “The education of a child is regarded as benefiting not only the child and his parents, but also other members of society, since some minimum level of education is a prerequisite for a stable and democratic society. it is not feasible to identify the particular individuals benefited by the education of any particular child, much less the money value of the benefit, and so to charge for the services rendered. In consequence there is justification on liberal grounds for the state requiring some minimum amount of education for all children, even though this is above the amount parents would otherwise provide, and for meeting some of the cost of education from taxes imposed on all members of society.”

I would argue that this should be extended to a “justification on liberal grounds for the state requiring some minimum amount of education” in the media too. Indeed, this is the ethos behind public service broadcasting regulations. And as the media converges on the Internet, so must the regulations.

There is money to be made from news, but not from the readers. News is much more financially valuable to those who create it than to those who consume it. Most of all it is valuable to those who benefit from the democratic choices it shapes. The primary beneficiary is the government itself, but when a firm controls such a large portion of the news that it can have a major influence on which government is elected, then the government will do all it can to keep the firm onside.  

An oversized news business is the most effective lobbying tool there is.  The subsidies they receive should be seen as lobbying fees. The Scott Trust may or may not be sustainable, but that is a question of whether its other investments are adequate to offset the Guardian’s losses.  The Guardian though is sustainable, because if the Scott Trust goes bankrupt, probably some Russian oligarch who has fallen out with the Kremlin will buy it. The Guardian in any case does not have the market share to be able to dictate to the government, and is not a cause for concern on the level of News Corp or Mediaset.  As news companies grow to dominant sizes, their lobbying value increases exponentially, which itself drives consolidation. One should also bear in mind that with money and power it is never clear which is the means and which the end.  Personally I think it is more often power that is the end, since money after all is just potential.

Allowing media firms to grow beyond even a modest limit is a threat to both the free market and to democracy.

But why do media ownership limits need to be set at the European level?

More than 20 languages are spoken in the different Member States of the EU, and the language borders provide a natural barrier to media providers. In addition, there are already tough competition rules that govern the single market, which apply to media organisations as they do to other industries. 

It would seem then that there is little danger of pan-European media domination. So why should ownership limits be set at the European level?

Firstly, the character of the media industry in each country is distinct, and there is no one-size-fits-all answer. Rules should therefore be set at the national level. However there are reasons for creating basic minimum standards at the European level.

The EU is a group of democracies that have agreed to open their markets to each other to increase trade, prosperity and peace.  The single market requires universal standards to be applied in the production of goods and services so as to avoid regulatory arbitrage where firms move production to wherever they have the fewest obligations. We need to trust each member state to do their part in governing it, and also to implement the rules that have been commonly agreed.  The Union is based on mutual benefits, and we need therefore to know that member states will act in their own best interests, since their interests are also ours. If we fear that governments of other member states have been captured by special interests, then we begin to lose faith in the governance of the whole union.

Some of the eastern countries, which made such swift democratic progress during the process of gaining EU membership, have begun to slip back. Once a country has its membership, there is much less pressure to maintain those standards. The situation in Hungary is the clearest example of an unhealthy influence of the state over the media. A plural and democratic media is a clear element of the accession criteria, so surely it can’t make sense that once membership is granted these standards no longer apply. 

Meanwhile in Italy a mogul gained a position of such dominance in the media that after the fall of the government he had helped to corrupt, the best way he could protect his business and personal interests was to get himself elected prime minister.

Others including Bulgaria, France, Portugal and Romania have their own issues with media concentration. Is it right for democracies to effectively delegate powers to unions of countries that are not fully democratic? It seems particularly wrong in the EU where some areas of law can only be amended by unanimous agreement. Here a media firm that wanted to prevent the reform of a single-market rule could do so with the capture of the government of a single member state, some of which are very small.  

Competition rules are already set at the European level, and although these are only concerned with monopoly pricing power, the powers, expertise and mechanisms for restricting media ownership are similar in many respects, and it makes practical sense to make use of the institutions to avoid duplication. A concentrated media is also a threat to efficiency in other markets, since it can give the proprietors advance knowledge and influence over price sensitive information.

Also, while in a normal industry, when a firm becomes dominant and can influence prices, it is reasonably straightforward for the competition authority to dismantle the monopoly. In the media industry however, where market dominance comes with political influence, the firm can use it to protect itself.   It is as though when Microsoft gained a dominant position in the Browser market, it was automatically awarded a seat on the competition authority.  It is therefore imperative that market thresholds in the media are set well below those in other industries. 

Furthermore, especially in the media sector, the globalising market has created global companies that national authorities find it very difficult to regulate.  Brussels is currently investigating whether Google favours its own products in its search results. This shows firstly that there is already a monopoly issue in online media, and secondly that it is really only the US and EU that have big enough markets to give their authorities the necessary clout to police such global companies.

Where countries have national limits on media ownership, as media companies grow towards them, the thresholds often seem to mysteriously retreat. 

  • ‘In theory, curbs on concentrated media ownership safeguard democracy by protecting against unhealthy alignments of corporate media power and political power. But in practice, the pre-existence of these alignments serves to impede the instigation of such curbs.’ Media Ownership - Gillian Doyle 2002

The hope is that it will be more difficult for media companies to lobby for national changes if there are backstop rules set at the European level.  It is therefore important that minimum EU standards are extremely rigid and simple.

Finally, there is the point that the media market already operates at the European level. For example, there are Russian owned media companies that are based in London because it gives them the right to broadcast to Eastern Europe.

Doesn’t it play into the hands of powerful media corporations?

For sure we can expect to see headlines about the anti-democratic EU trying to stamp out the free press. See here for example. 

I would only say that if we think it is the right thing to do and we give up because we think the media companies won’t like it, then we have lost already, and we should only expect things to get worse.  As they say, to have any hope of freedom we must behave as if we are free. If we do not, then we are complicit.