For the Media to Regain Credibility, the Business of News Needs to Change

The current revenue-incentive structure followed by most mainstream media organisations is grossly misaligned.

The recent series of reports and counter-reports after the Cobrapost sting operation is the latest reflection of the waning credibility in our democracy’s fourth pillar – the mainstream media and news-producing agencies. With the exception of a few fearless journalists, English and vernacular news platforms, mainstream journalism continues to witness a deeply troubling transition, from being the vanguard of democratic values to being one of the principal threats to them.

To get a perspective on this troubling transition, it is vital to study the changing dynamics of the news business in India as part of a global phenomenon. A number of variables can be considered responsible for the rapid dissolution of professional attitudes in journalistic practices and its ethics: rating-sensitive television news; circulation wars among competing newspapers; and high transaction and signalling costs in adapting to a digitally powered media space are a few worth mentioning here.

A combination of all of these factors increasingly forces media executives and journalists to go for ‘infotainment’-based news options. This quite often requires them to remain unconditionally docile to existing chambers of power and interest groups, which are seen to be intertwined with their business interests.

A core problem at the heart of this remains directly concerned with a misaligned revenue-incentive structure. This structure has taken over by virtue of a neoliberal consensus between private-run news agencies, emerging from countries like the US and flowing to others (including India), where private investment in the media market share remains greater than the public sector owned media spaces. The private sector media market’s motive to commercialise news through maximum advertising and sales-generated revenue not only redefines the business and purpose of journalistic reporting, but endangers its relationship with democracy too.

The digital disruption

Over the last decade, the emergence of a digital economy with the internet’s rising user-interface substantially disrupted revenue-incentive models within most private sector-led news businesses across the world. India and China emerge as countries with two of the largest internet users in the world. However, in terms of percentage of population using internet (as a source for news), countries like Finland, Germany, France and the US remain the highest, while countries like India, China, Brazil (given their demographic user base) are emerging frontiers in the digital media market space. Transnational media conglomerates see the future of news business in these emerging frontiers.

PricewaterhouseCoopers (PWC) recently did an extensive study on the impact of the global digital disruption on newspapers and magazines across the world. An excessive reliance on commercialising the digital space has pushed most news agencies to substitute their revenue models with more volatile sources, like advertising, imposing significant quality constraints on the process of news production and its distribution across platforms.

A rise in the number of news agencies through a technological disruption may be welcome as it increases the number of news providers. The concern, however, is centred on the means of financing which, for most private news agencies, remain largely focused on advertisements.

As seen from the chart below (plotting the compounded annual growth rate of digital and print news platforms against the percentage of total advertising and consumer revenue from digital media), the more digitised a country’s newspaper industry, the faster its overall revenue is projected to decline. Other clear trends responsible for this include aspects such as the rise in advertisement-based shared services and outsourcing news platforms, with players like Google and Facebook getting in the business domain.

The only exceptions to this phenomenon are countries like Germany and Finland, with comparable levels of internet penetration but with strongly supported public service media organisations (operating across several platforms) that enjoy greater public funding and remain less dependent on (online) advertising as their main revenue source.

Degree of digitisation and projected revenue growth by country for newspapers, 2015-2020. Source: Global Entertainment and Media Outlook 2016-2020, PwC

Degree of digitisation and projected revenue growth by country for newspapers, 2015-2020. Source: Global Entertainment and Media Outlook 2016-2020, PwC

The lack of a diversified revenue-incentive portfolio in a rapidly digitising news space generates wide divergences across media markets – in both developed and developing economies. These divergences exacerbated since the years of the global financial recession of 2007-08.

The figures below help us get a more precise picture of the newspaper publishing business and its relation with advertisement expenditures in a post-2007-08 crisis context. According to OECD estimates, the change in revenue numbers were dramatic in countries with greater private investment-led media market share like the US (-30%) and the UK (-21%), but much more modest in many other developed democracies (with greater public funding supported media market) like Germany (-10%), Finland (-7%) and, most notably, France (-4%).


Estimated change in total newspaper publishing revenue (2006-2010). Source: Data from OECD (2010) with additional reference from PWC Report (2010)

Estimated change in total newspaper publishing revenue (2006-2010). Source: Data from OECD (2010) with additional reference from PWC Report (2010)

India remained the exception, as newspaper publishing revenue continued to rise (9%). While in many countries (excluding India), the financial crisis – in some cases further exacerbated by domestic recessions, housing slumps and other related downturns – led to stagnation in total advertisement expenditures, and in a few cases to actual decreases.

While there was a significant fall in advertising expenditures across main spenders post the 2008-09 period, India’s advertising expenditure, on a year-to-year level, has seen an average increase of more than 16-18%, which reflects the dependence of news platforms on advertisements as their main revenue extraction. This scenario remains the same across other private news platforms in India (including other private tele-news and digital news spaces).

Total advertising expenditures of top ten countries including India and Finland (post 2007-08). Source: Data extracted from WARC (2009)

Total advertising expenditures of top ten countries including India and Finland (post 2007-08). Source: Data extracted from WARC (2009)

The reliance on ‘paid news’ in India

With a volatile source of revenue growth in the advertisement-sensitive private media market, mainstream news agencies resorted to ‘paid news’ options for infotainment purposes. Instances of this were earlier reported by P. Sainath during the provincial elections of Maharashtra in October 2009 when the then chief minister, Ashokrao Chavan, bought editorial space in three leading Marathi-language newspapers to promote his election prospects.

At that time, the Press Council of India observed, “The phenomenon of ‘paid news’ goes beyond the corruption of individual journalists and media companies. It has become pervasive, structured and highly organized and in the process, is undermining democracy in India.” Similar references can be drawn from across other ‘paid news’ areas, including entertainment, witnessing a Bollywoodised form of journalism (as termed by Daya Kishan Thussu) and sports, where celebrity-cricket-centred news culture tends to generate more clicks and readership interest, diluting other news events.

Diversifying revenue incentives

There is a need to acknowledge how a multiplicity of media outlets helps citizens to access a wider range of information and news analysis. The presence of multiple news agencies across news platforms curtail the government’s power to control and manage information in a direct, centralised manner.

Networks such as NDTV 24×7 and digital platforms such as The Wire, The Quint, Alt News etc. have taken up spirited measures on causes in public interest – including freedom of information, environmental protection and gender inequality – forcing the government to amend and initiate policy discourses.

Self-managed and financed news agencies can only exist if such agencies operate under a diversified revenue model within a competitive market-price structure, as against being dependent on advertisements or other mono/duopolistic corporate channels.

Diversifying revenue-incentive structures for news agencies requires cultivating creative financial institutions and channels that offer long-term capital to news agencies, including startups. Here, promoting venture capital (VC) modes of financing that thrive in other business areas of e-commerce, biotech, pharmaceuticals may help.

The role of the venture capitalist is not just providing investment funds. By selecting to invest long-term in a news business, the venture capitalist can reduce risks of adverse selection faced by passive investors who do not know where to put their money, and more importantly, give agencies a reliable source of revenue over a longer period of time. News startups, like any other startups, may not generate profits for years. It is therefore not advisable for them to get into debt.

Without the right structure of incentives and revenue, the social trust embedded in journalistic integrity – most essential to safeguarding democratic values – is likely to be irretrievable.

Deepanshu Mohan is assistant professor of economics at Jindal School of International Affairs, O.P. Global Jindal University.