Saturday, April 2, 2011

Why Profit Doesn't Work in the Media Business [updated]

In one of my previous posts, I looked at the reasons why the profit incentive doesn't get us the informed, reasonable news coverage that we'd like. Recently, I tightened up the argument. Here's the revised version:

"No one ever went broke underestimating the intelligence of the American people." -H. L. Mencken

Scholars around the country lament a national media that’s in decline. Neil Henry, Dean of the Berkeley Graduate School of Journalism talks of “erosions in content and traditional journalistic standards.” Kathleen Jamieson, director of the Anneburg Public Policy Center of the University of Pennsylvania, describes a university setting where “students raised on faux news will enter our classrooms cocooned in their own biases and conditioned to mistake ridicule for engaged contention.” And Rick Davis and Peter Stearns of George Mason University agree that “the replacement of serious news by sensationalist nonsense” is undermining legitimate democratic discussion. [link to source]

To add fuel to these critics’ fire, the executives at Fox News unapologetically defend the state of the news, and their networks’ coverage of it. When Roger Ailes, president of Fox News, appeared on a January 31, 2010 edition of ABC’s This Week, he was criticized for certain ethically dubious choices the network made. His response? “I’m not in politics. I’m in ratings. We’re winning” [link]. In the same vein, Bill Sammon, vice president of Fox News, recently admitted to fabricating facts on air: “At that time, I have to admit, that I went on TV on Fox News and publicly engaged in what I guess was some rather mischievous speculation about whether Barack Obama really advocated socialism, a premise that privately I found rather far-fetched” [link].

What’s so upsetting about these quotes is that they reveal a complete disregard for ethics in journalism. Clearly, Fox News executives’ eyes are all on the bottom line. Normally, these two goals—profit and ethics—should align: a company that mistreats its customers should eventually stop receiving business. But there are instances, like this one, where the mechanism clearly doesn’t work.

The basic defense of the profit incentive is that you're almost always likely to getter better results when you incentivize good behavior than when you force it. Profit supposedly sets up an incentive system that induces businesses to serve the public interest as much as possible. Ideally, businesses make profit when they produce goods or services that create a lot of value for people. Customers get what they want, and the business reaps the reward of going through all that effort. Everybody's happy.

But this system isn't foolproof. For it to work, at least a couple key things must happen. First, consumers need to be able to represent an effective check on business. If people generally can't tell when they're getting duped, or swindled, or cheated, or they have no alternatives (i.e. monopoly), then businesses can gain profits at the cost of the public. Second, the consumer’s individual interest can’t be opposed to a broader, collective interest. If individuals demand a good that’s harmful to everyone else, than supplying it can actually be welfare-reducing overall.

The problem with profit in the media business is that neither of these criteria is satisfied. For one, it’s very, very difficult for a well-intentioned layperson to stay informed. As David Foster Wallace puts it, grappling with the “Total Noise” means "dealing with massive, high-entropy amounts of info and ambiguity and conflict and flux… to really try to be informed and literate today is to feel stupid nearly all the time, and to need help" (q.v. "Host" in Consider the Lobster and Other Essays). In this light, news organizations have a moral obligation to help their fellow citizens make informed opinions and cast informed votes. Instead, what happens is that news organizations pose as guides through this media mess while simultaneously producing narratives of their own (Fox News is the best at this, which is why they’re “winning”). Since this strategy is successful, the profit incentive encourages news firms to pursue it; and average consumers of news, who may not realize the spin they’re being fed, also don’t realize that their news only contains half-truths, instead of the Truth that they were expecting. Unwittingly, they receive a defective product, like the Americans who ate tainted meat before health inspections were instituted.

In many cases, though, viewers know exactly what they’re getting out of their news. They like news that caters to their biases and preconceived notions about their world (a.k.a. “infotainment”) and news organizations profit by offering such programming. But is society really better off if everyone just decides which slanted version of the news she is going to watch? Clearly not. Biased news eviscerates reason, dialogue, and compromise—precisely the qualities necessary to have a healthy democracy—and replaces them with polarization, resentment, and suspicion. It’s impossible to come to a reasonable agreement when most people can’t even agree on the facts. So the profit incentive, though encouraging news organizations to satisfy individual preferences, also has the effect of allowing those news organizations to undermine the very democracy they are tasked with upholding.

Thus, the profit incentive is flawed—but it’s unlikely that a patchwork of changes in incentive structures will work either. The difference between legislating about, say, food quality (which has clear, objective measures) and journalism quality (which is hard to define, let alone capture systematically) means that regulation will likely be sidestepped by exploiting loopholes. Likewise, restructuring incentives, such as changing executive compensation packages or making quality reporting more attractive, can only get us so far. As long as most people prefer infotainment to real news, news companies will face a constant temptation to cater to their tastes.

In these kinds of situations, appealing to morality can solve a number of economic problems that external incentives can’t: morality drastically reduces monitoring costs by making people self-policing; and it, unlike most external pressures, tends to be self-reinforcing, since people, once convinced about the morality of certain behavior, generally do not to deviate from it. A sense of morality hasn’t always been absent from journalism. Don Hewitt recalls in his memoir that upon the launch of “60 Minutes” his producer came to him and told him to “make us proud.” “Which,” he says, “may well be the last time anyone ever said ‘make us proud’ to anyone else in television” [link]. We need to bring that sense of morality back.

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