Saving the News

Abstract

The low cost of communication made possible by the Internet has led to ruinous competition in news markets. It has also led to stiff competition from social media companies in the advertising distribution markets in which newspapers also compete. As a result, cash-starved newspapers have abandoned the political centrism and expensive fact-oriented reporting required to maximize readership in favor of differentiation of their product in ideological terms. The newspaper industry’s attempts to save itself by negotiating payments from social media companies, promoting antitrust action against them, and embracing decentralized models of news gathering are, however, doomed. News consumption is a small part of social media activity, making social media companies unwilling to pay much for news; social media is a superior advertising distribution product relative to newspapers, so social media will continue to compete successfully against newspapers whether the social media industry is concentrated or not; and decentralized news gathering will never be lucrative enough to cover the high costs of fact investigation and reporting. One solution to the problem of ruinous competition in news would be to use the postal service’s letter-box monopoly to impose postage on Internet posters who attract large numbers of views, restoring part of the cost of participating in news markets that was eliminated by the Internet. A solution to competition for advertising revenues from social media companies would be to place a cap on the amount of advertising that social media companies can distribute. Thanks to the race-to-the-bottom character of advertising, such a cap would cause advertising revenues to flow back to newspapers notwithstanding the superiority of social media as an advertising distribution channel.

Keywords: misinformation, postal service, price regulation, ruinous competition, competition, newspapers, news industry, product differentiation, fake news, first amendment, letter-box monopoly, antitrust, newspapers, advertising

JEL Classification: K20, K21, L40, L50, L82, L88, M37, M38, H20, H27, H41, Z19, D45, D82, L15, L82, L87