Technology Can Save the News — If Readers Change How They Consume It

Further fueling the ongoing debate over the future of the news media and independent journalism, eBay founder and billionaire Pierre Omidyar last month committed $250 million to a news site co-founded by journalist and author Glenn Greenwald. Omidyar’s investment followed the announcement over the summer that Amazon founder and CEO Jeff Bezos had purchased The Washington Post, also a $250 million investment. The late Steve Jobs’s wife, Lauren Powell, and 29-year-old Facebook co-founder Chris Hughes are also pouring money into old and new media ventures.

Could this new band of news media owners shape a technology-led business model that will be profitable and protect the integrity of impartial, ideology-free journalism? Ultimately, according to Wharton experts, the ball will rest with the consumer.

Any new business model that those in the technology world would bring to the media realm would have to address the major pain points currently facing the industry. News organizations have “suffered a lot financially in the past couple of years,” says Wharton marketing professor Pinar Yildirim. Circulation numbers and advertising revenue have shrunk as both readers and companies turned their focus to the Internet. The industry has tried to adjust to the new normal — some newspapers and magazines have cut back on issues or the number of days they produce a print product. Other news organizations have started charging for online access. Still more have tried to add content that mimics what tends to be most popular on the web, especially entertainment-related coverage, Yildirim notes.

Omidyar has indicated that he was motivated more by a desire to protect independent journalism than the prospect of getting a return on his investment, at least for now. In a blog post published on his website last month, Omidyar wrote that his investment in Greenwald’s venture (tentatively called “NewCo.”) stems from his “interest in journalism for some time now.” In 2010, Omidyar founded Honolulu Civil Beat, a news website with a stated focus on “investigative and watchdog journalism.” Earlier this summer, he explored buying The Washington Post newspaper before Bezos became the winning bidder. Around that time, Omidyar said he began thinking about the social impact he could help create with an investment in “something entirely new, built from the ground up.”

He then reached out to Greenwald, who with colleagues Laura Poitras and Jeremy Scahill was already planning to launch an online venture to support independent journalists. “We had a lot of overlap in terms of our ideas, and decided to join forces,” Omidyar wrote. His plan is still a work in progress. “Right now, I’m in the very early stages of creating a new mass media organization. I don’t yet know how or when it will be rolled out, or what it will look like. For now, the plan is for the site to cover general interest news, “with a core mission around supporting and empowering independent journalists across many sectors and beats.” Omidyar added that he wants to build a media platform that helps journalists “pursue the truth in their fields.”

Behind the Headlines: Four Scenarios

According to Wharton operations and information management professorEric K. Clemons, there are four possible motivations for technology investors to pursue ventures related to traditional media businesses. He immediately dismisses the first premise, that “traditional media companies represent a great investment opportunity,” pointing out that, given the current fortunes of many media properties, “this is clearly absurd, and we do not need to consider this further.”

Clemons briefly rejects the second possible premise as well: “Traditional media is so important that high tech investors invest because of an altruistic desire to preserve free speech, which the Founding Fathers thought was the cornerstone of democracy.” He notes: “I might have believed this of Warren Buffett or [Hewlett-Packard co-founder] Dave Packard. I can’t make this work for any of the individuals currently investing in media companies.”

The third potential motivator, that traditional media represents “an undervalued asset,” and that “if The New York Times and The Washington Post were just jazzed up they would be marvelous online revenue producers,” is also not a sound theory, Clemons says. “You cannot charge for news,” he states. “With the American mindset, largely created by Google, you cannot charge for content.” The problem with publications like The New York Times or BusinessWeek is not that they are “boring” or “ignored,” Clemons notes. “The problem is that online ads are not a large revenue producer for media companies. The problem also is that most content is not read on the media owners’ websites. Most content is now read for free, elsewhere.”

However, Clemons says that traditional media companies do have “enormous synergistic opportunities when added to the right portfolio.” One example of that synergy is Bloomberg’s purchase of BusinessWeek magazine in July 2009, he notes. Bloomberg wanted the magazine’s content, writers and editors for its existing news operation, Clemons says, recalling a meeting he had with Michael Bloomberg in 1981, right after he had founded his company. “[Bloomberg] knew even then that he would need a radio station, a TV station and a newspaper,” he points out. “He thought he would buy The New York Times, but for now, has BusinessWeek,” subsequently renamed Bloomberg Businessweek.

Clemons suggests that The Washington Post could be “a great online revenue producer” for Bezos if it could score on two fronts: One, its advertisements must be “carefully targeted, the way Amazon targets recommendations.” Second, those recommendations should be constructed in such a way as to immediately produce sales for advertisers, “the way Amazon sales and fulfillment do.” According to Clemons, another major player in the tech sector, Google, should also invest in a media venture. Google doesn’t need content, because the company “just copies it [from other sources] and relocates it onto one of their own pages,” Clemons says, but it would allow the firm to advance its own online marketplace, similar to what Bezos may do with the Post.

Another potential reason for all of the interest in media from the tech sector, Clemons notes, is that “traditional media companies are important [for] advancing an ideology that is important to the investor, whether liberal or conservative, green, or even aimed at protecting the investor’s other assets.” He finds that theory both “plausible and scary,” noting that “… The idea of [Google founders] Larry [Page] and Sergei [Brin] having not only the ability to have direct access to what they want us to read — but to produce what they want us to read — is scary.”

The Search for a New Business Model

It is no longer realistic to expect good journalism to be a profitable enterprise for investors, according to Wharton legal studies and business ethics professor Kevin Werbach. “It is not clear if there is a for-profit business model anymore for high-quality journalism at scale,” he notes, adding that even in the past, “there was never a large-scale news operation that was able to fund itself directly on a stand-alone basis.”

Werbach says news organizations have traditionally succeeded through bundling. In the print media, the reporting was bundled with classified and display ads. In TV broadcasting, news was bundled with entertainment programming, “because part of the deal in getting ‘the public airwaves’ for free was informing the public. Both of those bundles have broken down.”

What does that breakdown of a business model mean for the news media now? “We are exploring the other means of funding things that are socially and economically beneficial, but that the market won’t actually [support],” says Werbach.

According to Werbach, there two main issues that news media organizations have to weigh today: subsidies and patronage. “Public funding for news and journalism isn’t going to be significant in the U.S. because we’ve become so skeptical of government, and because it creates a danger of biasing the product,” he says. “The alternative is to support journalism the way Michelangelo and Mozart were funded: through the kindness of the wealthy. Jeff Bezos, Pierre Omidyar and Chris Hughes are spending their money to support journalism because they believe it’s important, and that they can make a difference.”

Yildirim says one could argue that the real value of the news business today is exclusive information that people are willing to pay for. “It is a challenge for journalists and reporters to search and find exclusive information, and create an environment so that people with that exclusive information can turn to [the press] without having to seek asylum in Russia,” she says, referring to former National Security Agency contractor Edward Snowden, who took refuge in Russia because he is facing federal espionage charges for leaking classified information about U.S. surveillance programs to the press.

Reader’s Choice

Creating a protective environment for journalists in pursuit of investigative reporting appears to be the prime objective of the new band of technology investors in news media, according to Yildirim. However, today’s consumers of news may behave in ways that actually fly in the face of independent journalism, she suggests.

Two factors are changing the fundamentals of the news media business, according to Yildirim. First, news stories are potentially able to garner a larger audience today because of the decreasing cost of dissemination. “Second, because consumers have [access to more] news sources, they may be self-selecting into news outlets and getting somewhat segregated,” she adds. According to market research theory, a self-selection bias arises whenever people select themselves into a group, thereby distorting findings.

“A completely independent journalism model may not be hugely successful,” says Yildirim. Citing research on media bias, she notes that readers of news tend to want two things: “First, they want to hear news that is slant-free — i.e., reports that are free of strategic omissions and representations of data, choice of words and choice of issues.” She acknowledges that this desire is consistent with the concept of independent journalism.

However, Yildirim sees a problem arising from readers’ second requirement. “People also read news because they would like to hear opinions confirming their beliefs and values. If a news report is against one’s beliefs, one can easily say that the story is incorrect, biased and partisan, and quit consuming news from the same source.” She points out that the annual Pew Research Center report on the state of the media confirms this view and shows that people with left-wing views tend to get their news from outlets like MSNBC, and people with right-wing opinions watch Fox News, adding that the same is true for newspapers as well. “There is a clear preference for sources based on ideology.”

To be sure, one could argue that the bias in the news outlets shapes audience preferences, and that is partially true, says Yildirim. Even so, she notes that the opposite is also true, citing academic research showing that “it is the demand for slant that generates the existence of these ideological outlets.” Further, she does not expect the news outlets to erase their ideological positions any time soon.

Advertising to the Rescue

There does seem to be a way out of ideologically biased news: Advertising as a revenue source can help to fix some of the partisan media bias in the marketplace, says Yildirim. “Media bias can be mitigated when advertising is the source revenue as opposed to circulation,” she notes, citing a 2012 research article in the Journal of Marketing Research she co-authored with Esther Gal-Or and Tansev Geylani. “We have shown that consumers want ideology, but advertisers want eyeballs, and they do not, in most cases at least, care what ideology these eyeballs are linked to. As a result, news organizations that are aimed at maximizing advertising revenue can be more independent.” She adds that most of the new innovators or technology investors in the news media business will likely have to rely on advertising revenue.

The bottom line, of course, is that economics lies at the root of all the positions that news media outlets take, notes Yildirim. “Even with strong, independent journalism, these news outlets are essentially products in the marketplace, and they need to be positioned.” Audiences do not typically read news directly from the Associated Press or other news wires because they need help interpreting the events those stories describe, she adds. They need guidance on what position to take on issues, and that is where commentaries and opinion pieces come in.

All the same, “the need for impartial journalism is greater than it has ever been, because we live now in a world of affinity-based media where citizens can and do construct echo chambers of their own beliefs,” New York Times columnist Bill Keller wrote in a recent op-ed exchange with Greenwald after Omidyar’s investment commitment. “It is altogether too easy to feel ‘informed’ without ever encountering information that challenges our prejudices.”

Technology investors like Omidyar bring “entrepreneurial and technological insights to the problem that may certainly help,” says Werbach. He hears in their statements “a sense of mission more than the usual Silicon Valley triumphalism. That gives me hope that they will fight against the online echo chamber, rather than reinforcing it. Technology can bring us perspectives other than our own, if the ones designing it build that into the architecture, and the ones consuming the news are open to it.”

Yildirim agrees that technology with its pervasive powers can demolish echo chambers and create a more informed public. “Our means for communication have expanded so much — and in many ways, this expansion has seemingly improved the volume of information we have,” she says. “It is nice to believe that the chambers will be broken, but again, it is important to remember that consumers select what information they will consume and how they will consume it — what news to read, what sources to follow, credit or discredit. And unless they are open to changing their behavior, technology by itself may not be enough.”

Knowledge@Wharton