Alan Rusbridger is Gone from The Guardian, But Is There Still a Business Model for Independent Journalism?

Many people like to think of media as another market where competition drives innovation, quality, and integrity. But this is not always the case.

 

 


The following column, which discusses the events that have unfolded in the Scott Trust (the owner of the newspaper The Guardian) is part of a series of mini-papers, analysis, and interviews on the role of media in market economies, the capture of media by special interests, and the business model of newspapers. Comments and contributions from scholars who study these fields are welcome. 


 

Guy Rolnik
Guy Rolnik

The storm of negative stories, features, and analysis pieces that accumulated in the last three months in the U.S and British media on the ex-editor in chief of The Guardian, Alan Rusbridger, was no coincidence. Something was brewing, someone was brewing, and at the end of last week, Rusbridger announced that he will not take the position he was to assume in September as the Chair of the Scott Trust, which owns the British newspaper1)Samuel Osborne, “Alan Rusbridger’s resignation letter in full”, The Independent. May 2016.

 

If you have read the coverage of his departure from The Scott Trust, you would certainly be inclined to believe that it’s a simple, straightforward case: a few months after he stepped down as editor in chief of The Guardian, the newspaper reported record losses of almost £60 million and a dramatic cost-cutting plan that will result in massive layoffs affecting hundreds of people.

 

Rusbridger’s strategy, be it the aggressive digital expansion to the American market or his opposition to a New York Times-style paywall, seemingly failed miserably. Why would the Scott Trust, or the leadership of The Guardian, want the editor who led this strategy to be elevated to lead the trust that oversees the newspaper?

 

True, you might read in between the lines: many of his former competitors and other detractors gloated over the way he had to leave. Still, it looks like a sensible outcome: the leader who made some ill-conceived decisions may very well not be the right person to fix the problem and deal with the mounting losses of the newspaper.

 

Yet, there are quite a few lingering questions that make the story more complicated: Rusbridger was a very powerful and charismatic editor, but he was not the CEO nor the owner of the loss-making newspaper. The Guardian’s business people, its board, and the Scott board were fully in agreement with the strategy and its implementation.

 

The losses of The Guardian in 2015 were huge, but the newspaper (excluding its investment in AutoTrader) has been running operating losses of tens of millions of pounds for more than five years. In 2010-2011, its operating loss was £53 million2)Guardian Media Group, annual report 2010 http://static.guim.co.uk/ni/1437673974330/GMG-Annual-Report-2010.pdf. Those loses were not privy to a small group of people and were not all of a sudden “revealed” after he left: the Guardian Media Group has published its full financial reports every quarter for decades like a listed company, and no one ever questioned Rusbridger’s leadership or professionalism when he was the editor for 20 years3)Rashant S. Rao and Sewell Chan, “Alan Rusbridger, Once Guardian’s Celebrated Editor, Severs Ties With It”. New York Times, May 2016.

 

Containing the losses of The Guardian is crucial for the survival of the newspaper that in the second half of 2015 burned through almost 12% of the huge cash reserves that were in the coffers of the Scott Trust. But before anyone attempts to ask what kind of new strategy should be adopted to “plot a new route to the future,” as the new editor Katharine Viner put it, one should ask what kind of journalism is profitable, or at least sustainable, these days.

 

Reading many of the anonymous comments to the articles in the British press on Rusbridger and Guardian losses, one can easily find a simple answer to the question: The Guardian is losing money because it does not provide any real, tangible, unique service to the readers or advertisers. This is the beauty of competitive markets: if you don’t have superior management and talented journalists that can provide quality services in an efficient manner, you are weeded out of the market.

 

Many commentators find it fitting that The Guardian, being the most liberal, left-leaning global newspaper, is drowning in losses; it’s natural that “the socialists” don’t understand that you have to produce a superior product to survive or flourish in the marketplace.

 

This is indeed a very logical, clean, and attractive story— except that when you really try to analyze it from the economics perspective, you might encounter some serious doubts about this model.

 

Luigi Zingales, a professor at the University of Chicago and one of the editors of this blog, published just this week on ProMarket a mini-paper on the way newspapers in Italy report on the banking sector. He shows that most Italian newspapers adopted a positive or neutral position on the new fund that was created last month by the Italian government in order to bail out Italian banks and prevent a banking crisis. One can ask why the Italian government does not take measures to clean the balance sheets of the banks that are heavy on crony loans. Most Italian newspapers did not want to raise tough questions and most negative analysis appeared in foreign newspapers.

 

Is this story, reflecting the close relationship between banks and newspapers, specific to Italy? Far from it. The chief political commentator of the British Daily Telegraph resigned in 2015 over what he described as pressure exerted by HSBC on the journalistic coverage of the tax scandal that the bank was involved in. HSBC is one of the biggest advertisers in the U.K. Studies in the U.S and Europe and numerous anecdotes showed the various ways advertisers and owners create bias in the editorial work of newspapers.

 

Many people would like to see newspapers as another market where competition drives innovation, quality, and integrity. But this is not necessarily the case. Most newspapers that turned significant profits in the past were monopolies or operating in oligopolistic markets. For many of them, a regional monopoly in classified advertising, a business that enjoys network effects, was the main source of operating profits.

 

The fierce competition among British newspapers proved its limits when the subject of coverage was the most powerful political force in the United Kingdom: Rupert Murdoch’s empire. In 2003, the former editor in chief of News of the World, Rebekah Brooks, admitted during a parliamentary hearing that the newspaper had paid policemen for information. Yet most British newspapers downplayed this amazing testimony. Those newspapers were also very slow to follow up on The Guardian’s revelations regarding the criminal activities of News of the World. Aggressive reporting on corruption at the highest levels is not necessarily a profitable activity.

 

 The Guardian is a case in point: the newspaper was able to finance losses for such a long period thanks to its successful investment in an auto classified ads business called AutoTrader. As losses mounted, The Guardian had to sell its stake in AutoTrader. Such businesses were integrated into the business model of many newspapers around the world for decades and subsidized the “news” part of the business.

 

The role of newspapers in a democratic society and in a market economy is not to sell ads, entertain, or report on the last sports game. Those are all part of the bundle that is used to bring revenue and finance the journalism. The newspaper’s role is to hold the powerful to account, inform voters on complicated policy questions, and help citizens and taxpayers make better choices.

 

The problem is that as the information revolution advanced, the ability of newspapers to capture some of the value they delivered to their readers diminished. Journalism, done in a professional way, without fear or favor, can benefit society tremendously by monitoring politicians, regulators, and large corporations—and especially the invisible ties between them4)Alexander Dyck and Luigi Zingales. 2002. “The Corporate Governance Role of the Media.” The Right to Tell, The World Bank; pages 107-141. But most citizens can free ride on this service and will not have to subscribe to the newspaper to enjoy its contribution to society. Done properly and professionally5)Federal Trade Commission Discussion Draft: “Potential Policy Recommendations to Support the Reinvention of Journalism.” 2010, a newspaper is what economists call a public good.

 

As the business model of newspapers around the world disintegrated due to the Internet, many countries around the world saw their newspapers fold or get sold to business groups and tycoons that were not interested in public service nor profits but in political power or protection. Some tycoons used the political influence of their media outlets to get favorable treatment for their regulated business.

 

Economists and businesspeople may legitimately raise the question of why The Guardian did not create a better service for its advertisers to make sure that it had a sustainable model. It might have done it better, but most big advertisers, if not all of them, are usually not very enthusiastic about investigation6)Marco Gambaro and Riccardo Puglisi. 2015. “What do Ads Buy? Daily Coverage of Listed Companies on the Italian Press.”European Journal of Political Economy; Volume 39, September 2015; pages 41–57 and critical opinions on market failures7)Rafael Di Tella and Ignacio Franceschelli. 2013. “Government Advertising and Media Coverage of Corruption Scandals.” American Economic Journal: Applied Economics; vol. 3, no. 4, October 2011. pages 119-51, crony connections between business and regulators, and corruption.8)Alexander Dyck, David Moss, Luigi Zingales. 2013. “Media versus Special Interests.” Journal of Law and Economics; Issue: 56; pages: 521-553

 

In his books, Zingales writes that Big Business usually has effective lobbies while competition has no such lobby. This can be rephrased for the newspaper market: everybody can benefit from newspapers that hold the most powerful to account, but no one benefits enough from this work to finance it.

 

The dirty secret of the news business is that these dynamics are not confined only to developing economies, where media outlets are owned by a few business groups that control the economy and have strong political ties. Media is used as an effective weapon for big businesses, tycoons, and conglomerates in Italy, Greece, Spain, France, the U.S.Eastern Europe, Israel and almost everywhere else.

 

In this environment, there are a few exceptions: newspapers with a unique culture, legacy, and different corporate governance that try to maintain their integrity. Those newspapers are not “neutral,” nor objective—some of them have strong agendas and opinions—but they rarely serve hidden interests of powerful moneyed interests. They try to hold all powerful actors to account—even if they lose revenues.

 

The Guardian, a newspaper without a proprietor or ties to government, which is controlled by the Scott Trust, is clearly one of those newspapers. Its willingness to support the investigative work of its reporter Nick Davies to expose the criminal and corrupt behavior that took place in News of the World for seven years is a rare feat in journalism today. The Guardian was able to lead such investigative work for years thank to it’s unique ownership structure, the culture in the newsroom, and the character of its editor.

 

The anger that some of the editors and reporters from The Guardian might have toward their editor, who took big bets that soured, is reasonable and maybe justified. The questions regarding The Guardian‘s losses and how they can be contained is essential. But the more important question is pushed to the side, ignored, or worse—taken for granted: If Rusbridger is not the next chair of the Scott Trust, who will take his place? Who will maintain the unique culture in the newsroom, who will support the next lengthy, difficult, and dangerous Edward Snowden leak or Rupert Murdoch exposé?

 

Rusbridger, as part of the team that led The Guardian, failed on the financial side, and succeeded in a brilliant way to enhance the “public good” culture of accountability and fearless, independent journalism. ֿIf the main role of the Scott Trust is to preserve the integrity and independence of The Guardian, Rusbridger demonstrated these capabilities during his tenure as editor. 

 

Going forward, it is not clear how a different editor or chair of the trust would be able to lead the newspaper to profits. And, perhaps more importantly, even if Rubsridger’s successors manage to improve the financials, will they manage to maintain the focus on the newspaper’s important mission, or will the tradeoff be tilted, as it almost always is, against the public good aspect?

 

In a world in which the concentration of wealth and power is growing—a world where most newspapers are dwarfed compared to the economic and political powers that they have to scrutinize and hold to account—the societal value of independent media outlets cannot be overestimated.

 

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy. 

References   [ + ]

1. Samuel Osborne, “Alan Rusbridger’s resignation letter in full”, The Independent. May 2016
2. Guardian Media Group, annual report 2010 http://static.guim.co.uk/ni/1437673974330/GMG-Annual-Report-2010.pdf
3. Rashant S. Rao and Sewell Chan, “Alan Rusbridger, Once Guardian’s Celebrated Editor, Severs Ties With It”. New York Times, May 2016
4. Alexander Dyck and Luigi Zingales. 2002. “The Corporate Governance Role of the Media.” The Right to Tell, The World Bank; pages 107-141
5. Federal Trade Commission Discussion Draft: “Potential Policy Recommendations to Support the Reinvention of Journalism.” 2010
6. Marco Gambaro and Riccardo Puglisi. 2015. “What do Ads Buy? Daily Coverage of Listed Companies on the Italian Press.”European Journal of Political Economy; Volume 39, September 2015; pages 41–57
7. Rafael Di Tella and Ignacio Franceschelli. 2013. “Government Advertising and Media Coverage of Corruption Scandals.” American Economic Journal: Applied Economics; vol. 3, no. 4, October 2011. pages 119-51
8. Alexander Dyck, David Moss, Luigi Zingales. 2013. “Media versus Special Interests.” Journal of Law and Economics; Issue: 56; pages: 521-553

One comment

  1. Very interesting. Perhaps they could explore something like a button where on Amazon or Ebay sales, you can click “add 1% to support my preferred charity of media outlet”.

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