The New Economics of Conflicts of Interest

In a case study on journalistic objectivity, someone whose paycheck is derived from an established media paradigm lashes out at the business model of competitors that are eating his employer alive.

Irony is alive and well: this writer’s chosen means of digging into his competitors: their conflicts of interest.

The article doesn’t have to be so negative, though. Here’s a softer interpretation: print journalism is a business of bundles. If you bundle local news, national news, and lots of local ads, you can sell this whole package for far more than it costs to produce. (See Clay Shirky for much more on this concept.)

But that’s not the only thing that’s bundled: there’s a bundled culture of a strict separation between business and editorial. Editorial exists as a scalar, not a vector: you can get more revenue out of a bigger, better journalistic operation, but you couldn’t shape that operation to point towards more profitable kinds of reporting.

Further complicating the analysis (but simplifying the business), newspapers require a fairly substantial capital investment in each city in which they’re going to operate—which ended up meaning that the natural number of newspapers per city tended towards one.

This meant that the path of least resistance for newspaper owners was to grow their journalistic footprint to saturation within any given city, rather than taking on the whole newsroom culture. There just isn’t much of a return in asking people to alter their principals, especially when your next best option is to work with those principals instead.

But the media business is getting unbundled: we get local news from local blogs, content farms, and the remaining newspapers. (As the Patch rate card reveals, this is a pretty profitable line of work, still.) We get local ads from reading those same local news sites, and whenever we search for local businesses. We get national news from what might be described as the corporate equivalent of hobbyists: big media companies with enough of a legacy, and enough institutional inertia, that producing national news is the path of least resistance even though consumer demand doesn’t support it as a long-term business strategy. And we get well-optimized fluff news from pretty much anywhere—all news organizations grow in scope and decline in seriousness to the point that they find excuses to write about The Oscars.

When a traditional journalist complains about the business model of his competitors, the relevant question is not: do bloggers violate traditional journalistic ethics? Of course they do. The question is: are those ethical standards fundamental to the practice of reporting news, or are they the result of the peculiar economics of the news industry for a few decades in the mid 20th century?

In the traditional model, incumbency is by far the biggest competitive advantage. On the web, incumbency’s value is minimal. An online media business can’t earn dividends by doing what it’s always done and watching its natural market expand; it has to push every angle. And as it turns out, one of the most fruitful angles is to more effectively monetize influence: to treat the well-connected well, then host conferences as a way to charge other people to connect with them.

In the traditional media world, that would be a very dangerous precedent. But traditional media had to evolve those standards because of the lack of direct competition—in a single-paper town, who, exactly, is going to investigate that single paper for favoritism? The only real defense against it is to make the paper’s writers completely allergic to it.

As it turns out, the biggest lie of traditional journalistic ethics was the separation between news and ads. Ultimately, news and ads are too symbiotic to be treated as separate entities—outside of the parochial world of journalism, the news is just an ad designed to advertise the actual ads. And as countless bloggers have demonstrated, news is best used as a loss-leader for conferences and consulting.

That doesn’t stop someone from observing the spirit of the law. Indeed, Arrington, Blodget and the like scrupulously enumerate both their traditional conflicts (investments, lawsuits) and their hazier ones (friendships, personal biases). But adhering to the letter of the law verges on moral hipsterdom; you might as well start ostentatiously ending your emails with -30-.

In related news:

• Gannett is launching more extensive paywalls.
• Dan Primack makes a similar point about conflict and trading favors.
• One Kings Lane is adding more editorial content (it’s an e-commerce site, so it’s basically adding more interesting ads).
• Rand Fishkin points out that buying entire blogs is more cost-effective than buying links.