Undercover Economist

What now for newspapers?

Competition alone cannot guarantee that readers get access to information they need

With the realisation that Rupert Murdoch’s newspaper, the News of the World, had done some loathsome things, MPs realised that they had moved into a looking-glass world. When once it was politically dangerous not to bend the knee to Murdoch, suddenly it was politically dangerous not to stand up to him instead – and standing up to Murdoch is presumably a lot more fun, to boot.

But what now? The presumption seems to be that no future proprietor can ever be allowed to accumulate such a large market share. Newspaper and television markets must be kept competitive for the good of political and cultural discourse. This was the idea behind referring Murdoch’s now-withdrawn bid for BSkyB to the Competition Commission.

As an economist, I’m always banging on about the benefits of competition – but in the case of media, they are less clear-cut than one might expect. Competition is usually a great process for giving customers what they want at a price they can afford. (Although let us not forget that key customers in the newspaper business are advertisers – and it was an advertisers’ boycott that brought down the News of the World.) But in the modern-day newspaper market, price is not necessarily the key issue. Many consumers are getting their news for free from internet sources, and many advertisers have moved online, too. The question is not whether readers and advertisers are being exploited by monopolistic prices, but whether traditional newspapers can survive.

If price is not the issue, then what we are really concerned about is that newspaper readers get access to informative news about the key issues of the day – the kind of thing upon which our democracy depends. But it is foolish to expect this from competition alone. Sadly, we do not value information about how to vote nearly as much as information about which car to buy. We probably value shots of celebs in swimwear more than either.

True, competition can encourage certain kinds of quality journalism. For instance, the economists Jesse Shapiro and Matthew Gentzkow have pointed out that certain stories – of abuses by US soldiers at Abu Ghraib, for instance – are promoted by media pluralism. CBS had the story and sat on it at the request of the US government (the story was said to be dangerous to US hostages) before broadcasting after it became clear that the story would emerge in The New Yorker.

But competition also promotes gutter journalism and it probably promotes opinionated journalism, too. Fox News, Rupert Murdoch’s hugely influential TV news channel, seems to have become popular by staking out ground as the source of right-wing rabble-rousing, and MSNBC has gained ground as it has moved to the left. Competitive markets give people what they want rather than what is good for them.

Gentzkow and Shapiro have studied this question in the US. Using an objective (if imperfect) measure of bias, they found that newspapers closely match the political biases of their potential readers, as measured by votes cast in the 2004 presidential election, and by the source of campaign contributions to each party. No doubt the causation runs both ways, but one striking result is that the proprietor’s identity seems to make no difference to the bias. The media barons tell us what we wish to hear.

The most disturbing aspect of the phone-hacking scandal, it seems to me, is the reluctance of politicians to challenge Murdoch’s empire, and in particular its cosy relationship with the police. If more competition dispels that sense of fear in future, it will be all to the good. But don’t expect every journalist to suddenly start working on the next Watergate.

Also published at ft.com.