Media Concentration and Ad Revenue

June 26, 2014 • Digital News • by

European media managers are dedicating considerable time and energy discussing ways to reduce the dominance of Google and Facebook.

In an open letter to Google, Mathias Döpfner, head of Europe’s largest newspaper publisher, said the search engine is building a “digital superstate.”  And recently,  Roger de Weck, President of the Swiss Broadcasting Corporation (SRG SSR) suggested public and private Swiss media companies sell online advertising together through a co-operation agreement to claw back some ad revenues on the Swiss media market.

“We are 8 million of inhabitants in this country, and there are 3 million profiles on Facebook and 5 million people that, on a daily basis, enter Google,” said Mr. de Weck, during a debate at the Public Swiss Television. “The two big platforms in Switzerland are Google and Facebook. The media are more globalized than the financial market, the economy or the academic world. And the worst scenario is that of little Swiss media companies fighting for the crumbs left behind by the globalized giants.”

With a population of 8 million inhabitants and four official languages: German, French, Italian, and Romansh, Switzerland can be seen as an example of four small intertwined media markets. The biggest media companies online, Tamedia, Ringier and Neue Zürcher Zeitung(NZZ), gathered 14 million, 7.7  and 6.9 million unique visitors in March 2014, from an Internet population of 5.7 million. The sites of SRG SSR had 5 million unique visitors in the same period. The unique visitors’ statistics are influenced by the usage of multiple devices, and, to a lesser extent, by the reach of Swiss online products outside Swiss territory.

All audited Swiss sites gathered about 11.5 billion page views in March, while Facebook alone is making 4.4 billion page views per month. Google has more reach than Facebook and has a search engine market share of 92% .

The idea of creating business alliances in order to sell advertising space is not new in Switzerland. In 2011, a network for online advertising, Premium Publisher Network, was created by three media groups, Tamedia, Ringier and NZZ, but the joint venture ended last year, as Tamedia did not want to collaborate with other media houses, like PubliGroupe and Google. Selling advertising for several media companies, instead of just one, is practiced in other channels, too. Local and regional print media, radio or television stations, which find it hard to sell access to their micro-publics, enter networks coordinated by media houses, such as Goldbach Media, in Switzerland and elsewhere.

The very concept can be traced further back, in media economics and media law literature, in the form of joint operating agreements.

For media, the joint operation agreement (JOA) concept appeared as an exception of the anti-trust law in the U.S. Newspaper Preservation Act of 1970. The law says that, if a publication is in danger of going bankrupt, its owner may create an arrangement with other owners of publications in the region, to combine their business operations. Newsrooms have to be kept apart and editorial lines of each publication must be determined independently.

In theory, the concept is intended to save publications in small markets and to maintain a plurality of voices locally or regionally. Competing newspapers are allowed to act as a legal monopoly, as they determine jointly selling and advertising prices. Newsrooms remain competitors, and financial advantages created by setting higher (monopoly) prices in the local market allows more voices to be heard, thus serving better the public interest, according to the lawmakers.

Major American media companies successfully lobbied for this law to be passed, and some media groups intentionally created “bankrupt” publications in order to enter joint operations agreements. Nevertheless, pluralism was not saved – many JOAs resulted in the domination of small markets by a single newspaper.

This type of agreement has been recently used in Europe to help cultural products to perform financially better on smaller markets. In Romania, ARBOmedia , currently part of Goldbach Media, set up a scheme in 2003 where local newspapers with complementary markets acted just like a regional or a national brand and sold advertising space to large national purchasers more simply and cheaply, in addition to their traditional local costumers. The program also extended to radio and local television.

ARBOmedia did not sell advertising space for all local titles, but came to dominate the local market. Being part of the ARBOmedia network ensured the survival of a particular title, leaving its local competition with little or no access to advertising money.

Mr. de Weck’s idea needs to be approved by two tough stakeholders: private media companies and the Swiss authorities. Media companies are currently competing with each other and with Facebook and Google for advertising money. To build a cooperative model, media companies must work with their direct competitors.

There is also a danger that companies that do not enter the agreement will be cut off from ad revenues,  and may well become extinct. This is the scenario Swiss authorities must concern themselves with. Media concentration is one of the biggest issues on the Swiss market.

So far, the antitrust regulatory agencies in Europe and the USA have taken some steps in limiting the dominant positions of both Google and Facebook, but regulators have not yet found a way to ensure fair play and plurality in the advertising market.

Photo credit: Judit Klein / Flickr Cc

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