A Market for Lemons

June 22, 2006 • Media Economics • by

Werbewoche Nr. 24, June, 2006

Why bad quality so often wins through in journalism
“You cannot drown in shallow waters.” That wisecrack, which used to serve as a business model for Helmut Thoma, former CEO of Germany’s first private television broadcaster RTL, obviously packs a punch. And more than anyone else, it was Belgian media investor Albert Frère who capitalised on Thoma’s impeccable instinct by recently selling his 25.1% stake in German media giant Bertelsmann for a staggering €4.5 billion. A deal that only saw the light of day because Bertelsmann – that ventured into the TV market a few years ago – tried to bring RTL under its control by acquiring Frère’s controlling stake in the TV channel via a share swap. Now Frère is reaping the rewards.

It looks as if Thoma’s formula has worked in the Swiss newspaper market as well. This, at least, is the conviction of those in charge at two of Switzerland’s biggest publishing houses, Ringier and TA-Media. The long-standing success of Swiss tabloid Blick and the meteoric rise of the free daily compact 20 Minuten – now Switzerland’s number one in terms of circulation – seems to justify any belief in the power of a media strategy à la Thoma’s RTL. So much so that Ringier even considers the risky launch of another free paper, heute – while circulations for quality newspapers like Neue Zürcher Zeitung, Tages-Anzeiger and many of the regional papers have been on the decline for years.

But why are so many people are happy with digesting information of rather sub-standard quality? One answer could be that part of the media market seems to function like a “market for lemons” – an expression used by economist George A. Akerlof to describe markets where buyers have much less information about product quality than sellers. This results in severely distorted competition. In such markets, sellers tend to offer goods of relatively low quality, the so-called “lemons”. As soon as buyers get to know of these goods, they are willing to pay less and less. Ultimately, this leads to a situation where those interested in offering better and hence more expensive goods no longer have an incentive to produce. In the end, bad quality rules and the good vanishes.

Can such a trend be turned around? In the short run, probably not. And according to the famous quote by John Maynard Keynes, who warned from the dire consequences of a short-term perspective in economics, “In the long run, we are all dead”. Therefore, publishers who still have an unshakable belief in the survival of high-quality journalism are advised to communicate this fact loud and clear, making quality an issue again. But PR and advertising alone won’t work. What is needed are media outlets that regularly offer a platform for the debates and negotiations on topics such as the media itself, the standards for journalistic quality, etc.

In light of this, it seems strange how many publishers and media managers refuse to see that exactly what they had offered advertisers in the past (and quite profitably so, it might be added) – high-quality journalism – could serve equally well to secure their own future. Car manufacturers, fashion goods, or computers – all of them can expect their adverts to be more effective if combined with media content that attracts the attention of a large audience, deals directly or indirectly with the products promoted – and is produced by independent journalists with a firm belief in quality, and the skills to offer such quality.

In a similar way, the media might be able to create a demand for high-quality journalism as soon as they stop promoting only their own publication or TV/radio channel and, instead, start offering in-depth coverage of the media and journalism itself. Without this, audiences will continue to be left quite clueless as to what constitutes journalistic quality and what does not. Maybe it is not too surprising then that people keep wading in those “shallow waters”, picking up just any paper – as long as it is free – and spend their money downloading the latest ring-tones on their mobiles instead of choosing a publication they would actually have to pay for at the newsstand.

Translation: Oliver Heinemann

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