Neue Zürcher Zeitung, December 03, 2005

The rise and fall of business journalism

In Germany, the same negative trend became noticeable earlier, and with more vengeance. Some newly-launched titles such as Telebörse and Aktien-Research, or the more general-interest publications bizz and Econy, went out of print altogether; publisher Holtzbrink sold its business magazine Euro to Springer, which merged it with their own Finanzen. The situation for the business press – as stated earlier – has reached a stable equilibrium but on a far more modest level. The year-to-year circulation increases and decreases between 1 and 5 per cent, resulting more or less in zero change (Manager-Magazin, with a healthy plus of 9 percent, being the big exception). Whereas Handelsblatt is currently stagnating at 143,000 copies, Financial Times Deutschland has managed to boost its circulation by another 5 percent, up to over 101,000 copies.

This general downturn has not been too beneficial to business journalism. During the boom, the labour market was practically wiped clean, with many applicants getting a job right away, notwithstanding their lack of journalistic training. Today, even promising applicants, often with a solid background in economics, have trouble getting as much as a job interview.

New players

The financial sector has undergone massive structural changes. This includes changes in its public communications as well. Today, financial analysts and investor relations (IR) experts have become key players in the field, with the former working for banks, brokerages and institutional investors and the latter specialising in giving a positive spin on stories about their clients, companies listed on the stock markets or preparing their IPO. While analysts and IR pros are mostly taking care of (potential) investors – their activities are having a considerable impact on business and financial journalism.

All these developments are likely to intensify the brain drain between business journalism and public relations (PR) – a noticeable trend for decades that has been prompting journalists to leave editorial staffs for a job in corporate communication; a field that branches out into traditional press relations, PR and IR as well as internal corporate communication. This diversity, as well as the substantially higher pay, directly affects the recruitment of new talent. As a result, today, jobs in corporate communication are much more fashionable than more traditional positions in journalism.

Dubious stock market tips

These developments have other consequences as well During the boom years, practically all media extended its economic and financial coverage markedly, with traditional economic topics like inflation and unemployment losing much ground. On German television, economic coverage basically has come to mean reports from the trade floors with the content boiled down to such simplistic levels that they look more like bingo shows than serious economic reporting.

Many media formats – mainly print journalism, including such renowned titles as Frankfurter Allgemeine Zeitung – continue to publish stock market tips, despite the fact that several studies have shown that they aren’t worth much (see, for example, the papers published by Kladroba [1]). Serious newspapers usually don’t provide their own purchase recommendations for shareholders, but they do give analysts ample space for expounding their theories, i.e. presenting their PR articles on behalf of specific companies.

In general, financial journalists usually go about their business in a rather carefree manner, quoting analysts in a way that makes it difficult – if not impossible – for the reader to know what kind of professional affiliations a certain analyst might have. In most cases, as has been criticised by media analysis institute Medientenor on numerous occasions, analysts remain completely anonymous. Even identifying banks or broker firms by name does not mean that the average reader automatically understands what kind of particular interests are involved in the recommendation of a specific title, etc.

Recommendations to buy specific shares by far outnumber the recommendations to sell – while in many cases, not least due to the transaction costs involved, it would be most reasonable for shareholders to simply “hold”. But this kind of advice is not “attractive” enough, at least not if the objective is selling more papers, nor is it possible for analysts and their employers to make money with it. Suspicious! Shareholders could benefit more from a detailed overview of a given title’s strengths and weaknesses, quoting to a wide range of analysts than from single tips to buy XYZ. Although, this kind of information would require a lot of research on part of the journalists. The same is true for regular reviews of different analysts’ recommendations, including a critical assessment of their individual success rates. The economic interpretation of all this: business reporters meet the general demand for stock market tips – often despite their better judgement – by using the PR material offered to them for free by analysts and their backers. This makes it a lot easier – and cheaper – to fill newspaper columns, despite the questionable value this kind of information has for the readers. At the same time, it allows journalists to shift the blame for “bad” stock market tips to someone else: the analysts.

The media’s leaky memory

What the American Journalism Review found to be true of the US business press (see also NZZ, April 25, 2003) also applies to the situation in Europe: instead of warning of excesses or even shedding light on fraudulent accounting practices, many media further fuelled the dotcom boom with their “jazzed-up” reports. But then, if large corporations such as Swissair, Ahold or Parmalat, together with their auditing firms, do not give an accurate account of their situation, business reporters hardly stand a chance to play their role as watchdogs.

The business information available “in real time” on the Internet and specialised business TV channels puts further time pressure on print journalists, who also try hard to be as up-to-date as possible. Hence this marked trend towards accentuating and dramatising business and other contents of journalism – mainly intended to boost circulation, ratings and profits. A large part of the media, it seems, readily accepts the disinformation of the public that might go with it.

Researchers and journalists alike tend to blame the bad working conditions for the factual errors often contained in news reports. Economically, however, they are simply the result of a rational cost-benefit calculation on part of the journalists, who compare the costs of fact-checking and its benefits (with sheer laziness possibly playing a part, also). While keeping expenses for journalistic enquiries as low as possible makes perfect “business” sense, in some cases, doing without them can have serious consequences. A trend that is further enhanced by the ongoing shift of importance from journalism to PR.

Increasing dependence on PR

Take an instructive (albeit a bit dated) example: the floating of silicon producer Siltronic, which promised to be a smashing sensation according to German news magazine Der Spiegel. There was an “exceptionally great demand” for the shares on the eve of the IPO, the Spiegel reporter wrote, referring to an “expert in the field” and further describing how all the “big names in the world of investment banking” had shown interest. Days later, the stock market flotation was cancelled. The Spiegel story probably would have been completely forgotten, if another paper, Welt am Sonntag, had not decided to reopen the case.

It is likely that an investor relations (IR) expert who put the right “spin” on the Siltronic story, actually duped Der Spiegel. This is not a unique case, but rather one based on a structural problem: business journalism’s dependency on material supplied by the PR sector. The rapid development of corporate communication over the last twenty years might just have been one of the contributing factors causing the reduction of editorial staffs everywhere, leading to a marked decrease of their investigative capacities. In the ongoing battle for public attention – a scarce good indeed – an ever larger amount of information is offered to reporters for free. This will make any media manager with the least bit of cost-consciousness start thinking about cutting jobs. This trend could even take a turn for the worse if more companies would listen to US bestselling authors Al and Laura Ries [2] and re-distribute their communication budgets. If they start shifting their focus from advertising to PR, they will reduce the media’s investigative powers even more.

If journalists were really their readers’ advocates, committed exclusively to serve them, they would make such interdependencies transparent. The fact is that they don’t highlight their interests, no one likes digging their own grave. Shedding light on journalism’s dependence on PR and advertising inputs, or even revealing a certain lack of competence (when dealing with highly complex topics), definitely would reduce the market value of media products in general.

Increasing personalisation

KISS – Keep It Short and Simple – is the name of the magic formula that’s currently a rage among journalists who hope to attract with it new audiences from the most promising market segments. One of the results is the increasing personalisation of contemporary business coverage. Twenty or thirty years ago, it simply would have been unthinkable that a small local paper would devote its page one to a report about a CEO – unless he had been involved in a crime like molesting his secretary or embezzling millions.

What are the effects of personalisation? If global conglomerates like ABB, Novartis or DaimlerChrysler are being presented almost exclusively via articles about their helmsmen (and -women), the extreme economic complexities of the actual business world are, by necessity, fundamentally distorted. Since the public perception of a company now depends more on the top representative manager, his or her talent for communication becomes an ever more important criterion for their selection by the Board – perhaps at the expense of their professional qualifications.

It’s not too difficult to see the economic incentives underlying this trend: personalisation is the recipe for reducing the complexities of today’s global economy. It is the tried and tested method for boosting circulation and ratings – at least much more so than trying to explain the structural intricacies that characterise economic processes worldwide. Ultimately, it makes life easier for reporters and readers alike.

The serious shortcomings of today’s business journalism stem from the fact that neither the particular interests of journalists nor that of the media groups are really made transparent. Audiences are left without a real understanding of the inner workings of journalism. The business sections of many papers have been hit particularly hard by companies’ current tendency to invest more in PR than advertising, increasing business reporters’ dependence on readymade information delivered for free by PR professionals, who can offer them as lavishly produced packages.

[1] Andreas Kladroba / Peter von der Lippe: Die Qualität von Aktienempfehlungen in Publikumszeitschriften. Diskussionsbeiträge aus dem FB Wirtschaftswissenschaften der Universität Essen Nr. 117 (MS), 2001.

Andreas Kladroba: Die Qualität von Aktienempfehlungen in Publikumszeitschriften. Teil 2. Diskussionsbeiträge aus dem FB Wirtschaftswissenschaften der Universität Essen Nr. 123 (MS), 2002. http://www.uni-essen.de/fb5/pdf/123.pdf.

Thomas Schuster: Fifty-Fifty. Aktienempfehlungen und Börsenentwicklung. Wirkungen und Nutzen von Anlagetipps in den Wirtschaftsmedien. Institut für Kommunikations- und Medienwissenschaft der Universität Leipzig. http://www.tom-schuster.de/Empfehlung.pdf.

[2] Al Ries / Laura Ries: The Fall of Advertising and the Rise of PR. HarperBusiness Paperback, New York 2004.

Translation: Oliver Heinemann