The market failures for producing public goods in media are well known. The UK has a long tradition of subsidising the production of public goods in the media. But when one is looking at business models for local media it is often hard to get a handle on the extent of subsidy and intervention by the state. A recent academic observation by Professor Steve Barnett below is of note.
On market failure in public goods, put simply, if you produce something entirely worthy that is good for society but that doesn’t set a customers pulse racing it’s hard to get paid for it. Think the old Independent newspaper for instance.
In micro economics this can be looked at in at least two ways: the benefit is an educational one and occurs only some time after consumption or the benefit is to society as a whole in the publication of the good, say by holding elected officials to account. In both these and other permutations the benefit is not immediate to the customer at point of purchase and they value it less.
This leads to a reduction in demand and price paid and therefore an under-production of the public good below a societal optimum. Of course there is also the legendary Hotelling Effect (if you believe it) that suggests that the market tends to super-serve the middle ground which, in media can leave a democratic deficit that requires a market intervention. Or if you leave the market to its own devices society loses out through the aggregation of peoples consumption decisions.
Some do say all the above is bunk, but such comments tend to be at the Fox News end of the spectrum.
Steve Barnett gave evidence to the Lords Select Committee on Communications in June this year. pp44-45 where he tried to pull together in rough handfuls the value of the govenrment’s intervention in the local media sector. Steve rolls-up into the BBC total the £200k pa programme purchase subsidy for each local TV station and their aggregate capital subsidy that runs into £tens of millions. I am not clear too what the community radio scheme is worth. On the hyperlocal web side there are also NESTA’s recent interventions with the TSB (I am an associate at NESTA). Steve’s evidence is interesting:
Professor Barnett: May I make one more point about funding? Coming back to this question about where money might come from and how we account for money that goes into news and current affairs and subsidies in particular. We often talk about the £3.5 billion invested in the BBC. We very rarely talk about the money that is invested through exemption from VAT on all newspapers, or indeed the statutory notices at the local newspaper level: the fact that local councils have to spend money on statutory notices on traffic, on planning, alcohol licensing et cetera. By my calculation, looking at the Newspaper Society website, that could come to £45 million to £50 million a year. The Reuters Institute put the VAT subsidy at about £600 million at 2008 prices, so £650 million to £700 million worth of public subsidy is being invested in newspapers. At the local level, it is mandated that they be spent on newspapers.
Should that continue to be the case? If we are worried about investment at the local level, should we be thinking about other online initiatives? There are other ways in which you can merge different platforms, ways in which that mandatory expenditure of local councils could be spread in a slightly different way to encourage different local media enterprises. Let us think about different ways of both generating more income and spending the income we have, but let us also be aware of what hidden subsidies there are and what the accountability mechanisms currently are for those.
Q106 The Chairman: This is half way to being a kind of policy thing rather than a regulatory matter really, is it not? You are talking here about policy that emanates from central government. It has nothing to do with the regulator.
Professor Barnett: Nothing at all; it is for central government to think about. It would need to be done across departments, because some of these are mandated in DCMS, some of them are mandated in BIS et cetera. It would need to be a central government policy initiative.
The latter point is telling – I am not clear that DCMS is indeed thinking about local media in this way at all.