Lessons from new evidence on the consequences of increased media competition

Julia Cagé 23 December 2017

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The Federal Communications Commission (FCC) just repealed restrictions on local media ownership that have been in place in the US for 42 years, opening the door to more consolidation in the media sector. Understanding the effects of media competition on how well informed citizens are is thus more important than ever. On the one hand, as highlighted by Hamilton (2004: 21), “‘more news is better news’ appears to be an axiom favoured in discussions about the news marketplace”. Among the many benefits of competition, ideological diversity is central (Gentzkow et al. 2014). On the other hand, however, the media industry is characterised by high fixed costs and increasing returns to scale. While there is growing concern about the industry’s ability to produce high-quality information, some argue that the market can only support a certain amount of diversity.

In a recent working paper, I investigate the impact of increased media competition on the quantity and quality of news provided and, ultimately, on political participation (Cagé 2017). I build a unique dataset on local newspaper presence, newspapers' newsrooms, costs and revenues, and political turnout in France covering the 1944-2014 period. My sample includes 287 local daily newspapers. These newspapers are general information newspapers that offer a mix of soft news (around two thirds of the space) and hard news (one third). On average, 59 journalists work in each newspaper. Even in the digital era, the local daily newspaper industry in France continues to play an important role. In 2014, it generated €2.3 billion in total revenues; that is, nearly 30% of the total revenues generated by the print media industry. Moreover, local newspapers remain the most important media when it comes to local news and public affairs.

What are the effects of increased media competition in the local news market? I estimate the effect of newspaper entry by comparing counties that experience entry to similar counties in the same years that do not (in this column, "counties" refer to the 90 départements of metropolitan France). Figure 1 shows the number of counties with net newspaper entry for each year (Figure 1a) and the number of counties with net newspaper exits per year (Figure 1b).

Figure 1a Number of counties with net entry, 1944-2014

Figure 1b Number of counties with net exit, 1944-2014

I show that the entry of a newspaper reduces the circulation of incumbent newspapers by nearly 20%. In other words, even if we observe some market expansion (with a small increase in the total circulation of newspapers in the county), there is a very strong business-stealing effect. This is illustrated in Figure 2.

Figure 2a Total circulation, 1944-2014

Figure 2b Circulation of incumbent newspapers, 1944-2014

How to explain such a negative effect? Consider an extreme situation where all the consumers in a given market have the same tastes – for example, with respect to their willingness to pay for newspaper quality or regarding their political preferences. Then when a new newspaper enters the market, it garners half of the market and halves the incumbent newspaper's circulation. Of course, in reality, citizens have different tastes and entrants generate their own market shares. But only partly. In other words, increased media competition leads to business stealing.

This business-stealing effect has important implications. I show that an increase in competition leads to a 38-43% decrease in incumbent newspapers' revenues (both from sales and advertising) and, more importantly, to a 19-35% decrease in the number of journalists working for incumbent newspapers. The drop in the size of the newsroom is of 50% in low-heterogeneity counties (i.e. counties where consumers have similar preferences). Moreover, this decrease in the number of journalists is not compensated by an overall increase in the aggregate number of journalists working at the news-market level, as illustrated in Figure 3. How to explain it? In my paper, I provide anecdotal evidence of a ‘switching effect’, with a number of journalists working for the incumbent newspaper's newsroom switching to the entrant's one.

Figure 3a Total number of journalists working in the county, 1944­–2014

Figure 3b Number of journalists working for the incumbent newspapers, 1944–2014

Hence, under competition, the average size of the newsroom is lower than under monopoly. The same journalists now working for different publications duplicate – inefficiently – their effort to cover similar news events. Given that the number of journalists can be considered as a good proxy for the quality of a newspaper (Angelucci and Cagé 2016), then it implies that competition lowers the quality of information.

Furthermore, I provide additional evidence of this decrease in news quality. In particular, using data for recent years (2005–2012), I show that an additional newspaper leads to a 16-53% decrease in newspapers' size, to a 9-13% decrease in the share of hard news and to a 25-32% decrease in the amount of hard news published in the newspaper. In other words, an increase in competition leads to a decrease in the coverage of public affairs news by local newspapers.

Why should we care about this drop in news coverage? Because how well citizens are informed is key to the vitality of democracies. First, media monitoring can help in curbing corruption (Ferraz and Finan 2008). Second, if more informed voters are more likely to vote, then an increase in competition should lead to a decrease in political participation at elections through its negative effect on the quality of information. This is indeed what I obtain when I investigate the effect of competition on turnout at mayoral elections. I show that an increase in newspaper competition has a robust negative impact on local election turnout, with one additional newspaper decreasing turnout by approximately 0.3 percentage points.

Turnout at local elections has been continuously declining in France – and in the majority of Western democracies – since the end of the 1970s. If I were to extrapolate my results to other media, they suggest that the large increase in media competition during recent decades can potentially explain a significant fraction of the observed historical decline in political participation.

Obviously, my findings do not imply that one should reduce media competition. As already highlighted, competition is key to the quality of the media environment, in particular because it ensures pluralism. But it is nonetheless of importance to highlight that more media competition is not necessarily socially efficient. In particular, my results imply that policy interventions may be needed to compensate for the welfare losses that may arise from excessive competition under certain conditions. First, in some cases, it might be desirable to encourage newspaper competitors to enter into a joint operating agreement and to combine business operations. Historically in the US, antitrust exemptions have been granted to the media industry, in particular with the 1970 American Newspaper Preservation Act. These days, the News Media Alliance (that is the largest newspaper industry trade group in the US) made a bid to get special permission from Congress for its member companies to negotiate with Facebook and Google collectively rather than individually. This may be a more desirable solution than increasing still more consolidation in the media sector.

Second, the results of my paper also imply that an interesting way to go would be to develop more favourable legal and fiscal status for media organisations, which in most countries are not allowed to benefit from non-profit status. I have for example proposed the creation of a ‘non-profit media organisation’ status (Cagé 2015). Alternatively, increasing the support for news agencies by creating tax credits for journalists, or other innovative subsidies to general information media outlets, could be interesting lines of thinking to ensure the future of both media pluralism and the provision of high-quality information.

References

Angelucci, C and J Cagé (2016), "Newspapers in times of low advertising revenues", CEPR Discussion Paper 11414.

Cagé, J (2015), Sauver les médias: Capitalisme, financement participatif et démocratie, Seuil (English version: Saving the Media: Capitalism, Crowdfunding and Democracy, Harvard University Press, 2016).

Cagé, J (2017), "Media competition, information provision and political participation: Evidence from French local newspapers and elections, 1944-2014", CEPR Discussion Paper 12198.

Ferraz, C and F Finan (2008), "Exposing corrupt politicians: The effects of Brazil’s publicly released audits on electoral outcomes", Quarterly Journal of Economics 123(2): 703–746.

Gentzkow, M, J Shapiro and M Sinkinson (2014), "Competition and ideological diversity: Historical evidence from US newspapers", American Economic Review 104(10): 3073–3114.

Hamilton, J (2004), All the News That’s Fit to Shell: How the Market Transforms Information Into News, Princeton University Press.

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Topics:  Institutions and economics Politics and economics

Tags:  media competition, political participation, France, local newspapers, voter turnout, business stealing effect

Assistant Professor in Economics, Sciences Po; CEPR Research Fellow

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