September 25, 2012

Democracy, Industry Structure and Performance

Independent Media Inquiry

[R H Crossman, one-time] editor of the New Statesman and a former minister in the Wilson Government in the United Kingdom whose diaries were the source for the popular BBC television series Yes Minister, put it most dramatically when he wrote in 1965 that power had shifted from those who controlled the means of production to ‘those who control the media of mass communication’ …
(p 52)

[The dilemma is] how to accommodate the increasing and legitimate demand for press accountability [without]
  • [increasing] state power …
  • [inhibiting] the vigorous democratic role the press should play or
  • [undermining] the key rationales for free speech and a free press. …
(p 53)

[The] Australian press is in no immediate danger of collapsing.
The main media companies appear to be reasonably capable of dealing with the pressures facing them at least over the medium term.
(p 101)




  • Independent Media Inquiry, Department of Broadband, Communications and the Digital Economy, Commonwealth of Australia, 28 February 2012.
    Ray Finkelstein: former Federal Court judge; former President, Australian Competition Tribunal.
    Matthew Ricketson: Professor of Journalism, University of Canberra.


    The historical background

    Rationales for free speech and a free press

    1. [The] search for truth

    In On Liberty Mill asserted that to form judgments people must assess all competing adverse claims. …

    Under the truth-finding rationale, free speech contributes to the growth of knowledge and understanding.
    People contribute to discussions about social and moral values.
    The assumption is that the best view will be brought to the fore if the widest possible range of ideas is able to circulate.
    That way, the strengths and weaknesses of each can be identified.
    (p 27)

    [Sarah] Sorial observed that, in order for Mill’s conception of freedom of expression to operate, two central components are required:
    Citizens must have
    • the capacity to engage in debate, in the form of the relevant critical reasoning and speaking skills. …
    • equal opportunity to participate, in the form of access to public forums where they can articulate their views and debate with one another.
    There is real doubt as to whether [both of] these capacities are present for all, or even most, citizens. …
    (p 30, italics added)

    2. [Democratic] discourse

    This rationale holds that free speech is to protect the right of all persons to participate in the democratic process …
    (p 31)

    [Jack Balkan summarised the problems] with the democratic discourse rationale [as follows:]
    • the media may skew coverage to promote issues they support
    • the media may omit important information that the public should take into account
    • the media may reduce the quality of discourse in the drive for profits.
    (p 32)

    3. [Self-fulfillment] and autonomy

    4. [The] fourth estate

    [This rationale emphasizes] the role of a free press as a check on [all forms] of institutionalised power [including, but not limited, to government].
    [It goes beyond] the argument from democracy, which concentrates on the need for electors and elected to communicate …
    (p 36)

    Whatever the rationale, free speech is not absolute

    The process of deciding what speech should be protected and what speech can be restricted is performed primarily by parliament and to a lesser extent by the courts. …
    [Legitimate restrictions on freedom of speech] perform the following socially important functions:
    • the protection of individual interests against false or misleading statements
    • the protection of community standards
    • protection against violence and disorder
    • protection from external aggression
    • protection of national security
    • the protection of the administration of justice, and
    • the protection of private property.
    (p 38)

    What underpins those categories are several values:
    • the avoidance of harm to society;
    • the avoidance of harm to an individual;
    • the avoidance of harm to the state; and
    • the protection of the vulnerable (for example, children).

    In other words, speech may cause harm that warrants regulation
    (p 39)

    Social responsibility: a theory of the press

    William Hocking, Professor of Philosophy at Harvard University [argued in 1947 that] the development of the press [into a large-scale industry has] resulted in the press developing a set of inherent biases:
    • an interest in promoting those factors which contributed to its own commercial success;
    • financial and cultural interlocking with other parts of ‘big industry’;
    • owners’ control over editorial hiring and firing which impinged upon editorial independence; and
    • a tendency to concentration of ownership, which squeezed out competition. …

    The social responsibility theory was discussed in Four Theories of the Press, published in 1956. …
    Libertarian theory was developed in the period of the Enlightenment, when there was a plethora of competing small presses, and their main product was opinion rather than what we would recognise as news.
    The theory was informed by a liberal belief that truth would emerge from the clash of competing opinions …

    Libertarian theory was to prove inadequate in the face of new forces created by industrialisation of the press and by the realities of 19th and 20th century media economics.
    Its most serious limitation was its incapacity to provide a response to
    • the issues of monopoly,
    • the sharp increase in entry costs for newspapers, and
    • the different ingredients of commercial and market success.

    [These developments have turned] the ‘marketplace of ideas’ [into a place of] inequality, abuse of power, intellectual squalor, avid interest in scandal, an insatiable appetite for entertainment and other debasements and distortions …
    While there was still talk of media as a check on government, it could also be charged that the media could seek to bully government. …

    … Social Responsibility theory [proposes a] reciprocity between the press and society.
    [That the press owes] society a responsibility to discharge the functions for which the privileges had been granted. …
    (p 46)


    Historical industry structure

    The metropolitan and national segments of daily press consist of 11 titles …
    These 11 titles have just three owners.
    (p 57)

    News Limited [has] 58% of circulation when counting all daily newspapers.
    Fairfax Media … 28% of all daily newspaper circulation.
    WA Newspapers [controls] 8% …
    APN, owned by an Irish company [controls] 5% of aggregate daily circulation.

    [Of 26 comparable countries Australia is the only one] in which the leading press company accounts for more than half of daily circulation …
    [In] 20 of the 26 countries it is under 40%.
    (p 59)

    [At] 86%, Australia also ranks highest … when considering the share of the top two companies.
    The share of the top two companies exceeds 60% in only six of the 26 countries …
    (p 60)

    Industry performance


    [Falling] circulation eventually led to … the closure of all metropolitan afternoon newspapers … in the second half of the 1980s. …
    The overall total circulation has declined [by more than one-third] in the 27 years [to 2011], from 4.52 million to 2.75 million. …
    In the same … period Australia’s population grew by around one-third.
    [Circulation has] declined [from 29 percent (1977)] to 12.1% [of the population] — significantly less than half.
    (p 70)

    It is likely that at least part of the accelerating decline since 2004 stems from the impact of the internet. …

    [The] declining circulation over the past 27 years is part of an underlying long-term trend that began half a century earlier. …
    [Most] of this adjustment occurred before use of the internet became widespread …
    (p 71)


    In 2010, total revenue of the newspaper market was $5.2 billion, of which
    • $3.7 billion (70%) was derived from print advertising,
    • $1.3 billion (25%) from circulation sales, and approximately
    • $260 million (5%) from digital advertising and subscriptions. …

    Total revenue increased from approximately $4.5 billion in 2001 to $5.2 billion in 2010 after peaking at $5.7 billion in 2008. …
    (p 72)

    Changing market for newspapers — the internet challenge

    Online advertising

    [Total] advertising revenue of newspapers grew at a [Compound Annual Growth Rate] of 2.6% over the period [2001-10, during which] the overall advertising market grew at a CAGR of 5.7%.
    [Newspapers] have been losing … market share to other media.
    (p 75)

    [Online advertising is] causing a profound structural adjustment within the advertising industry.
    Its impact on newspapers is akin to that produced by the introduction of television a little more than half a century ago.
    (p 76)
    Table 3.3: Main Source of news
    Commercial television31%
    Internet news sites30%
    Daily newspaper13%
    ABC TV8%
    ABC radio5%
    Commercial radio5%
    (p 87)

    Impact of online sources of news

    [Surveys] of internet users in 2007, 2009 and 2011 … by Scott Ewing and Julian Thomas of the [Australian Research Council] Centre of Excellence for Creative Industries and Innovation at the Institute for Social Research, Swinburne University of Technology [have shown that in 2007] the internet was … considered as an important or very important source of news by more than two-thirds of internet users.
    By 2011 more than three-quarters did so …
    [Radio] was ranked second, followed by newspapers.
    Television was in fourth place. …
    [Given] the high proportion of Australians accessing the internet, the findings are likely to be indicative of the general population …
    (p 88)

    Time devoted to news consumption

    [The] average duration of [an internet] session is approximately 4.5 minutes during which fewer than six pages are viewed, with the reader spending an average 46 seconds on each.
    [By] contrast, the average time spent reading a newspaper in the United States is about 25 minutes per day.
    (p 94)

    Meeting advertisers’ demand online
    Hal Varian [Chief Economist, Google]:
    [A] disproportionate amount of online news reading occurs during working hours. …
    Online news reading is predominately a labor time activity while offline news reading is primarily a leisure time activity.
    (p 95)
    The Information Needs of Communities Report [United States Federal Communications Commission]:
    The majority of ad spending online goes to entities that do not create content—search engines, summarizes, and aggregators.
    The earlier media system rewarded both the distributors and the creators of content …
    [The] new one primarily rewards those who find and distribute content.
    (p 97)

    [With] the unbundling of online news from other special content, the capacity of news content to act as the conduit for the generation of special-interest audiences in newspapers has been severely eroded in the online environment.
    (p 98)

    Charging for access to online content

    To the extent that advertising revenues of newspapers decline, so will their capacity to treat part of the cost of producing news content as an input cost to the creation of audiences for advertising. …

    In a situation with many competitors each supplying an undifferentiated commodity [generic news], prices will naturally be driven down towards marginal cost and for information products it is typically close to zero. …
    (p 99)

    Those aged 25–34 and 50–64 were the most likely to have been prepared to pay, with just under one-third in each group being prepared to pay something.
    More than half of those prepared to pay something, however, indicated they would pay an amount of 50 cents or less. …

    For generic news, differentiation on the basis of breadth and depth of coverage is virtually impossible on the internet …
    [However,] differentiation on the basis of exclusive content remains a possibility. …

    [Crikey, for example, is] able to charge for content [because] it is generally not available elsewhere.
    Such a model [might] be adaptable to exclusive content in newspapers.
    (p 100)

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