The ailing news media industry needs to do more than just survive (Part 2)
In a previous column, I attempted to articulate the exact nature of the problems standing in the way of building an ecosystem that could aid the recovery and progress of the media industry. To recap, the four problem statements were:
- How might we structure financially independent news media, so that they may be able to access investment and other funding pools in a governance-friendly manner?
- How might we reclaim lost editorial skills, build capacity and talent pipelines and aid the continuous development of our media professionals?
- How might we build organisations that are robust and continuously innovating in journalism, new products and revenue opportunities?
- How might we access and fund the appropriate technology required to deliver the best possible service to our audiences?
I will elaborate further on Problem Statement #1 and recommend some actions. Access to funding and start-up funding is nothing new to South African organisations, let alone media. And outside of developed economies of the USA and Europe, seed funding for media ventures is difficult to come by. Macro-economic hurdles compound our industry-specific ones. And even though the venture capital market has developed appreciably (in some markets) in the last decade, we have seen the impact on media by venture-backed funds in the USA where the chase for scale and profits above else, has led to less than desirable outcomes. Insofar as public service media is concerned, increased venture capital access where financial returns trump all else will not solve our sustainability/public service issue.
Massive investments bring an expectation of concomitant voting rights and history is littered with billionaires taking control of media companies to do their political or egotistical bidding. We need only to look Murdoch empire, Gupta’s foray in TV and Press, and the not-so-Independent Media Group in South Africa to see how things can go wrong. Decades and centuries-old institutions can be destroyed in a few years and news titles can be weaponised to launder ill-gotten gains or peddle propaganda.
Social impact investing is a fairly new phenomenon that has taken off in the USA where investors seek returns in social and financial spheres. That is to say that investments adding value to society can provide returns beyond profits as measured on the income statement. Still nascent, social impact investment has become popular in recent times but the for-profit history and existing structure of media companies have probably added to media being overlooked as social impact investments possibilities. Media was not even listed as a sector in the findings of the 2019 Global Impact Investing Survey.
While social impact investment remains in its infancy (and allergic to media), the non-profit sector has helped start many important media operations. Think amaBhungane and GroundUp, in South Africa and ProPublica and the Marshall Project, in the USA. However, these tend to be limited in number and size, where the availability of donor-backed funding retards the potential growth of such organisations. And in some cases, founding donors have sought representation on the boards of directors to influence decision making.
In her 2016 book, Saving the Media: Capitalism, Crowdfunding, and Democracy, Julia Cagé recommends the establishment of a new, hybrid entity that blends non-profit and traditional company aspects into a bespoke organisation structure, specific to media. Key to the proposal is that limits are placed on the maximum voting rights any single shareholder can control. Investors would be compensated for these voting restrictions by way of tax breaks and incentives, thereby addressing two parts of the first problem: better access to funding, and reducing the governance and control issues that come with large investments. While Cagé, found no significant examples which employee-owned media were successful, she does recommend that employee representation at the board level, and part-ownership incentivised by the same tax-breaks, will enhance the organisation’s chances of success.
In order to stimulate venture capital investment in South Africa, National Treasury brokered Sec12J of the Income Tax Act, offering tax deductibility for qualifying investments. Similarly, we could propose that investments in public service media organisations should be written-off against taxable income by investors — thereby reducing the financial risk of the investment. In lieu of these breaks, investors could be limited to a maximum of 25% voting rights with any excess being allocated to staff appointed representatives.
Key to all of the this is accountable media organisations that are members of the Press Council (South African adjudicators of public complaints), in good standing that extends beyond just up-to-date membership fees. This would encourage greater participation in the Press Code, and allow the Council to significantly raise its membership fees and that could be used to invest in more skilled personnel to better regulate the industry.
For a relatively tiny subsidy of an essential service sector, National Treasury could, overnight, stimulate investment in the media sector that could breed a host of new and diverse media startups. But if outside funding were needed, a 2% turnover tax of Google and Facebook’s revenue on South African activities, that currently leaves the country untaxed, would easily cover the costs of this and the other recommendations to come.