The first article in this issue finds no support for the widespread belief that sensational news coverage can increase a news organization’s profits. The second article estimates the average user in five European countries receives consumer surplus from free access to internet leisure activities of 525 to 785 Euros per year. The third article estimates the annual welfare from public service broadcasting programs in the Netherlands to be at least 131 million Euros more than the annual subsidy. Each study has implications that cross international boundaries.
“The Economics of Sensationalism: The Lack of Effect of Scandal-Reporting on Business Outcomes,” by Brinja Meiseberg, Jochen Lengers, and Thomas Ehrmann, re-examines assumptions that sensational news stories increase circulation and advertising sales, thereby increasing newspaper profits. Journalists may instead produce sensational stories for ideological reasons or because sensational stories can boost their professional image and career. Newspaper advertising rates are usually fixed in the short-run, so advertisers might receive more benefits from circulation increases than newspapers do. The study examines these possibilities by researching effects from reporting by the German tabloid BILD on a scandal that forced the German federal president to resign. BILD’s reporting was criticized as sensational.
First, do publishers profit from sensational news stories? The researchers use an event-study to determine if the scandal coverage resulted in abnormal returns to the stock price of BILD’s owner, the Axel Springer Corp.. This method is also used to look for abnormal increases in circulation at BILD, and abnormal increases in BILD’s online audience. Results “do not find support for any linkages”(p. 9) between coverage of the scandal and abnormal returns to Axel Springer’s stock price. There were “no effects on sales of single editions or in the aggregate” circulation figures (p. 9). Results were mixed for online audiences. However, the initial scandal reporting appeared to increase online audiences at BILD’s upscale competitors, perhaps because competing news outlets had “more brand name capital in regard to public affairs and issues having an impact on society-at-large” (p. 12).
Second, do journalists benefit from producing sensational news? The study did not have adequate quantitative data to determine how the scandal affected the employment and earnings of journalists who covered the stories. However, some journalists did receive a prestigious prize for investigative reporting. Journalists also wrote a book and sold film rights to a German production company. The researchers conclude sensational stories can enhance a journalist’s career prospects. Media outlets “may be able to hire investigative journalists at lower wages in exchange for a certain degree of freedom of choice concerning which stories they want to cover” (p. 12).
Third, do advertisers benefit from sensational coverage because they reach audiences that are larger than the audience they paid to reach. Advertisers did not receive any benefits because circulation was not increased by coverage of the scandal.
The researchers conclude the conventional belief that sensational news coverage can increase audiences and profits was not supported. The scandal coverage may have instead been driven by “journalists’ private motivations” (p. 13) because journalists hoped to profit from the sale of books or film rights and to boost their professional reputations.
“The Value of the Internet as Entertainment in Five European Countries” by Smaranda Pantea and Bertin Martens estimates how much value European consumers receive from the internet. The European Union promotes universal broadband coverage to stimulate economic growth, to reduce prices, and to provide internet access to isolated individuals and groups. However, broadband policy does not account for the value of free access to leisure online services. “Not taking into account such benefits underestimates the impact of such policies on consumers” (p. 16).
This study used Nielsen Clickstream data for more than 12,000 users in five European countries to provide an objective estimate of revealed consumer preferences and benefits to consumers. The study uses an estimation strategy developed by Austan Goolsbee and Peter J. Klenow. The strategy compares expenditures of time and money on an internet good representing online leisure and a composite good representing all other goods and services. This is the first study to use this method to study European consumers.
The Nielsen data in the current study included websites that individuals visited and how long they spent there. The data also included demographic variables such as marital status, children in a household, household income, and occupation. The study focused on employed internet users between 16 and 74 years old. Leisure internet use was measured by time spent on websites for entertainment, family, lifestyle, social networks and services such as e-mail, instant messaging and telephone calls. Time working was the average number of working hours in a given country. The study estimated total time spent consuming the composite good as non-sleeping time when individuals were either not working or engaged in online leisure activities.
Regressions show that men, younger consumers, and single people receive the most utility from online leisure activities. This is consistent with previous studies. Estimates of consumer surplus from online leisure use the Goolsbee-Klenow technique and a measure from Hausman that was also used in their study. Projections of consumer surplus for each country’s population were based on data for total internet access in that country.
The estimated consumer surplus from free internet services in the five countries is 147 billion Euros annually. The projected consumer surplus for the entire European Union is between 524 billion Euros and 785 billion Euros annually. These estimates are much higher than previous survey-based estimates of 100 billion Euros a year.
The findings “confirm the importance of existing policies of improving access to internet and broadband, availability of high speed internet and access to digital content” (p. 17). The researchers argue consumer surplus should be added to policy initiatives in the future. The benefits from consumer surplus are “particularly relevant for countries that still have [a] low share of households with access to internet and low broadband penetration rates” (p. 29).
“Measuring the Welfare Effects of Public Television” by Joost Poort and Barbara Baarsma develops a methodology for measuring welfare effects from public service broadcasting (PSB). Most countries subsidize PSB to make available free high-quality programs that inform and educate the public. This study asks if these subsidies are money well spent. The study is “the first to assess the social impact of programs on public television using revealed preferences, that is, actual viewing behavior” (p. 34).
PSB competes with commercial broadcasters even if both forms of broadcasting provide similar programs. This raises the question “whether PSB corrects market failure or cannibalizes commercial broadcasters” (p. 31) In addition, subscription commercial television may overcome market failures. For instance, subscription television is not non-excludable, so there is no free-riding. Government budgets are also shrinking, another reason to re-examine assumptions that PSB serves the public interest.
The study examines the welfare effects of PSB in the Netherlands by comparing consumer surplus from public and commercial television. There are three PSB channels and seven commercial channels. This study adopts the Goolsbee-Klenow conceptualization for estimating consumer welfare from leisure time by using the opportunity cost of time based on hourly wages. Poort and Baarsma develop their own model for estimating welfare from PSB. Their data combines measures of revealed and stated preferences to examine welfare from programs, channels, and all of PSB. Revealed preferences are measured using household audience data for television programs. Stated preferences are used to refine the hypothesis that viewing time can be a proxy for a program’s value. Stated preferences are measured using quality scores given to programs after they were watched, a difference from previous studies that measured stated preferences as willingness to pay for PSB.
The dataset includes 2,686 programs or television series that were broadcast on one of the ten Dutch channels from Jan. 1 to Sept. 30, 2011. Data also included the average income of viewers and whether viewers recorded programs and delayed watching them. A quality score was available for 1,247 of the programs and series in the study.
Viewership was driven by genre and the programs’ start times. PSB programs received higher quality scores than commercial programs after correcting for characteristics such as genre. The 15 programs with the largest estimated welfare effect per episode included a mix of very popular commercial programs and less popular PSB programs. Seven of the top 15 programs with the largest aggregate welfare effects for all episodes were from PSB. The estimated annual welfare effect for PSB programs was 927 million Euros, considerably more than the 796 million Euro subsidy for PSB television, radio and internet activities in 2012.
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