Realigning Publisher Incentives
This article is about the failure of the news industry, the changes required to optimize the industry once again, and a new product solution by Proof Media Inc. (Proof) which can address the required changes.
Identifying Market Failure
In the discipline of economics, the idea of misaligned incentives where one party in an exchange has interests that are out of sorts with the interests of the other party in the exchange has been studied and researched at great quantity. What comes to mind with respect to misaligned incentives is George Akerlof’s well-known research study — The Market for Lemons: Quality Uncertainty and the Market Mechanism published in 1970. In this article, Akerlof demonstrates using the example of the used car market in the United States. The example goes something like this — when sellers of used automobiles have more information than the buyers of automobiles, and when the buyers have the limited ability or willingness to check the claims of the sellers, the buyers will make purchasing decisions to buy cars based on the average price of all similar cars in the market. Due to this phenomenon, the higher quality sellers of cars will leave the market because they will not be happy with the average price (simply it will be lower than their required price). With this, the average price will drop again, and the second tier of quality sellers will leave the market. As this continues the market moves to a low-quality product offering, and as result, will produce very unhappy customers. Overtime the market fails to work optimally. Akerlof provides other examples where buyers may have more information than the seller, and where similar adverse selection may occur. Akerlof refers to the market outcome of asymmetric information and misaligned incentives as the adverse selection problem. We can use Akerlof’s adverse selection idea to assist in explaining the current market failures occurring in the media marketplace.
Changing Nature of the News Marketplace
It was in the mid 1990’s when independent (personal) publishing created an identity much different from its historical roots in professional publishing. From creating web pages with FrontPage and Dreamweaver to the development of Blogger and WordPress, the traditional idea of personal and professional publishing began to blur. This period was the beginning of the call for the “democratization” of news and publishing and, in many respects, it was a call for the elimination of the major publishing companies’ power over information. The deep philosophical idea of this movement was the disintermediation of publishers, the removal of their power over content, and the notion of returning voice to the people.
With this evolution of online publishing, and with further adoption of internet usage the publishers’ business models were challenged as well. Moving away from the business model of consumer paid content (with some advertising) to the new model of predominantly advertising paid consumption, publishing was pushed in a new direction. Although this new direction was a financial benefit and incentive to many internet users who now had to pay little to access content online, there was an additional disincentive with respect to the sometimes-abusive pop-up and banner advertisements for these consumers. In addition, there was another longer-term disincentive brewing on the horizon, and one which almost no one was talking about. Very little conversation was happening in the mid 1990’s as it related to the possible crowding out of high quality journalism and the acceptance of lower quality, traffic generating online and cable content. With the evolution of the advertisement supported business models, newly founded publishers were able to compete against the larger publishers if they were able to garner enough viewers to their website. Because of this, smaller and growing publishers created online content that was about grabbing attention, special interest publishing and other methods to gain traction with new viewers or readers.
With the increase in online publishing, the supply of news and general information over the internet became extraordinary large, with content streaming 24 hours a day, 7 days a week. This was in contrast to the way many people consumed news up until the 1990’s, where focus was on daily newspapers, television news on the hour, and other less than real time news updates. With the increase in the supply of news content, coupled with increased advertising to online channels and a decreasing number of newspaper purchasers, the race to the bottom began.
Like the used car market, as explained by Akerlof, it became increasingly difficult to decipher high quality from low quality news content. As time passed from the 1990’s to today the difficulty of deciphering content was exacerbated by bad actors who used the news to deceive and manipulate the public. Other than companies like Snopes, there are essentially no commercially viable solutions that can assist the reader in uncovering factually incorrect statements, biases or outright lies. It is because of this, that the news and online content marketplace has continued to move closer to a failed news marketplace. Serious news services of the past have been replaced with entertainment news based on feeding viewers shock and awe, politically aligned propaganda and worst of all lies and manipulations to change outcomes of elections.
To fix the news marketplace, there requires an arbitrator or quality control mechanism. Perhaps this can be the state or federal government. Though government intervention can be helpful in the short run, there is more than enough economic research to suggest that an optimal solution would be for the market to correct itself in the long run. Again, take for example the used car market. In the 1970’s and the 1980’s there was a push for the government to intervene creating laws such as the Lemon Law, adopted in many states. However, we learn only years later that the market created its own market correcting mechanisms with the invention of new companies such as CarFax. Had it not been for government intervention in the short term and or the creation of market solutions in the long term there is a very good chance that the used car market would have continued to exist under the guise of manipulative and shady car salesman.
New Market Solutions
Although government intervention is possible in fixing the news problem, it is not optimal. What appears to be needed is the CarFax of the news marketplace, where an arbitrator can adjudicate quality of content, yet receive some form of incentive to do so. Unfortunately, there is a nuance in the news market that was not existent in the used car market. In the used car market there were actual purchasers of automobiles, whereas in the news market many consumers pay little to nothing to acquire content and many independent publishers cannot afford any additional costs. This is very important to understand, because any market solution that can solve the news quality and trust problems will need to provide a solution where there is no cost to the news provider and no cost to the news consumer. At first glance this seems impossible. Despite this challenge, there appears be at least one market-based solution which provides ratings on the factual content of an article yet at no cost to the producers and the consumers of content. The company is called Proof Media Inc (Proof).
Proof is a company with a mission to do one thing — bring trust back to market for online content. The company is presently building a blockchain enabled platform using the wisdom of crowds to adjudicate the truthfulness of online content. The platform works as follows: Assume you are reading an article and for one reason or another you do not trust the underlying facts but you have limited free time to validate the facts yourself. Leveraging the Proof platform, you can send the article’s URL via a web browser interface. Once the article is received by Proof, the article is then routed to many registered voters who have expressed an interest in reviewing the article’s underlying facts. This is where it gets fun. After reading and researching the facts in the article the voters place a vote with Proofs (native token — which is purchased in advance of voting on an article and stored in a Proof wallet). The voters each place a binary vote, as either “mostly true” or “mostly false”. After meeting many back-end proprietary thresholds, the vote closes and the side of the vote with the majority of votes wins. The majority receives their winning Proofs in their wallet in real time. Proof takes a small fee to facilitate the market and to further develop the platform. The submitter is notified of the outcome, and the outcome is placed on the platform for future searches. All of the votes are stored on the blockchain. At some future period should the voter want to sell their Proofs they will be able to do so on a crypto exchange.
What is so interesting about Proof’s idea is that its realigns incentives of the media market participants. Following are just some of the realignments.
1. The publisher who was is writing factually correct, high quality journal articles will receive good ratings (voter outcomes) and the producers of fake news will be hurt with poor ratings.
2. Content consumers will be able to quickly decipher those journalists and journals who write factually correct articles and those who do not.
3. Advertisers will learn which of the journals are higher quality versus lower quality, and the industry advertisement spend will be reallocated to trustworthy journals.
4. The producers of content and the consumers will have to pay nothing for the Proof truthfulness rating.
5. The voters will be paid an appropriate wage based on the level of research they put in. The more research that a voter conducts the better the chance of them being on the right side of the article’s vote. Voters will be paid based on the outcome of a vote. Proof uses the wisdom of crowds to structure its voting mechanism.
6. The advertisers can continue as is, but they will quickly know which of the journals are higher quality versus lower quality and should Proof’s hypothesis hold true — lower quality producers will be forced to exit the marketplace. Lower quality journals will be pushed from the market because of less to no advertising revenue.
7. Voters will own Proofs and will be incentivized to create value. Although Proof will have rules for its members, the token incentive will push the voters to act as a self-regulating authority.
8. Society in general will benefit from the solution because there will be a reversion toward trustworthy news, and biases and lies will be removed from the news market.
Proof envisions changing the news viewing experience, focused not only on the content, but also the reputation of the journalist, the publisher, the journal, the geography in which the content is coming from, and many other analytics that will provide a much different and more rewarding experience to the reader. Proof is currently in development of its product with its alpha product being developed and coming to the market in Q4 2018. In the meantime while Proof is building its product, it is also recruiting voters for launch day. Proof can be reached at https://proofmedia.io.