Tuesday, August 31, 2010

Taking Out the Middle Man

 Jim Parker, Vice President, DFA Australia Limited

One of the great benefits of the global internet is the scope it gives investors to test the veracity of media coverage by going straight to the source. Now, one canny consumer is taking this disintermediation a step further.

The structural crisis in commercial media has been cited before in this column, but boils down to the death of its traditional business model as advertisers and readers migrate to the web. The upshot is the media is left with fewer journalists to fill ever expanding amounts of white space and empty air time.

Some in the media are responding to this crisis by heading down-market. Essentially this means they are seeking to make a virtue of their lack of imagination and resources by sacrificing good information and context for public relations spin, circus-style entertainment and unadulterated opinion.

This is why TV business programs regularly feature people shouting over the top of one another and making a mountain over issues that really have little bearing on investors’ long-term returns. Overlooked amid all the sound and fury is the need for solid, independent reporting that adds value for readers and viewers.

One possible response to this noise is to go straight to the source. You can do that in the internet age. Instead of relying on second-hand and often inaccurate reports of, say, the International Monetary Fund’s global economic forecasts, investors can read the institution’s own summary on its website.

Smart consumers of media can also, using modern technology like RSS feeds and Twitter, follow the writers, bloggers and commentators they trust. Google Alerts provide another way to filter news of interest from the flotsam and jetsam.

In many ways, what is happening to the mainstream media is analogous to the crisis that started hitting the recorded music industry a decade ago. The old distribution model has been made redundant and consumers are empowered to access and customize the information they need directly.

One noted UK blogger and comedian, Tom Scott, has taken this trend of disintermediation a step further by designing amusing “journalism warning labels” that are attached to newspapers to alert consumers about the content therein.

Among the individual labels are “Warning: Statistics, survey results and/or equations in this article were sponsored by a PR company.” This is not surprising, given that one 2008 UK university study, based on 2,000 articles in five major British newspapers, found 80 percent of the content was second-hand. Most of it came either from public relations material or agency copy.

Taking note of this trend, Mr Scott has another warning label for newspapers that reads: “This article is basically just a press release copied and pasted.”

The growing dependency of journalists on media and publicity agents for softball interviews is highlighted by a fourth warning: “To ensure future interviews with subject, important questions were not asked.”

But probably the most salient warning label for investors is the one that reads: “Journalist does not understand the subject they are writing about.”

The fact is so much of what vexes investors comes from media content generated by journalists so pressured by deadlines and so desperate for content to fill the gaps between the ads that they really have little grasp of the often complex issues they are called to cover.

That’s the bad news. The good news is the very idea of the “media” – the thing that stands between consumers and events – is becoming rather quaint. The unadulterated information is there if you know where to look.