Scandal Reporting and Business Outcomes, Welfare Effects from Internet Access, and Welfare Effects from Public Broadcasting

Abstract

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