The explosive rise of social media is reshaping the news, for both producers and consumers. Understanding the business models developed by platforms and their impact on society is a central challenge for the TSE Digital Center. In a new working paper, TSE’s Alexandre de Cornière and Miklos Sarvary (Columbia Business School) examine platforms’ role as aggregators and curators of online content. In particular, they analyze the implications for news quality.
Why is social media seen as a double-edged sword for the news industry?
Social media is no longer used just to share personal stories and pictures. Today, social “newsfeeds” have become a portal to all sorts of other content produced elsewhere. This content bundling has been central to the success of digital giants like Facebook. For the third-party content producers, social platforms are increasingly important as a rival to their own websites for advertising revenue and as an alternative way of reaching consumers.
The news industry has struggled to cope with the pace of change. In the US, 55% of adults got their news from social media “often” or “sometimes” in 2019, up from 44% in 2016. Social media (26%) is the second main gateway to news, behind direct traffic to publishers (28%). For consumers aged 18-24, social media has become the principle news portal (38%), with direct traffic (16%) even trailing search (25%).
Social platforms collect large amounts of personal data, using strategically designed algorithms to customize content according to their users and business interests. This encourages consumers to spend more time on platforms, and to rely on them as “personalized curators” of content. Facebook, for instance, can decide how much news to display on users’ newsfeeds, and how much prominence to grant to each publisher.
While platforms allow them to reach more users, news outlets fear that content bundling hurts their business and reduces their incentive to invest in news quality. Publishers also argue that platforms have “commoditized” news, weakening their brands: in one survey, nearly half of US respondents failed to identify the source of a news story accessed through social media. News outlets further complain they only have access to aggregated data generated by consumers interacting with their content through platforms, preventing publishers from offering better targeting services.
How does your paper evaluate concerns about news quality?
We develop a simple model in which a social platform competes for attention with news outlets, or third-party content providers more generally. Both sides are advertising-supported. Consumers can access news directly via a newspaper’s website, or indirectly through the platform, which also offers user-generated social content. We assume that demand for news depends on content quality.
We find that content bundling increases the platform’s share of consumers’ attention at the expense of publishers. However, our results indicate that the effect on news providers is not uniform. Instead of an unambiguous decline of content quality, it could result in an increase in the dispersion of quality with some newspapers investing more on quality than others. In particular, our model predicts that a high-quality newspaper (with a lower cost of producing quality) should invest more under content bundling, while a low-quality one should invest less.
Importantly, this result continues to hold even when publishers prevent the platform from using their content, as long as they face significant competition from other newspapers. Likewise, in a more realistic scenario with heterogenous consumers, we show that the platform’s ability to personalize the mix of content induces publishers to invest more on quality. If newspapers erect a paywall and collect subscriptions, our results about quality remain the same.
What does your research suggest about policy solutions?
Concerns about the health of the news industry – which has seen dramatic falls in advertising revenues, newsroom sizes and the overall number of journalists – have encouraged policymakers to take action. In 2019 the European Parliament adopted the “link tax”, which grants direct copyright to press outlets over use of their publications by digital platforms. Similarly, Australia introduced the mandatory bargaining code in 2021 to ensure news organizations are paid a fair price for their content.
Our paper highlights a potential tradeoff associated with efforts in Europe and Australia to force platforms to compensate news outlets. While both policies increase newspapers’ profits, they also reduce the dispersion of quality. Low-quality outlets are induced to invest more and high-quality ones to invest less.
Are there promising avenues for future research?
It would be interesting to study more closely the structure of the social network, looking at environments in which consumers have heterogeneous preferences. We would also like to consider users’ behavior on the platform, such as their decision to share third-party content or to produce their own. Given that the consumption of news is driven by a complex web of psychological factors, a more in-depth interpretation of news quality could be very revealing.
Our analysis focuses on news because of its special importance for public life. However, our model readily applies to content providers in other domains. Beyond social networks, platforms such as Netflix, Hulu or Amazon Prime Video offer third-party content alongside shows they produce themselves. Here, movie studios or TV networks can monetize their content independently but are attracted by the platforms’ customer base. In e-commerce, Amazon offers consumers the possibility to buy from third-party merchants or from Amazon itself. In the search market, Google often displays results showing a little information such as a definition or a rating, with a link to the website that produced it. As many consumers may ignore the link, having obtained the relevant information, this practice has been denounced by some websites including Yelp, who argue that they lose visitors.
The researchers’ working paper ‘Social Media and News: Content Bundling and News Quality’ is available to read at www.tse-fr.eu
Interview published in TSE Reflect, October 2022
