by Konrad Bleyer-Simon and Iva Nenadić
When news media lost a sizable percentage of their advertising revenues in the pandemic, state subsidies became more important than ever in securing the financial viability of media markets. But state support is far from uncontroversial: it can go to the wrong actors, create dependencies, hamper innovation, or open the door to political interference. Thus, the team of the Media Pluralism Monitor has turned to its country experts in EU member states to find out what risks were associated with state subsidies during the first wave of the COVID-19 pandemic.
With this endeavour, we were not trying to provide a comprehensive analysis of the state of media support in Europe – the Media Pluralism Monitor’s methodology would not allow us to do so –, instead, we collected country experiences to identify where the risks of state support might lie. It is also important to mention that, due to the different media systems, political culture and regulatory environments, the risk identified in one country may not necessarily count as a risk in another.
Why should the state support the media?
For many decades, news media have been operating in so-called two-sided markets, where their sustainability came from two co-dependent sources of income: readers and advertisers. While the first group benefited from relatively low cover prices, due to being subsidized by advertisers, the latter was offered to buy some quality time with the consumers’ eyeballs or ears. As a general rule, when reader demand increased, advertising demand followed, while a shrinking willingness to pay has driven away advertisers, and started a vicious cycle: fewer readers mean fewer advertisers, fewer advertisers mean higher cover prices, which in turn means even fewer readers, and so on. In the digital media market, the switch to advertiser-driven free news content hardly materialized, as the majority of online advertising soon ended up on social media and search engines, which were able to offer more and better-targeted eyeballs than news media did in their prime. The COVID-19 pandemic has accelerated this process, thereby further decreasing the advertising revenues of news media (World Economic Forum 2020, KPMG 2020, The Economist 2020).
While advertising slowly became a thing of the past for many media makers, there have been serious problems with new business models: in the digital news environment, willingness to pay was still below the old analogue times, which made many news media managers reluctant to charge consumers for content. Others were afraid that locking news behind a paywall would deprive society of a public good that is especially important at times when untrustworthy, misleading and harmful contents are surging.
That is the context in which state-supported journalism becomes relevant. As Paul Clemens Murschetz, one of the leading scholars of the issue put it: “state-supported journalism is synonymous with public-interest journalism and means publishing, broadcasting, or circulating facts and opinions on what matters to society and covers topics that are vital for citizens to make informed decisions and choices, but that it would need state support in ways that work to monitor and hold accountable the institutions of government, commerce, and civic life” (Murschetz 2019 p. 1).
What is state support?
A number of countries look at the dwindling of advertising revenues as a sign of market failure (Pickard 2014, Allern and Pollack 2019) which requires the state to provide help in order to safeguard information provision, as well as the jobs of people employed by media organizations (Zahariadis 2013). The most common form of state-support is of course the financing of public service media, which is a common practice all over the EU and its neighbourhood – this text will disregard the financing of public service media, given that it has been the subject of a sizable amount of research in media studies.
For the private media, the most common form of support is (1) indirect subsidization, which refers to tax concessions, favorable postal rates and other efforts that aim at reducing production costs without providing cash payments to the media. Indirect efforts are favoured by many governments because they bear less political risk and are less subject to scrutiny by civil society and watchdogs (Nielsen and Linnebank 2011). (2) Direct subsidies, on the other hand, include grants, preferential (or interest-free) loans or other forms of cash payment to the media. Some researchers also include (3) advertisement by government and state-owned enterprises in the category of indirect support (see Urbán 2013), but the MPM methodology (which we follow) treats state advertising as a separate, third category of state subsidies.
This text looks at the risks associated with state subsidies at a time when a global pandemic has led to a significant decrease in media revenues. The data collection for this research took place between October and December 2020, as part of a COVID-19-related interim data collection of the CMPF’s yearly Media Pluralism Monitor. The data were compiled by renowned media experts and researchers in 24 EU member countries.
In our questionnaire, we have asked country teams about the existence of regulatory safeguards for fair and transparent distribution of all three forms of state subsidies (direct, indirect and state advertising) provided to private media. The assessments of regulatory safeguards were followed by questions related to the general practice of subsidy or state advertisement distribution to media outlets. In the questions about regulatory safeguards, we coded their existence as low risk, while their lack was high risk. In the questions that assessed the general practice of subsidy distribution, ‘low risk’ meant that subsidies were distributed to media in a fair and transparent manner; ‘medium risk’ meant that subsidies were distributed to media based on a set of criteria but it was unclear whether they are fair, or the distribution was not always transparent; while ‘high risk’ meant that there was no transparency on the criteria, amounts and beneficiaries of direct state subsidies to the media.
Pros and cons
As an argument in favour of the general practice of public support to private media, Pickard (2011) pointed out that there is evidence that shows that, in democracies, state-supported private media are generally not less critical of the government than advertising-driven media are. However, the particular support schemes are not without controversies. Scholars have pointed towards a number of possible risks: Most importantly, grant support can increase dependence on the state, distorts the market structure, and often favours media that won’t necessarily contribute to the public good, such as sensationalist or tabloid newspapers whose circulation is higher than that of quality media, while their production costs and public service contributions are usually lower (see Picard 2013, Murschetz 2013, Murschetz 2020).
Others added that policies to support the press are slow to react to the changing circumstances on the ground, thus might not reflect the temporary needs of the media (Nielsen 2014), while, in the meantime, they might suddenly change once a new government is sworn in (Murschetz 2020). Researchers have also pointed out that it is not sure whether the support indeed leads to improvement in content (Picard 2007, Wellbrock and Leroch 2013). Moreover, research shows that support prioritizes variable costs over the kinds of fixed costs that would be most relevant for the media, they don’t help to adapt to future challenges, do not improve the working conditions of journalists, and they don’t try to stimulate audiences’ news consumption (Murschetz 2020). While the MPM methodology doesn’t allow us to investigate all these issues, it is important to reflect on them, especially using the findings as a basis for future policy recommendations.
Findings of the MPM-COVID-19 data collection
In October and November 2020, the team of the Media Pluralism Monitor turned to its country experts in EU member states to find out what risks were associated with state subsidies during the first wave of the pandemic. We have asked them about a) the existence of fair and transparent rules for the distribution of subsidies, and b) whether the fairness and transparency applied to the distribution in practice. We have looked at 3 different forms of subsidies:
- direct subsidies (cash grants, access to preferential credit, etc.)
- indirect subsidies (such as tax exemptions, tax cuts or discounted distribution rates)
- state advertising
The questions were focused on the overall subsidy schemes (not just the ones introduced due to the pandemic), but country teams were asked to provide information about COVID-19-related support as well.
Depending on the lack or existence of safeguards and the quality of regulations protections, we scored the answers of each country as high (100), medium (50) or low (0) risk. These risk scores add up to average risk levels (low 0-33 %, medium 34-66 %, high 67-100 %).
- Direct subsidies
In this section, we have asked country teams about a) the existence of fair and transparent rules for the distribution of direct subsidies, and b) whether fairness and transparency apply to the distribution in practice. The legal context for state support was overwhelmingly seen as positive: out of 24 member states, 15 mentioned that the country’s legislation provides fair and transparent rules for the distribution of direct subsidies to media outlets. Six country teams reported that their country has provided no direct subsidies to the media (making the assessment of laws irrelevant in their case), while 3 countries – Cyprus, Hungary and Portugal – have highlighted the lack of legal rules as a problem in their respective countries, while support was (occasionally) provided. The overall score for the transparency of rules was 17% (low risk).
Still, when it comes to the implementation of the legislation, only seven respondents have seen the situation as low risk. The other half of those who found the law itself satisfactory, identified problems that threatened the transparency or fairness of distribution, thus marking it as medium risk. The three countries with no regulation (despite direct support being provided to the media) associated the implementation of the legislation as a source of high risk. The distribution of direct state subsidies was scored at 36% (the lower end of medium risk).
Overall, we can see substantial differences in the degree of and approaches towards direct subsidies: Austria, Belgium and France, for example, provide substantial support to their private media in order to successfully compete in the media market. In the pre-COVID era, Austrian newspapers received € 8.9 million annually, the country’s Private Broadcasting Fund amounted to 20 million, and the Non-Commercial Broadcasting Fund got 3 million per year. In Italy, the degree of support is in the € 10 millions, while in the newer EU member state, Croatia, the Ministry of Culture and Media distributes HRK 30 million (~ € 4 million) yearly. Still, in the majority of the countries, direct funding is limited and/or available for special contents (mainly for minority or minority language media, or the promotion of special topics): Finland, for example, provides € 800.000 to cultural magazines and € 500.000 to minority language newspapers. In Poland, the Ministry of Foreign Affairs can based on a competition, select media projects that would support Polish foreign policy, while the Ministry of Culture can support projects that would promote readership or other issues of public interest.
A number of countries have introduced COVID-19-specific media subsidies (and even more have, in one way or another, covered their media by general crisis support schemes): such as Austria, Belgium, Finland, France, Latvia. In Austria, this meant a scale-up of the existing subsidy scheme: the pandemic-related special government subsidies to the press amounted to almost € 35 million. On April 3, 2020, the Austrian parliament decided on providing COVID-19 special funding for media: € 12 million for daily newspapers and € 2.7 for weekly newspapers; € 15 million for commercial broadcasters and € 2 million for non-commercial private broadcasters; € 3 million went to regional newspapers. Owners of daily newspapers received financial support in 2020 with a one-off amount of € 3,25 per copy of the average circulation calculated on the basis of 2019 sales. The Spanish national government introduced a special payment of € 15 million for the national television providers. Latvia provided support of € 1,2 million to cover, among others, the delivery costs of print publications, the broadcasting cost of electronic media. In Finland, the government provided € 7.5 million to cover payroll costs and freelancers’ fees. France, in addition to transversal measures (such as state-guaranteed loans and an emergency fund), allocated more than €100 million to ensure the continuity of its distribution, and strengthened its so-called “Strategic fund for the development of the press”.
The team in Cyprus reported that the distribution of COVID-19-support has followed clear criteria, but the overall sum (€ 700.000) was insufficient, given that the radio and television sectors real advertising revenue for 2019 was around € 30 million, and losses in the first semester of 2020 were estimated to reach at least 25%. Besides the insufficiency of funds, a number of other possible risks were highlighted in the COVID-19 context: country teams have mentioned the opacity of measures (France), possible distortions of the market, and governmental support’s tendency of favouring large players over small media (Luxembourg). County teams have also pointed out that a disproportionately high percentage of the support goes to tabloid (Austria) or legacy (Italy) media, while in some cases there seems to be evidence that subsidies end up profiting conspiracy sites and far-right media (Croatia). In Poland and Hungary, there were signs of ministries and other state agencies favouring media outlets whose coverage is friendly to the government. In the context of the pandemic, we have also seen serious delays in terms of decisions and payments in some countries (Slovenia, Italy).
On a more positive note, there have also been some improvements in the provision of direct state support: in Luxembourg, the distribution became fairer, once language barriers have been eliminated (Portuguese language newspapers had a large readership, but didn’t qualify for support until recently); efforts are seen in some countries to include quality control in the process (e.g. Spain) and to extend support to online media. In Germany, where private media was in the past expected to rely solely on the market, lawmakers started debating a thus far unprecedented plan of a € 200 million grant program on the national level (Medienpolitik 2020).
- Indirect support
In this section, we have asked country teams about a) the existence of fair and transparent rules for the distribution of indirect subsidies and b) whether fairness and transparency applied to the distribution in practice. Indirect subsidies are the most common form of state subsidy, encompassing some widely utilized measures such as discounted VAT rates for news media, or favourable postal rates. 19 out of the 24 countries have mentioned that they have fair and transparent rules to allocate indirect subsidies, and 15 out of them evaluated the allocation of indirect subsidies as low risk. None of the countries saw indirect subsidies as high risk. That is most likely due to the fact that indirect subsidies are harder to allocate in a selective way (one cannot say that a given tax rate applies only to left- or right-leaning publications), moreover, the lack of cash transfers from the state towards the media makes it harder for political actors to exert influence over news outlets via indirect subsidies, than via other forms of subsidies. The legal environment had an average score of 5% (very low risk), and their distribution scored 16% (low risk).
As already mentioned, reduced VAT rates are a common practice in the EU. So common that some country teams didn’t even consider them as subsidies. The degree to which they are discounted differs a lot between the member countries, but usually, they tend towards the lower end of the spectrum. In Belgium, for example, VAT for printed newspapers is 0 per cent (the regular VAT is set at 21 per cent). While initially aimed at print publications, we can see a growing number of countries where VAT reduction has been applied to online media as well (such as Estonia, France or Sweden). Still, some country teams have criticized the VAT reductions as too insignificant to count as a subsidy.
The COVID-19 pandemic has led to the (temporary) introduction of new indirect subsidies: Latvia provided support of € 223,737 to decrease the monthly delivery costs of print publications, and Lithuania spent € 597,000 on compensating the postal services. In Austria, there has been a further decrease in VAT rates from 10 to 5 per cent, Greece waived the annual broadcasting fee and provided discounted access to the digital television network operator, while Italy launched a number of tax credits (for paper expenses and technological expenditures of news media, for advertising expenditures on audiovisual media, and for kiosks that sell newspapers).
- State advertising
In this section, we have asked country teams about a) the existence of fair and transparent rules for the distribution of state advertisement, and b) whether fairness and transparency apply to the distribution in practice. State advertising has proven the most problematic form of support. 19 countries mentioned that the regulation doesn’t provide guidelines to fairly and transparently allocate them amongst news media. 9 countries evaluated the distribution of state advertising as high risk, 9 saw it as high risk, and 10 as medium (2 countries reported no data). Only Italy, Germany, and Belgium have evaluated state advertising as low risk. On average, the legislation on state advertising scored 79% (high risk) and the distribution 65% (the higher end of medium risk).
In EU countries, there is a lot of discussion about the influence that state advertisement can buy: in the Czech Republic and in Hungary there is widespread evidence that state advertising is used as a covert way of subsidizing friendly media or buying influence over the rest. Bulgaria was condemned by the European Parliament for using EU funds to support allied media through advertisement.
Even in countries where state advertising is subject to public tenders, we have encountered some problems, as public procurement laws are not suitable to address all peculiarities of state advertising: often advertisement campaigns fall under public procurement thresholds, and there are ongoing discussions whether the cheapest or the “most well reasoned” bid is to be preferred. Moreover, as the Irish example shows, even having a public procurement process doesn’t necessarily mean that the allocation of advertisement in news media will be free of government interference. In this case, the public procurement makes sure that the placement of advertising is being done through an intermediary (an ad agency), but still, the law makes sure the state bodies can decide in which media the agency will place the ads.
The COVID-19 campaigns have led to a visible increase in advertising spending (with “stay home” campaigns all over the EU), and there were even cases when state advertising was framed as a form of media support by governments. During the first wave of the pandemic, the government of the Czech Republic planned to launch a CZK 2 billion campaign (~ € 40 million) to support its major media outlets and promote local tourism, but the plan was not executed due to criticism about its lack of transparency. In the meantime, Portugal used the state advertising budget to buy a large amount of advertising during the first months of the pandemic. In Austria, public and governmental authorities have spent € 40.9 million on advertising in the first quarter of the year – around 5 million more than in the previous year. But the adequateness of the measure was criticized, as the allocation favored tabloids (similarly to other support schemes in the country). In Greece, the government was criticised by journalist associations for its opaque criteria of distributing advertising that might have favored friendly media, while France has seen allegations of cronyism related to the campaign to promote the country’s “Stopcovid” application. The impact that the favorable channeling of this kind of support can have, can be best seen in Poland, where the online native OKO.press reported that government-friendly media have increased their revenues during the pandemic.
Subsidies are relevant public policy tools to help public interest journalism survive in a difficult economic environment. On top of its decades-long crisis, news media suffered another blow when it lost a sizable amount of its advertising revenues during the COVID-19 pandemic, thus making the provision of subsidies all the more important.
State support has been criticised over the years for its bad targeting: it may not reach those media that are most in need of help or the ones that provide the most relevant content for the public. This misalignment was also reflected by former editor of The Guardian, and Principal of Lady Margaret Hall at the University of Oxford, Alan Rusbridger: “If there is a public need to know what is going on in courts or council chambers, would it not be better to begin by defining the information society or a community says it needs – and then invite tenders from organisations or individuals who think they can provide it? That would create opportunities for new players rather than simply propping up the (often debt-laden) legacy companies” (Rusbridger 2020, p. 244). Some country teams have echoed the concerns that support might not go to the highest quality content providers, may not help in the most adequate ways or may not stimulate innovation. In the long run, this is indeed a relevant issue that needs to be raised when (re)designing support schemes, however, in the context of the pandemic, this aspect enjoys lower priority, given that most participants of the media market (not just news) were affected by an economic shock.
In our data collection, we encountered the common complaint that criteria for state support (in all three of its forms) were not clear enough, raising concerns of transparency and fairness; while often the amounts available were far beyond what was needed in the current economic crisis. Delays were also mentioned as a risk factor that has to be eliminated in the future, as the timeliness of support is crucial at times of crisis.
There were cases when support was handed out in a one-sided way, favouring a specific set of media – depending on the countries, these were legacy outlets, tabloids, or government-aligned outlets. There were also instances when governments used their support to buy the loyalty or silence of media outlets. This aspect was especially problematic in the case of state advertising.
Overall, state advertising turned out as the riskiest form of support, as it provided ample opportunities for governments to channel covert support to their allies. In some cases, risks related to direct support were communicated, but to a lower degree as in the case of advertising, as direct state subsidies were harder to conceal than other forms of support. Indirect subsidies were fairer and more transparent, in part because they made it harder to exclude disliked market players from the distribution – however, the extent in which these subsidies could help struggling media was seen as too low.
When designing future support schemes, we need to consider these risks, and make sure that support to the media is provided in a way that is adequate (both in form and value), and well targeted. Moreover, we need to take into account that policies have to quickly adapt to the circumstances – for example, in an increasingly digital market, the emphasis cannot be on subsidising print circulation, but has to look for the forms of media content that are best in line with the audience’s consumption habits and current trends of content creation. Furthermore, subsidies have to be complemented with efforts to improve content, and stimulate audiences’ demand for news.
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