Ivo Vegter: State funding won't save journalism, it will finish it off

Daily Friend columnist Ivo Vegter takes aim at Daily Maverick CEO Styli Charalambous's call for state funding to fix journalism's "market failure". Vegter counters that South Africa already has two data points on state-backed media: the SABC, reliant on repeated bailouts, and The New Age, which helped launder the Gupta family's image while state entities redirected advertising spend its way. He argues journalism is excludable, not a public good, pointing to News24's 70% paywall and Netwerk24's 80%. Any subsidy formula, he warns, would either reward clickbait, entrench incumbents through gatekeeping, or invite AI-generated newsrooms built purely to harvest funding..By Ivo Vegter*.Styli Charalambous says only the state can fix journalism’s “market failure”, but the state’s two journalism funding efforts produced a propaganda organ and a Gupta laundromat.Charalambous is the CEO and co-founder of Daily Maverick. He has spent more than a decade and a half immersed in the unforgiving question of how to make journalism pay.I am just a lowly journalist. Nobody has ever entrusted me with a media company’s profit and loss account, and that is probably just as well.But I have had a worm’s-eye view of the carnage. I watched classified and real estate advertising decamp to the web, taking the fat weekend supplements with them. I watched the million monkeys of the blogosphere devalue the written word to near zero. I watched Big Tech platforms hoover up the remaining advertising revenue that once paid for foreign bureaus and fact-checkers. I watched activist journalism and punditry corrode the trust that was the industry’s last remaining asset. I watched paywalls go up, and readers politely decline to climb them. And now I am watching artificial intelligence strip-mine what is left, serving up journalism’s product in tidy summaries to readers who will never see the advert, pay the subscription, or even so much as visit the page.I have personal experience of what this has done to the real, inflation-adjusted earning power of journalists. A career in journalism is like walking briskly down an escalator.In search of a solutionI do not have a solution to the business case problem of journalism. If I did, I would have started my own publication years ago, and would be dictating this column to a secretary on a yacht instead of laboriously typing it out myself on a gracelessly ageing computer in an icy room.In his recent media analysis, occasioned by yet another round of retrenchments at Media24, Charalambous surveys this wreckage and reaches for a diagnosis: market failure.Media24, the best-resourced news operator on the continent, he writes, has done everything the turnaround manual prescribes – disposals, closures, a 40% headcount reduction, more than 220,000 paying digital subscribers – and its losses widened by 60% anyway.Ergo, the market has failed, and since journalism is a public good, “only a policy intervention can fix a failed market”.Tax credits, zero-rated VAT, advertising rebates, investor allowances: the state must ride to the rescue. He even enlists Adam Smith, who listed public goods among the exceptions to the invisible hand of the free market.It is a serious argument, seriously made, and the facts he marshals are grim and true. I sympathise. I truly do. (And full disclosure, I know and respect Charalambous.)Yet the argument is also profoundly, dangerously wrong.The market has spokenA market failure, properly understood, occurs when a market cannot supply something that consumers demand. That is not what is happening here.What is happening here is that media companies are producing something that consumers, in their millions, decline to buy.Those are not the same thing. The first is a failure of the market. The second is a verdict of the market.Basic economic reasoning suggests that if readers will not pay enough to sustain the product, readers don’t want the product badly enough, and the resources deployed to produce it ought to be redeployed in a more productive fashion.That is an uncomfortable conclusion for those of us who make the product, and think very highly of it. That is presumably why Charalambous prefers the “market failure” framing: it locates the defect elsewhere, rather than in the merchandise or its producers.“Public goods”Charalambous’s fallback is the public goods argument: journalism generates benefits – cancelled tenders, fired ministers, billions in recovered assets – that accrue to everyone, including those who never paid for it.He is not wrong. The #GuptaLeaks genuinely did produce social returns vastly exceeding the R1,500 in revenue that his 50,000-page-view example story earned.But notice what a public good actually is. Smith’s examples – defence, roads, street lighting – are non-excludable: you cannot stop a free rider from being defended or lit.Journalism is eminently excludable. We know this because the industry spends its days building paywalls to exclude free riders.News24 locks up 70% of its content; Netwerk24, 80%. Charalambous himself concedes that “journalism behind a paywall is not a public good by definition”. Quite so.He wants to give news away for free, and pay for it using money confiscated from the same taxpayers who decided the news was not worth paying for. That’s just another way of saying the plebs don’t know what’s good for them. Perhaps that’s true, but thinking that you or I know better is rank elitism.What remains is a positive externality argument: journalism confers spillover benefits on non-payers. This is true, but it is true of a great many things.Education, vaccination, extended shopping hours, a well-kept garden and a happy marriage all confer benefits on bystanders. We do not conclude that the state must fund them all, because the question is never whether externalities exist. The question is whether they must be remedied, and if so, whether the cure is worse than the disease.Look upon the state’s worksThe state is notoriously poor at providing high-quality services, which is why a liberal society permits the state to provide services only as a last resort, in cases of genuine necessity where no private alternative can exist.Do we want news journalism run like the electricity utility, which spent 15 years switching the lights off? Like the water boards, presiding over cholera outbreaks in the capital’s back yard? Like the municipalities, most of which cannot produce a clean audit, a working sewage plant, or functioning traffic lights?This is not a hypothetical. The state already funds journalism.It is called the SABC, and it is a monument to everything wrong with the idea. It lurches from bailout to bailout, produces news of dubious quality (and even worse entertainment), and has suffered such an obvious and chronic lack of independence – from apartheid-era propaganda through Hlaudi Motsoeneng’s protest-coverage blackouts to the present day – that its every error is presumed to involve political influence until proven otherwise.And the last time the government openly threw its weight behind a private media project, we got The New Age. State-owned enterprises sponsored its interminable business breakfasts to the tune of tens of millions. Government departments obligingly redirected advertising spend to a newspaper almost nobody read. In return, government officials got to promote their views without being annoyed by critical journalists, and the Gupta family got a publication that faithfully pointed readers the other way while they captured and looted the state.Those are the two data points we have for state-supported journalism in South Africa. One is a propaganda organ on perpetual life support. The other was complicit in covering up the very grand corruption that Charalambous rightly says journalism exists to expose. On this record, he proposes we go for a hat-trick.The allocation problemSuppose, against all evidence, that our government could be trusted to fund journalism benevolently and at an appropriate arm’s length. It still could not do so competently, because devising a fair basis for compensating journalism is well-nigh impossible.Fund by readership numbers? Then you subsidise the cheap, populist, partisan, mass-market churnalism that draws clicks, and starve the expensive investigative work that, almost axiomatically, draws fewer readers.The #GuptaLeaks story worth R1,500 in advertising would be worth little more in per-reader subsidy, while a celebrity sidebar would earn a fortune. You would be paying a premium for the very dross the intervention is meant to displace.Everything that is wrong with social media – all the fake news, shallow clickbait, polarisation, and extremism – is premised on rewarding naked popularity.Fund by the size of newsrooms, then, as the employment tax credits fashionable in American statehouses do? Headcount is trivially manipulable, and rewarding it incentivises precisely the operational inefficiency that the market – whatever its sins – punishes.A subsidy for employing journalists is a subsidy for never modernising, much like labour-intensive public works subsidises taking two years and 100 workers to do what takes two weeks and a crack team of a dozen in the developed world.Fund only “real” publications? Define one. There is no principled way to distinguish a genuine newsroom from a fly-by-night assembled for the purpose of harvesting subsidies. And make no mistake, the moment subsidies exist, fly-by-nights will be assembled to harvest them.In an age when AI can generate a plausible news site over a long weekend, subsidy-farming will be the one sector of the media economy that booms. Entrepreneurs respond to incentives. It would be the one market mechanism in this whole sorry saga that works flawlessly.Gatekeeping equals licensingThe only defence against the dross is gatekeeping, but gatekeeping by the paymaster builds a moat around incumbents and raises the drawbridge against new entrants.We can already see the drawbridge creaking upward: the Competition Commission’s remedies reserve Google’s R688-million compensation for members of the Press Council only – even though thousands of other media creators were affected.Whatever one thinks of the titles and journalists that fall outside that tent, the principle is now established that access to the industry’s rescue money runs through an accreditation body. And every subsequent subsidy scheme raises that hurdle.Somebody must decide which publications qualify, which journalists count, and what kind of journalism merits public money.That somebody is, ultimately, a committee directed and sanctioned by the government. A committee deciding which journalism deserves to exist is not a support mechanism for the free press. It is a licensing regime.Wilful surrenderCharalambous’s proposal amounts to a wilful surrender of journalistic independence – and the public, whose trust in South African news has already slid from 61% to 50% in four years, will draw the obvious conclusion.The ensuing collapse in media trust will be entirely deserved. One cannot spend one’s days demanding accountability from a government that signs one’s payslip. Readers know this. It is why “state media” is a term of abuse everywhere it is used.Charalambous supplies the tell himself. Having built his case for policy intervention, he concludes: “Alas, South Africa’s track record for executing impressive policy plans is terrible – at best. Hopefully, we can be served a miracle.”When the final line of the business plan reads “and then a miracle occurs”, the plan is not finished. When the miracle must be performed by the South African state, the plan is no better (and many would say worse) than a prayer.The crisis is realNone of this is to deny the crisis. The media does face an existential threat, and it is especially acute in small, less well-off markets like South Africa, where the subscriber base that sustains The New York Times or The Wall Street Journal simply does not exist, whether in numbers or in disposable income.The industry must adapt. It must find new revenue from multiple sources and cut its coat according to its cloth. Paying subscribers, philanthropy, cross-subsidisation from media-adjacent enterprises like events and custom publishing, platform partnerships – all will probably have to play a part, in proportions nobody has yet discovered.Modernisation is critical. If the audience is moving to podcasts and video shorts, then the media must produce podcasts and video shorts, no matter how much some of us hate them.Charalambous’s more inventive proposal, compensating investigative journalism from a share of the assets its work helps recover, at least has the virtue of paying for results rather than mere existence. Yet that creates a slippery slope to outright corruption. Would a publication funded by civil asset forfeiture ever publish an article that says civil asset forfeiture is a dangerous tool?No formulaI do not know the formula. The honest answer may be that for some kinds of journalism, in some markets, no formula exists. For some kinds of journalism, that would be poetic justice and a great relief. For others, it would be a tragedy.But the cure Charalambous proposes will kill faster than the disease..Read more:.FT: SARB Governor heralds SA’s imminent grey list exit as beating “existential crisis”.An industry whose entire value proposition is independence cannot survive being dependent on the most important and most powerful entity it must defend the people against: the government.Surrendering the media to the tender mercies of state funding – and in South Africa, “tender” is a double-edged word – would not rescue journalism from a broken market. It would be the final nail in the coffin.I’m sure the state would be delighted to supply the hammer..*Ivo Vegter is a freelance journalist, columnist and speaker who loves debunking myths and misconceptions, and addresses topics from the perspective of individual liberty and free markets..This article was first published by Daily Friend and is republished with permission..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here. Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

Ivo Vegter: State funding won't save journalism, it will finish it off

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