A New Revenue Source for Journalism?

(Photo: Jon S)

Felix Salmon recently proposed an interesting new profit source for newspapers like The New York Times. Citing the Times‘s recent expose on Walmart and the resulting drop in the company’s share price, Salmon wonders why the company doesn’t charge companies for early access to big stories: 

[S]houldn’t the NYT, which can always use a bit of extra revenue, take advantage of the fact that its stories can move markets so much? Not directly: I’m not suggesting that the New York Times Company should start buying out-of-the-money put options on Mexican corporates in advance of its own stories. But how much would hedge funds pay to be able to see the NYT’s big investigative stories during the trading day prior to the appearance of the story? It’s entirely normal, and perfectly ethical, for news organizations, including Reuters, to give faster access to the best-paying customers.

Salmon argues that reporters and editors wouldn’t have any connection to corporate clients — “All that’s needed is that when a big story is entering the final stages of layout and fact-checking, a version is sent under strict embargo to a client or clients who have paid for that access.”

Meanwhile, the startup Assignmint hopes to be a matching service between editors and freelance writers that eliminates risk and transaction costs.

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  1. rationalrevolution says:

    Umm… a horrible idea, that I would hope the SEC or someone would not allow. This would basically create a form of pay to play insider trading.

    Yeah, clearly it would generate revenue for the papers, its a form of corruption!

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    • Mike B says:

      Hidden due to low comment rating. Click here to see.

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      • Skip Montanaro says:

        The information the journalist gets may well be inside information. If the article which contains it is then sold to a hedge fund which acts on it, wouldn’t that still be illegal? It might be harder to prove, since it has passed through more hands, but if it was inside information when the journalist first got it, then I would think that it’s still inside information no matter how many hands it passed through, as long as it’s not broadly available.

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      • JohnB says:

        If someone works for a financial publication like Value Line etc, they get arrested if they give out the publication ahead of time.

        This article writer must be from another world if he thought that writing an article and giving prior notice to people wouldn’t be the worst form of corruption.

        Just because he used the Times as an example, he assumes anything they do must be OK?

        Idiotic.

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  2. ZJG says:

    This would require collusion across all news providers to hold back relevant information. In no way would that be sustainable.

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    • Mike B says:

      It only works for exclusive stories, but most investigative pieces are exclusive.

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  3. CS says:

    Is it really going to be ok with the SEC? Suppose a Times reported decided to trade on the information before release. Would that be “ethical”, as Salmon claims? Would it be also legal, as he implies? I’m not convinced, and I don’t think that the Times ought to test this. (I believe that the WSJ has internal policies prohibiting such trading. Does the NYT?)

    If they sell the info as “advance delivery of research”, which will of course be made available free to general readers in a day or two, would that bypass the ethical/legal concerns? I wonder.

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  4. Sally M Betscher says:

    I think the “perfectly ethical” comment, regarding newspapers giving early access to paying clients, is open to debate. And fairly sophisticated debate, since the issues are by no means clear cut or obvious. I foresee slippery slope arguments, but we all know those can be fallacious. Interesting dilemma.

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    • Mike B says:

      Hidden due to low comment rating. Click here to see.

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  5. NO... NO NO NO NO NO says:

    What an absolutely abhorrent idea, and it goes against everything I have ever considered part of “good journalism”.

    Journalism’s main purpose is to inform the people. Not to informs *some*, but ALL. Sometimes that information has a financial impact. Letting companies learn of pending articles that may have some financial impact gives those companies a HUGE financial advantage.

    If the NY Times or any other newspaper or journalistic organization were to make one of these arrangements, they’d become nothing more than Faux News, just shilling to the highest bidder rather than a failed ideology.

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  6. josh says:

    If it’s true that companies’ stock prices tend to drop after negative stories about them are published, I wonder if there are some employees of these stories’ publishers take advantage of knowing the story’s print date by readying themselves financially to buy the company’s stock once it’s price does drop and then selling their shares when the price recovers, assuming that these companies’ stock prices do tend to recover.

    I wonder if there is a way to test this question.

    I wonder if the ability to take advantage incentivizes publishing negative stories about companies.

    I wonder if anybody who actually has knowledge of the publishing date even has teh financial resources to take advantage. I wonder this assuming that most people in the newspaper business don’t get paid very well. I have no idea how much they tend to get paid.

    Anybody have any ideas on how to assess the wonders listed above?

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  7. neela says:

    I don’t believe it would be legal to trade on. The law is clear, you cannot trade on Material Non-public information regardless of how you acquire it. It doesn’t matter if an insider tips you, a channel partner tips you, your buddy at the fda tips you etc. Reg-FD has made it so companies cannot even share information to analysts before they share them with the public.

    A major negative piece in the times regarding alleged corruption is really no different to having knowledge of whether the FDA will issue a negative ruling on a product of yours. That said, there is a grey area. You are allowed to do such things as channel checks and trade on that. You can stand outside of stores or use satelite imaging on the parking lots of stores on black friday. The line b/w legal research and material insider information is certainly blurry, but my guess is that the above practice would not fly with the SEC.

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    • Neela says:

      In thinking more about this, there is a way to tweak the model for it to be legal.

      Let’s say the Times publishes on two schedules – Premier and Standard.

      Premier costs $50K per user and is available to anyone who wants to subscribe. All investigative reports are available to subscribers of the premier subscription one day before it is published to standard subscribers – regular Web and print customers. In that situation then the NYT would be okay as the information would be viewed as Public the day it is published to premier subscribers. This is why investors can absolutely get proprietary research reports from Ibanks. The problem of course, is that willingness to pay for this is limited as every other hedge fund is likely to see it/have access.

      It is only if one or two people get it and no one else does that it becomes non-public, but of course, that’s when it’s most valuable. Of course the challenge becomes where to draw the line. What if NYT prices premier at $1M / seat such that only 3 hedge funds subscribe. Is that public enough?

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  8. Nick says:

    I don’t understand how this isn’t saying that NYT should team up with large companies to perform insider trading;

    The SEC says of insider trading

    “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.”

    The entire idea of these sorts of actions being illegal is that being able to change things by knowing nonpublic information threatens the integrity of the market.

    So, in the case of an individual who learns of important, nonpublic information and sells it to another individual who then makes money off of it, it’s illegal insider trading. But for the NYT selling to companies it’s just doing business?

    And what, exactly, is the difference between doing an out-of-the-money put option and this operation?

    With such a put option, they would be buying the option and potentially having a profit, but also some limited risk if the stock doesn’t fall; in this instance, they let someone else buy the put option, and have instead a guaranteed profit. From that perspective, it seems to be a less risky, guaranteed income version of doing put options on the companies, which is…questionable ethically.

    Now take it one step further: suppose major news organizations start doing this. They gain an important source of revenue. Then, the company throws in a sweetener: “If you delay publishing this for just a few hours, we’ll give you 1.5x our normal fee. If you don’t, we’ll stop paying you ever again.” And then, “If you delay for 24 hours, we’ll pay extra.” “two days.” “a week.”

    This moves us down the path where news organizations, instead of being light of truth revealing corruption and illegal actions performed by companies, instead become complicit, perhaps even helping to cover up their activities, the opposite of what a free press is supposed to do.

    So yes, I’m sure news companies could make tons of money by performing illegal and unethical things, but I wouldn’t recommend it.

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    • Alaska Ranger says:

      There is precious little here that is grey: effectively all is black & white. NYTimes, its employees, etc. cannot legally trade in the securities markets based upon material they are about to publish. Period.

      The SEC’s dicta about insider trading does, as commenter Neela suggests, present some interesting questions, however. Neela correctly calls it “Material Non-Public Information”…the term “insider” is more a handy reference word than specific (think of those employees of the NYTimes). Now, let us suppose that I know of an exchange-traded exploration company searching the mountains around me for extractable resources. If I use my own knowledge of this terrain and a lifetime of geologic expertise to ascertain that this company will run through their cash long before they ever find anything here, can I short the stock, or do I possess material non-public information? It certainly is non-public; but is it material?

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