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?


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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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  9. Mike says:

    It’s questionable enough that the SEC would investigate. And in the course of the investigation, the NYT would be forced to either reveal sources or withhold information. Withholding information in an investigation can be a criminal offense, and revealing sources is a journalistic death sentence.

    Even with lots of money on the table, I don’t see this as being a viable business choice because it sticks senior management with the choices of destroying their reputation or going to jail.

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  10. Clancy says:

    Okay, but if they do this, I’m starting a company that buys the permier access, and then publishes it directly on scoopthetimes.com. Thus making ME the first to break the story.

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  11. LD says:

    Think of the incentive to invent or at least sensationalize a story just to be able to charge hedge funds more often. This is a bad idea.

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  12. Steve says:

    I think some are missing the point – If they just publish earlier behind and expensive firewall, the information is public — just expensive. So it wouldn’t be insider trading. Public information is not the same as free information.

    You wouldn’t really have that big of an advantage by paying for it, though, because you’d quickly get a bunch of stories about the story. “The New York Times is reporting that…”

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  13. Eric M. Jones. says:

    It is not as if there is some objective reality, you know….

    If the time decides to concentrate on some bad thing in any particular company, this will move the markets. Everyone and every company has SOME dirty linen.

    The sharing of potentially market-moving information before release is corrupt on its face. Of course, it’s probably done all the time.

    Psssst…Did you hear the news about XYZ Corp…?

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  14. Larry says:

    Forget insider trading. Imagine the pressure to make up/slant lucrative stories when traders are paying you directly. There is already an incentive to go easy on advertisers, bend to the political will of the owners (and other corrupting influences), but this would bring the incentive for corruption to a whole new level.

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  15. Gkm says:

    Oh how naive these babes in arms be. Complicity between financial media and the power money is as old as dirt. This may just add some actual transparency to the relationship – so it won’t happen.

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  16. Brian Leach says:

    Phone Conversation:
    Is this the vice president of external affairs at Megacorp? This is Fred in marketing at the New York Times. I see that you are not a subscriber to our pre-publish service. We offer two plans: Option A cost $1,000.00 per month, and your subscription starts two weeks after we receive your PO. Option B costs $500,000 up front and your subscription starts immediately. Now most of our customers go for option A, but I STRONGLY suggest you get the immediate subscription. I think you will be a hero at your next board meeting if you do.

    You will go for Option B? Thanks, we look forward to doing business with you. By the way, have I told you about our corporate officer’s plan? In case you are interested, we also offer competitor plans.

    I am amazed that anyone would take this seriously.

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  17. Cameron says:

    Wouldn’t that be stock manipulation? I suspect the SEC would not look kindly on it.

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  18. ppw says:

    In terms of journalism professionalism, this is not a good idea regardless of “ethical issue” (which is poorly defined). I don’t think other information and think-tank commercial company cannot do it. Journalists collecting information for the sake of speaking to the public instead of an exclusive customer. render unto Caesar what is Caesar’s and unto God what is God’s

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  19. RPM says:

    Just this sort of thing put R. Foster Winans of the Wall Street Journal in prison back in the 80s. Hard to believe, but true, that a journalist leaking the contents of a story in advance can send him to the big house.


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  20. Nosybear says:

    Talk about stacking the deck against the little guy…. I don’t doubt this kind of thing would be perfectly legal but the ethics are a bit distasteful. You essentially create two classes of investor, those with early access and those without. It may be completely legal but it is completely wrong – you essentially make journalists into the research arms of the funds.

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  21. carlosmx37 says:

    precisely this kind of news are the material for very exclusive “newsletters”,that cost so much.

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  22. scribbler says:

    The NYT would be cutting its own throat if it did as Mr. Salmon suggests. Once the news gets out, it’s out. Other media quickly follow up on ‘exclusives’ so that it is no longer an ‘exclusive’. So the moment, Mr. Salmon’s ‘exclusive’ appears, exclusivity will have been lost and rivals tipped off. In fact, when media outlets discover what their rials are are up to, they hurry to rush out their own versions of the story with the aim of getting them to readers and viewers first. In journalism, these are known as spoilers. Mr.Salmon appears to know little or nothing about journalism or marketing.

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  23. gkm says:

    I wanted to follow up with the following examples of how complicity is endemic in the markets. Remember when Meredith Whitney made the famously wrong call on Muni bonds? Stop and think for a moment how she is compensated. She is compensated for selling her advice to clients. Why would she go on TV to publicize her advice for free if there was no value in it for her and would hurt the position of her clients? Well, of course she PRE-SOLD the advice and the clients were already positioned to take advantage when others who heard this puked up their muni bonds. Afterwards, people are saying ‘poor Meredith and her bad call’ when in fact it did everything it was intended to do. This includes providing content for CNBS et al.

    How about the University of Michigan confidence information for another. You can purchase a subscription to the info and trade on it beforehand. It provides more content for the financial news networks in the ‘Big Reveal’ and somewhere Goldman Sucks is trading against those who don’t know enough to get out of their way.

    Do you honestly think Felix Salmon could come up with a model that the most finely tuned exploitative industry in the world hasn’t already thought of? If you can think of it, and it’s actually a good idea, then someone with a lot more smarts and billions more in wealth has already thought of it. So good luck.

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