Subsidies for the media involve state financial support for media operations and content. Although generally considered undesirable from freedom of expression and economic standpoints, they are sometimes necessary to pursue social and cultural goals that markets fail to serve.
Types of Subsidies for the Media
A wide variety of subsidies are provided to media, but the types and patterns differ depending upon the types of media involved and the political and market orientation of individual nations. Subsidies are provided to promote media industries, support political activities, spur cultural development, meet the needs of minority linguistic and ethnic groups, assist religious and other organizations sanctioned by states, and reward political allies.
The term “subsidies” more precisely refers to state intervention that affects the economics of media, including indirect subsidies, such as tax reductions or reduced charges for state services that reduce costs industry-wide, and direct subsidies provided to specific units of media. Regulatory relief that exempts media from regulations faced by other industries can also be a form of subsidy.
Media subsidies are found worldwide in nations with widely varying political economic philosophies – ranging from those with high levels of market capitalism to those with strong centrally planned economies – and in countries with widely differing degrees of freedom of expression. The patterns of subsidization are related to national economic and industrial policies, and the levels and significance of intervention differ widely. These differences among national policies can be attributed to cultural factors and to economic policies toward industries overall.
Subsidies have existed since the first appearance of the print media, but their scale and scope have changed over time as states have responded to national concerns over press developments. Most print subsidies support newspapers, but some also support magazines and journals. Subsidies in western nations were originally given to press sympathetic to governments, but these later evolved into support designed to aid the press generally. Three decades ago, after a wave of newspaper mortality, a number of European nations constructed extensive subsidy mechanisms in efforts to reduce the demise of newspapers and the concurrent concentration in the newspaper industry. In the 1980s and 1990s, concerns over minority languages led to additional subsidies for those purposes in many nations.
The ability of subsidies to solve press mortality problems is debatable because the number of newspapers has continued to decline despite subsidies. Studies have shown that (1) subsidies often have not addressed the underlying economic problems of the press, (2) subsidies have tended to diminish over time, (3) dependence on subsidies can harm the ability of publications to improve and grow, and (4) there is difficulty maintaining political support for subsidies.
A significant change in subsidization occurred when policy changes privatized post administrations in western nations and thus ended or reduced the postal subsidy, which was the largest subsidy in most nations. Another change is occurring because there are considerable concerns that direct press subsidies – especially operating subsidies – violate contemporary competition policy on state aid due to rulings in other industries in the European Union. There are also concerns that the aid primarily benefits commercial firms that do not serve specific social purposes and that aid mechanisms have been used by publishers and dominant political parties to benefit their own purposes.
Subsidies for Broadcasting and Film
Broadcasting has typically had a higher degree of state involvement than print media so various types of subsidies to broadcasters exist in most nations. In many nations radio and television began as state or government-supported broadcasting. Even in nations in which broadcasting was private, however, there has been a significant level of government oversight and intervention. Typical subsidies to broadcasting have been free use of radio spectrum, state grants and allocations to support channels and program production, and requirements for audience-paid license fees – a form of taxation – designed to raise funds for broadcasting.
In the United States, for example, federal funding for broadcast programming is provided to the Corporation for Public Broadcasting, and the government has funded production grants for some content through the National Endowment for the Humanities. These fall into the categories of indirect and direct subsidies, respectively. In Korea, support for public broadcasting is raised by a television license fee administered by the Korean Broadcasting System.
Subsidies for production of motion pictures exist for both economic and cultural purposes and are designed primarily to spur domestic production and marketing of films. Tax breaks for investments in film production in German induced institutional investors to finance both domestic and co-productions with foreign firms in the last decades of the twentieth century. Another example of film subsidy is the Irish government financing of the Irish Film Board, which provides production loans and equity investments in motion pictures that promote Irish culture and provide domestic employment.
Much of the development of telecommunications worldwide has occurred because telephony was typically operated by government or given regulated monopoly status. Research and development of new services and technologies was often encouraged by special requirements, grants, or tax advantages. Creation of the Internet was made possible by funding from the US military, and development of the world wide web was funded by the joint nuclear research organization of European governments. Today, many countries provide tax breaks or do not apply taxes on services to Internet services. In other cases, exemptions from sales taxes on e-commerce exist.
Effects of Subsidies for the Media
The primary effects of subsidies are the provision of additional resources and reduction of costs to a media industry or a specific media firm, and support for creation of individual content products. Support to individual firms affects company finances, allowing firms to use the financial resources to pay expenses or to improve their balance sheets. To fully understand the impact of a specific subsidy, one needs to consider how it enters and affects the operating statements and balance sheets of firms and the effect it has on the financial performance of the company.
Most types of support simply help pay variable costs rather than fixed costs so aid does not significantly affect the fundamental economic and market conditions. In such cases, subsidies have little effect on the overall financial or market situations and thus create dependence on the handout of subsidies. State intervention can only support sustainability if it changes the financial and market conditions of the recipients by helping them restructure their operations, expand markets, or acquire cost saving technologies.
Part of the difficulties in achieving intended goals with indirect general subsidies is that they do not change the competitive situation of firms. Because dominant media in a market also receive the subsidy, it provides an additional revenue stream and gives greater resources that can be put to use to provide advantages against secondary media in the market.
State support can promote competition, have no effect, or harm competition in both the economic and information/idea markets. Most subsidies provided by states fall into categories that have no significant effect or actually harm either the economic or information market, and few actually promote competition.
Because subsidies provide financial advantages to firms that receive them that nonrecipients do not enjoy, they can affect the rivalry of firms in competitive media markets. Subsidies present trade issues because the World Trade Organization policy restricts state aid that affects international trade, but debates over trade in media products there have to date focused primarily on content quotas and ownership restrictions, because the effect of media subsidies in international markets is currently limited.
The European Union, in its efforts to create a common and competitive marketplace among European nations, has targeted subsidies in all industries for competition law enforcement if they distort competition in the market. European states have historically supported media industries more than the US and have a broader range of subsidies for media. Regulators in the EU have constrained the use of subsidies in motion picture production and broadcasting, particularly public service broadcasting, but have not yet addressed print media subsidies.
Although the US government provides few direct subsidies, it does provide a range of support, including postal rate reductions, tax advantages, and free use of airwaves. These, however, are provided to all firms in the industries and tend not to have significant market effects other than generally lowering costs of operations. As a result, they have only in rare circumstances been seen to be in conflict with competition law.
Research on the utility of subsidies indicates that state support can be successful in the long run only if it is utilized as more than operating aid that covers losses – that is, only if it results in a change in managerial and market strategies and is accompanied by a restructuring of the costs of operations. If used merely to pay operating costs and cover losses, subsidies ultimately lead to resource dependency on the state aid and the firm loses market incentives to improve its product and operations.
The optimal outcomes from the policy standpoint are for subsidies to enhance the condition of media so that their cost structures and market situations improve and so they make reinvestments that enhance sustainability. Negative outcomes are inability to preserve competition, long-term dependency on aid, or overprovision of subsidies that transfer wealth to produce unearned profits. This has occurred in many cases where subsidies are given to commercial and profitable enterprises.
For subsidies to be effective, they need clarity in purpose and must address the fundamental causes of the problems they are intended to solve. In the contemporary environment of the so-called information society – with the largest amount of types of media ever available and its enormous number of content providers – explicit purposes and unambiguous rationales for providing subsidies need to be provided, and specific objectives and goals need to be presented.
Subsidies need to be constructed to actually address the underlying economic and market issues that have led to the purposes and rationale for subsidies, and designed to produce effects that make it possible for subsidized media to free themselves from state support at some point in their future.
Environments of Media Subsidies
In considering policy and its potential benefits, we need to recognize two distinct environments of media subsidies. First, there is an environment in which market failure results from a general lack of interest and support by audiences because of their preferences to use other media. In the second environment, market failure results from structural and financial challenges despite interest and support by audiences.
The difficulties in the first environment cannot easily be solved by offering subsidies because the state subsidizes something that the public neither desires nor consumes – thus the policy merely expends limited public resources and does not produce the intended benefits. Subsidies to address problems facing the second environment can produce benefits, however, particularly when they are intended to support regional and secondary languages and cultures that may be less interesting to national and international advertisers. To do so, however, requires the presence of strong local identity and audiences willing to consume. If those are absent, they must first be built through cultural organizations and educational institutions before benefits can be produced through subsidies.
Subsidies for print media appear to work best when provided to book literature and magazines because these media have low fixed costs and the subsidies can easily be provided on a project or fixed-term basis. Subsidies in broadcasting and motion pictures appear to be most successful when they aid specific programs and individual film production and are given on a project basis with open competition for funding among producers.
In making contemporary policy, one needs to recognize that this changing media environment is presenting more choices to audiences and significantly altering media use patterns. This raises the question of whether subsidies are the most effective means for serving the laudable social purposes that often prompt interest in them. Policymakers need to consider whether their existing or planned subsidy systems are designed to preserve a certain form of communication (newspapers, for example) or to preserve its functions (facilitating social, political, and cultural interaction and development). If the latter is the purpose, they will have to consider broader options involving other media rather than focusing solely on one type of media.
Judiciously used subsidies can help media make short-term adjustments to the changing environment, and well-placed support can serve some public goals. Relying upon subsidies alone to produce and maintain the desired social benefits in media structure and content, however, will be insufficient, and a range of other policy options will need to be employed as well.
- Council of Europe (1998). Public aid mechanisms for the film and audiovisual industry in Europe, 2 vols. Strasbourg: Council of Europe Publishing.
- Dibie, J.-N. (1993). Aid for cinematographic and audio-visual production in Europe. London: John Libbey.
- Murschetz, P. (1997). State support of the press: Theory and practice: A survey of Austria, France, Norway and Sweden. Düsseldorf: European Institute for the Media.
- Picard, R. G. (1985). Patterns of state intervention in western press economics. Journalism Quarterly, 62, 3–9.
- Picard, R. G. (1985). The press and the decline of democracy: The democratic socialist response in public policy. Westport, CT: Greenwood.
- Picard, R. G., & Grönlund, M. (2003). Development and effects of Finnish press subsidies. Journalism Studies, 4(1), 105–119.
- Santini, A. (1990). L’Étât et la press. Paris: LITEC.
- Smith, A. (1977). Subsidies and the press in Europe. London: PEP.