If you don't have money, use social capital

Image from MCMcapital.com

Digital media entrepreneurs often lack the financial capital and business savvy to launch and sustain a high-quality news operation.

They could improve their reach, impact, and sustainability if they knew how to harness social capital in the form of partnerships with universities, broadcasters, foundations, for-profits, and nonprofit organizations.

Most digital media startups have trouble raising financial capital. They can't get loans because they don't have anything to pledge as collateral other than their personal home and auto. They can't get investors interested because they lack a business model with a promise of profit.

 What is their social capital?

• A veteran journalist has a reputation in the community as a trusted source of information. Their name is their brand with readers and potential sponsors.
• They may have a relationship with a university where they have occasionally lectured or even taught entire courses. A university could provide volunteer labor, equipment, and even broadcasting facilities for a startup. The startup would be a teaching laboratory for students.

Why fake news is beating traditional news

Traditional news organizations made a deal with the devil when they turned to social media and search-engine optimization to gain digital audience and revenue.

They recruited "community managers" to raise their profile on Facebook, Twitter, Instagram, and the like. They tagged their articles to raise them in search results.

The devilish side of the deal was that presumably ethical news media were trying to sell credibility and verified information -- facts -- within a turbulent ocean of emotion. On social media, feelings are more important than facts. People want to declare who they are and what they believe. So they "like" and share stuff that reinforces their view of who they are and what they agree with. Emotions predominate over facts.

Versión en español

Articles that are popular, shared, and linked to will rise to the top of search results in Google and other search engines. It's easy to share or like something that reinforces your view of who you are.

Misreading the data

So the post-election idea now being championed by many journalists that Facebook and other social media should be fact-checked, and that fake news stories could be eliminated from social media shows they misunderstand the new media dynamics.

Media value lies in relationships, not scale

Amid all the news about how Facebook and Google are devouring the world, I would like to sound a note of optimism for digital news media. But first, let's acknowledge the bad news.

It is true that the munch munch munch you are hearing is the sound of the Internet giants biting off big slices of the digital advertising pie. However, much of that has been at the expense of traditional news media. There is an opportunity for digital-only news media to fill the gap in local coverage.

In the short term, this is not something to celebrate, since the decline of newspapers in particular has led to a big loss in watchdog journalism on the local level. The chart below, which has been published widely, shows the rise of Facebook and Google's advertising revenue concurrent with the decline in newspaper ad revenue.

With information from Thomas Baekdal @baekdal and Ben Thompson @benthompson of Stratechery.com.