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Media capture II: Cementing control through financing and ownership

By Snezana Green, Senior Legal Counsel

In the first article in this short series, we looked at the first two of the four major elements of media capture: capture of the media regulator and control of the public service broadcaster. In this article, we’ll take a look at the third and fourth elements: the use of state financing as a control tool and taking ownership to interfere in editorial.

El Periódico’s 25 years of ad boycotts

Government advertising boycotts aren’t new to long-term MDIF client El Periódico, a Guatemalan daily known for its fierce investigative reporting, or its founder Jose Ruben Zamora, recipient of numerous press freedom awards. In fact, the company has been subject to a government ad boycott ever since its founding in 1996. But in 2012, pressure grew into something even more damaging soon after former president Otto Perez Molina came to power: private advertising revenue plummeted.

The reason for the fall in ad revenues was the government’s adoption of a new strategy  – it ‘encouraged’ private businesses to stop advertising in the paper. Fearful for their own businesses becoming political targets as El Periódico continued exposing the Molina government’s corruption, many private advertisers withdrew their ads. The financial pressure on the daily even descended into physical violence; in 2014, El Periodico’s sales director, the fearless Froquen Donis, came under armed attack, which the paper attributes to her unwavering determination to win back advertising revenue.

El Periódico’s investigative reporting played an instrumental role in the 2015 Guatemala Spring that led to the arrest of Molina, his Vice President and more than 80 officials. But that didn’t bring an end to the pressure. El Periódico remained a thorn in the side of successive governments and it took years for the paper to regain most of its advertising clientele. Sadly, the current government continues to use financing to try to influence editorial and yet another wave of boycotts is building.

Step 3: Soft censorship pandemic

Along with governments taking control of regulatory authorities and public service media, as we discussed in the first article, ‘soft censorship’ of the type that El Periodico is exposed to is another strategy deployed early on by authorities setting out to capture media. These are behind-the-scenes activities exploiting the government’s advertising budget and /or subsidies to secure favourable news coverage and discourage critical reporting.

Many media we work with in Latin America, Africa, Asia and Central and Eastern Europe report being subjected to undue economic interference by governments and their allies. These practices are a clear violation of international free expression norms. Nevertheless, they are prevalent around the globe. How so? And more importantly, why?

Many factors enable the quiet spread of soft censorship. It’s most prevalent in less media-free countries and weak economies where media’s survival often depends on state subsidies and where the advertising industry isn’t strong enough to resist political pressure.

Inadequate legislative frameworks are also to blame. For example, laws that set high thresholds of government spending enable governments to directly purchase ad space and circumvent open tender procurement procedures at lower amounts. Another is a lack of regulation requiring governments to publish information on their spending or the criteria applied when issuing state advertising contracts, as is the case in Hungary.

In February 2021, a group of 16 press freedom organisations expressed concern that the European Commission’s failure to address two complaints alleging abuse of state aid by Hungary, one of which has been pending since 2016, has empowered Poland’s government to deliberately distort the media market. In Serbia too, an EU candidate country, the state continues to substantially influence competitiveness in the media sector by providing significant and wide-ranging forms of state aid.

In Botswana, even though its High Courts declared the discriminatory placement of government advertising unconstitutional, soft censorship persists. This is because economic pressures can take many forms. In this particular market, the government subsidises the state-owned daily – it is distributed free of charge and its advertising rates are below market price, which undermines the profitability of private independent media.

Montenegro provides another example. Its few independent media businesses have been subjected to acute financial pressure for years due to the systematic injection of millions of Euros of taxpayers’ money into a formerly state-owned daily. Parallels can be drawn to Myanmar. In 2013, Myanmar allowed private daily newspapers for the first time in five decades. But newly born media struggled to survive in a market where state-run dailies enjoyed privileged access to government advertising, subsidies and distribution networks.

In El Salvador, the digital daily El Faro has recently been subjected to multiple wide-ranging audits in a systematic effort to silence its criticisms of the President and his government. This is yet another type of financial pressure (there are serious economic costs of undergoing audits, never mind any fines that might be imposed, as well as damage to the brand) or interference that operates under the cover of law, using regulatory and inspection powers to overwhelm and silence critique. Such practices were examined in comprehensive research into soft-censorship practices in seven countries in Latin America conducted in 2008.

In Malaysia, the government is consistently the highest single source of advertising expenditure, with available data indicating that the vast majority of public funds for advertising continue to go to government-owned media. And in India, one of the largest media markets, major newspaper groups – which have a combined monthly readership of more than 26 million and are seldom critical – are kept in check by the withdrawal of government ads, which for some represent 15% of advertising revenue.

The list can go on. Common to all these forms of soft economic pressure is the underlying intent: to strip independent media of cash, psychologically drain them and, ultimately, force them to close or take a neutral or pro-government line. Soft censorship is certainly the most silently pervasive of the four major indicators of media capture; it is hard to prove without serious, time-consuming investigation and is rarely reported on, yet preventing it is crucial for independent media’s sustainability.

Step 4: Ownership and control

The wave of media liberalisation that swept the globe in the 1980s and 1990s impacted differently on different countries depending on underlying market factors and each government’s willingness to carry out reforms to foster greater freedoms. Countries that had strong state-media controls in place prior to liberalisation, such as many in Asia and Africa, and authorities that were unwilling to fully surrender the tools that shape public opinion to private hands, failed to complete reforms and the privatisation process. This paved the way for easy media re-capture, as in Myanmar. Even some more media-free countries also have compromised environments. In Slovenia, for example, as legislation does not address conflicts of interest between media owners and political parties, several outlets are directly co-owned by the ruling political party and relay the party line.

In other cases, as in many Latin American countries, liberalisation led to increased levels of media ownership concentration. Media had been family businesses for generations and neoliberal reforms enabled some of them to consolidate into market giants, primarily in broadcasting. Appearing independent, these broadcasters grew in size and influence but remain vested in the same corporate structures that have seen the same authoritarian structures elected over and over again. This is the model that is commonly found across the continent, from Peru and Colombia to Brazil and Mexico.

In countries that allowed foreign private ownership, such as most post-communist countries in Central and Eastern Europe, after a period of relative peace between national and foreign owners who had moved into the market, a reverse trend is now playing out. Formerly independent media are being ‘recaptured’ in the name of protecting national interests, which leads to a forced exodus of foreign media owners from much of the region. In turn, the “vacuum is filled with a new class of media owners, predominantly domestic and  closely linked with political parties or interest groups, or politicians themselves” (M. Dragomir, 2019). For example in Poland, the state-backed oil refiner PKN Orlen bought the private, German-owned Polska Press, a move that put hundreds of dailies, weeklies and websites under the control of the petrochemical conglomerate. This ‘repolonization’ of Polish media has long been at the centre of the ruling party’s plan for media reform.

This does not mean that domestic media owners are protected from capture. In Hungary, for example, after Prime Minister Viktor Orbán’s Fidesz party secured victory in 2018 elections, in a merger of unprecedented size, in a single day some 470 Hungarian media outlets  were effectively taken over by non-profit foundation KESMA, leaving only a handful of media outside this politically tied structure. This was a signal to national business media owners that “the media that had been entrusted to them were not their own” (ECMPF, 2019).

However, some foreign ownership may offer a degree of protection to domestic media if the foreign investor is not intimidated into withdrawing from the market. In generally underfinanced and oversaturated markets such as those of Central and Eastern Europe, it is often resource-rich international owners that are better able to resist political pressures and provide diverse, high-quality content compared to smaller domestic competitors (Bard at all, 2016). Many of MDIF’s equity clients report some success shielding from government pressures simply by the fact that MDIF – which is US-based and has a strict policy of non-interference in client editorial – holds a minority ownership.

Although media outlets are the most common target in this fourth, ‘ownership and control’ phase of capture, in some cases infrastructure companies are also at risk; whoever controls the infrastructure is well-positioned to capture controls of the news it carries. In Serbia, for example, privatisation of the major telecommunications company has been reversed by multiple buy-backs and the telecomms giant, Telekom Srbija, is now effectively back under majority state control. In recent years, a number of sales and acquisitions of cable and media companies took place, several of which were directly or indirectly purchased by Telekom Srbija. Its activities are being watched with great concern by many who are fearful of the government using its telecomms arm to seize full control of the information space in Serbia and beyond, potentially destabilising the entire region.

The cost of media capture

The more indicators of media capture there are in a single market, the harder it is to prevent. As a government moves towards its goal of capturing the media ecosystem, fewer independent media remain on the market. An independent media outlet could be operating on the market for decades, but it may suddenly weaken under financial, political, legal and psychological pressures, and fold.

This is a time of shady deals in which the business and economic interests of media owners converge with those of their political allies, their ties intentionally hidden, leaving most people unaware that access to reliable news and information is being manipulated. Although the media market may appear diverse, there is almost no space for pluralism of news or diversity of opinion.

Ultimately, the outcome of media capture may only be visible when exposed to close scrutiny. In Hungary, public discourse leading up to the 2018 elections was completely devoid of rational, two-sided debate necessitating a court verdict to bring opposition viewpoints back into morning talk shows. And in Serbia, an election assessment mission conducted in 2020 found that the media were dominated by the ruling party, resulting in extensive media bias and “the role of state-sponsored disinformation campaigns aiming to shift opinions vis-à-vis elections”.

Practices that undermine independent media also undermine democracy. With the erosion of media freedoms, the rule of law starts to erode. Civil society, national human rights institutions and the judiciary are the next targets, as has occurred in Poland. Across the globe this has paved the way for the emergence of new hybrid regimes, halfway between democracy and totalitarianism. The more media freedoms are compromised in a given country, the quicker it slides back into old patterns, as Malaysia and Myanmar demonstrate.

But at what ultimate cost, even to those unwilling to let go of power? A recently published research paper examining the effects of press freedom on the economic growth of 97 countries over four decades (1972 to 2014) found that countries do not fully recover economically if their press freedoms are compromised, even if the rights of the media are restored. The toll is high on the media, on democracy and on a country’s economic wellbeing.

What can be done to counter this epidemic? In the third and final article in the series, we’ll take a look at some practical ways to combat media capture.

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