Here’s the next installment of my interview with James Hamilton, author of this month’s Nieman Journalism Lab Book Club selection, All the News That’s Fit to Sell. Here we talk about Chapters 3 and 4, which use TV as a jumping-off point to discuss how economic incentives encourage certain kinds of news coverage and discourage others. Among the topics we cover:

— How FCC deregulation led to more liberal subject matter on the evening news;
— How old Bill O’Reilly’s viewers are (hint: really old);
— How family-owned newspapers encouraged more public-service journalism; and
— How NPR encourages you to “consume an image of yourself.”

As always, there’s a full transcript below the jump.

Josh: All right, we’re back with chapters three and four in All the News That’s Fit to Sell. Those two chapters are entitled “How Strong are the Public’s Interests in the Public Interest” and “Information Programs on Network Television.” And they talk about the demand side of the equation we have been talking about a bit here.

You write about the perception of bias, and how part of that could be a response to the media’s targeting of certain demographic segments of society, particularly young adult women.

Are you saying that it’s primarily the selection of topics of stories that spur bias criticisms — is it more the topics that the news covers or the way that they cover them?

Jay: Both of those could be affected by economic considerations. Let’s first take the topic selection. What I looked at in my book — one of the first things I did was read a lot of biographies of network correspondents, people who’d worked in network news. And it was clear that things were changing when television was deregulated. And in fact, if you go back to the 1980s, there were several great quotes by the chairman of the FCC. One is “Television is just a toaster with pictures,” And the other is “The public interest is defined by the public’s interest.” And what that FCC commissioner was saying is that there really is no market failure in news. News is just like any other good — it’s like a toaster.

And in part, there was a deregulation — and television stations were no longer required to extensively document the type of information that they were providing, and you could essentially get your license renewed by sending in just a little bit of paperwork. And at the same time, with the explosion of cable channels, you saw the erosion of what you could think of as the oligopoly of boredom. When there were only four or five options, each of the major networks could provide a network news program heavy on public-affairs programming. They needed that in the ’60s and ’70s to get their licenses renewed. And if they did it at the same time, they weren’t really going to lose out to other people.

Then with the explosion of cable channels, things became more competitive, and you found this more market orientation for the network evening news. So what happened was, if you look at who the marginal viewer was in the 1990s — the person would switch in and switch out — it was people in their 30s and 40s, early 40s. They could watch cable or they could watch the network evening news.

Those people aren’t the average viewer — the average viewer was much older, in their 50s. But if you’re running in an economic marketplace, sometimes you take the average viewer for granted. They’re not going to go off and watch MTV or the E! channel. You focus on that person who sometimes watches and [sometimes] doesn’t. And, in particular, they focused on women in their 30s. Women’s attention commands a higher ad rate, because surveys show that they are more likely to make the purchasing decisions within the household.

So if your a network producer in New York, you want to attract women in their 30s to your network evening news program. Toward the end of the program or middle of the program, you have more flexibility about issues you want to talk about. And if you want to talk about issues of interest particular to those women, they’re more interested, I found in looking at survey data — gun control, poverty, issues of families with children. Those issues are traditionally identified in the press with the Democratic Party.

So what you’re trying to do is attract marginal viewers with high advertiser value, and what that means is you talk about Democratic issues. And so I show that the higher the interest of women in their 30s in particular topic, the more content directed towards them — both the number of stories and amount of time — in the 1990’s. That sets up a great counterprogramming strategy by Fox.

Josh: One of my favorite media statistics ever was in a New York Times story about a year and a half ago, that the average age of a viewer of the Bill O’Reilly show on Fox was 71 — or the median age, excuse me. Not the average, the median. And that had just stunned me, because it was in the context of an article about Keith Olbermann’s show, and his people at MSNBC were so excited they were attracting a younger audience because his median age was 59 — which did not strike me as stunningly young.

Jay: Right. Well, the other thing too is, you can remember those in part are subscription — they get some subscription from cable. They also care about advertising, but they can also get a revenue stream from your cable bill.

Josh: In one of our previous talks, you described the level of hard news not being as high as it should be as a market failure. And you just described how in the ’60s there was a way to get around that market failure — which was regulation through the FCC. Do you see any room for a return of government regulation in this space that would be productive? Do you think there would be anything to be gained for going back into that direction?

Jay: I think that if you talk about it as pure content requirements in news, it would be very hard now, because in the old days you could do well and do good at the same time — because the profit rates were so high and the competition was so low given that there were only five channels. The other thing that you had operating, too, was that for a while, the owners or founders of the networks were still alive and they got some utility from the notion that they were doing the right thing — just like in the 1980s, you had newspaper owners that were individuals or families, and they got a return from providing more public-affairs coverage in their newspapers than the market was demanding.

So the fact that the channels are now owned by very large companies which are not even branded as media companies anymore — they’re conglomerates — that means that the real focus and the real fiduciary responsibility is to maximize profits. If you told them they had to cover certain types of hard news, that’s going to be difficult because of the First Amendment. What they would probably try to do is skirt it by providing the thing that’s most profit maximizing. So again, if they said “you want more hard news, let’s talk about another scandal,” or “let’s talk about the horse race or the poling.” So I think one of the things that the government could do most easily is what the Obama administration said it’s going to do, which is be more transparent. Because if you have more transparency — if raw data is provided, if people, interest groups, and the media get better access to information, the granular information of what government is doing, that’s effectively lowering the cost of covering hard news so I’m more hopeful that that would happen.

Josh: You had a quote in this chapter that was “The high fixed costs of gathering, producing, and distributing news mean that the varieties of information products offered to the market will be limited.”

Jay: That’s right.

Josh: And it’s interesting that were at a point at which two of those three high fixed costs have, as we’ve talked before, gone to something near zero online. But the cost of gathering, which is largely the salary of the people who have been laid off in our industry in recent months and years, hasn’t significantly gone down. From your economics knowledge, would you expect different reactions economically when different layers of the fixed-cost puzzle change? Is there something about the gathering costs still being high that would affect the way that media is produced?

Jay: Sure. Well the good news is, with the drop in some of those fixed costs, it means you get more variety, because it takes fewer people’s attention to cover the fixed costs of a particular outlet. So you get more and more niche products. If you take an overview of it, I think today versus 1960, you’re much more likely to find a media outlet that reflects what you are thinking.

The bad news is that the number of eyeballs whose advertising rates support that outlet may be declining. So we have more outlets but fewer people watching any particular one. And it’s really that attention or subscription from them that allows the creation of the information. So I worry about the quality of information that can be provided. And I think that’s why people are wringing their hands about some of the traditional mainstream media which we’ve really relied upon — The Washington Post, The New York Times, the financial straits that they’re in right now.

Your point about the news gathering — one of the things that you could do is try to lower that cost. Some people do it through crowdsourcing. Some people — American Public Media has something called Public Insight Journalism, which you probably read about, where you basically create a database of people in your area. WUNC, the local public radio station here, is doing this. People give information about themselves — their demographics, their interests — to the radio station. Then the radio station puts out a query, and a query might be, “What do you think is the next bubble that is going to burst in our area, now that the mortgage crisis has partly worked its way through? What’s the next bubble that you see?” Or, “What’s the most pressing financial concern that you have?”

So that’s trying to lower the cost by basically relying on people’s expression to tell you what is going on. But I’m also very hopeful about text mining, what I would call data mining in the public interest, as a way to lower the cost of new gathering. And that’s going to be more possible if government is more transparent.

Josh: One last question on these chapters. When you say that it’s easier for people to find a media source or a news source that they connect with in a more intense way than would have been the case before — one that reflects their beliefs — and that obviously has an impact on the advertising model.

Would it though, on the flip side, have a potential benefit in that if people do feel more that their beliefs are more reflected in their media outlet or that they feel a stronger connection to it, that they might be more willing to pay for access to that media — that it’s possible that, in the way that someone who loves Morning Edition is more likely to want to give money to NPR, that there might be room for an area of the media where the consumers are willing to pay for part of the gathering of news?

Jay: That’s a great question. The way that people talk about that in educational programming for children is that you have to reach before you teach. So what you’re pointing out is that if the product more closely matches your ideal, you may get more satisfaction from it.

The question is, let’s suppose we were talking about an Internet site. On the Internet, if we’re talking about facts or information that’s more like a commodity, if you have more people offering it to you, that’s a competitive market. And in a competitive market, the price gets competed down to the marginal cost. And the marginal cost of one more pageview is zero. So even if somebody values information, other people are going to be offering it to them at a zero price.

Now, two hopeful things. One is you could make an appeal to them based on their identity, just like NPR does — that you have a responsibility to do that, so we’re taking it away from an investment equation. We’re saying this is a duty or this is what people do. So by giving, you are consuming an image of yourself. That’s one way that you could do that.

And then the second thing is partisan information. My.BarackObama.com, MoveOn — they are providing people who are partisan with more detailed information about politics and sparking face-to-face political interactions. So another source of information, it might not be the media. It might be partisan information — but partisan information today is not just negative advertising on television. It’s telling you in a very specific way about the issues that you care about.

Josh: It’s also folks like Human Rights Watch going and doing original reporting on human-rights situations in Darfur or elsewhere, that sort of thing.

Jay: Exactly, nonprofits. I think if you ask how does information get created — information gets created if you pay somebody, if they can sell your attention to advertisers, if they want your vote, or if they want you to think about a different set of issues, and that is what I view nonprofits as doing.