Tuesday, May 4, 2010

A little analogizing

I posted this article from The American Prospect about reforming the ratings agencies a while back, but it took me a while to wrap my mind around one of the critical implications of a nugget buried in there:
In the 1970s, modern photocopying machines undermined the original business model of the rating agencies by allowing investors to obtain ratings materials without paying for them. One by one, the rating agencies sought and obtained the approval of the relevant regulators to move from an investor-pays to an issuer-pays model.
Does that remind you of anything? It should: it’s a new technology disrupting a media company’s old strategy. The ratings agencies responded, essentially, by getting regulators to go along with their plan to change their business.

We know the end of this story. We can’t foresee the end of this new media story, but it’s worth noting that many of the media company’s proposed responses are essentially legal in character; i.e. they want to change the rules about their company without changing their business model. (e.g. they want stronger IP enforcement, or they want the government to ignore antitrust and allow them to collaborate on a paywall, etc. etc.) And if the ratings agencies are an interesting little analogy to consider, then we should prefer the latter: we want the media to be supported by the public, as it is harder to be corrupted by them (see: the worst habits of political journalism).

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