Fake News: Yellow Ain't Mellow

Back in 2012, Ryan Holiday-an insider in today's blog-driven media-wrote Trust Me, I'm Lying: Confessions of a Media Manipulator. It's an uncanny guide to navigating and understanding today's blustery news cycle. Polls taken just before last year's US election showed media trust sits at historic lows; this book explains much of the why behind it.

First, Holiday addresses history: Fake news isn't new. It was around over 100 years ago. Back then, they called it "Yellow Journalism." The term describes the sensational and hyper-competitive atmosphere prevailing in the media; specifically, wars between Joseph Pulitzer at the New York World and William Randolph Hearst's New York Journal. Actually, the origin of term illustrates the competitiveness: "Yellow" refers to a character in cartoonist RF Outcault's work originally published in the World. Hearst hired him away from Pulitzer and mimicked the paper's style overall. As Holiday puts it:

In the days of the yellow press the front pages went head to head every day, driving each other to greater and greater extremes. As a publisher, William Randolph Hearst obsessed over his headlines, tweaking their wording...riding his editors until they were perfect. Each one, he thought, could steal another one hundred readers away from another paper.

Cutthroat competition! Back in the days of Yellow, subscriptions were uncommon-folks bought their newspapers from a kid on the street in the morning, and then sometimes again for the evening edition. This meant every single day was a new competition to attract readers. Through most of the 20th century, that changed. As America suburbanized and printing technology advanced, subscriptions became the norm.

This meant headlines didn't have to be so sensational and/or misleading. Since a reader base was mostly locked in, headlines really only competed for attention relative to other stories in the publication itself. Once TVs were in every home, the same went for the big three networks on the evening news: not too much competition and most folks stayed loyal to their chosen source, legendary anchor Walter Cronkite being the best example. As such, actual journalistic integrity was a differentiator. (Note the long-standing New York Times motto: "All the News That's Fit to Print", which was coined in 1896 and in many ways marked the beginning of the end of Yellow Journalism). This isn't to say media wasn't biased or sensationalized throughout, but the subscription model mitigated it some.

This status quo prevailed ... until technology happened. Increased competition from cable news, the internet, podcasting, tweeting-you name it-steadily eroded the subscription model in lieu of renewed day-to-day hand-to-hand combat. To boot, the increasingly interconnected world made news a 24/7 thing. Today, subscription is either dying or taking radically different forms. Only a few newspapers and magazines can really do it any longer (like The Wall Street Journal).

The result is a new shade of Yellow. Drudge, Breitbart, HuffPo and many others-are in the high-paced, ultra-competitive world of breaking stories. They, and thousands of blogs and other venues like them, eroded the subscription model. News happens too fast for a newspaper to keep up, let alone uphold notions of journalistic integrity. Holiday notes:

The death of subscription means that instead of attempting to provide value to you, the longtime reader, blogs are constantly chasing Other Readers-the mythical reader out in viral land.... Think about how we consume blogs. It is not by subscription. The only viable subscription for blogs, RSS feeds, is dead. And so is the concept of subscribing.... Cumulatively, the biggest sources of web traffic are Google, Facebook, and Twitter. Viewers are generally sent directly from these sources to a specific article for a disposable purpose: they are not subscribers; they are seekers or glancers.

Historian W. J. Campbell demarked the characteristics of Yellow Journalism:

• Prominent headlines that screamed excitement about ultimately unimportant news
• Lavish use of pictures (often of little relevance)
• Impostors, frauds, and faked interviews
• Color comics and a big thick Sunday supplement
• Ostentatious support for the underdog causes
• Use of anonymous sources
• Prominent coverage of high society and events

Sound familiar? There is a lot of overlap between that and media today. Here is Holiday again:

A powerful predictor of whether content will spread online is valence, or the degree of positive or negative emotion a person is made to feel. Both extremes are more desirable than anything in the middle...No marketer is ever going to push something with the stink of reasonableness, complexity, or mixed emotions. Yet information is rarely clearly good or bad....Navigating this quandary forces marketers and publishers to conspire to distort this information into something that will register on the emotional spectrum of the audience.

Again, it's not that this never existed, but that the structure of today's media vastly exacerbates it. Most folks tend to read sources they agree with, and shun ones they don't as "fake" or "biased." But it's all fake or biased-or opinion-based if you want to be nice. Both sides do this stuff all day. The quest for clicks knows no ideology.

The cycle is fairly vicious. As Fisher Investments founder and Executive Chairman Ken Fisher frequently notes, all this competition erodes profitability at the traditional, major news organizations-so much so that they've mostly fired expensive talent (the older, salty dog editors and intrepid reporters who've seen it all) in lieu of cheaper, far less experienced, labor. And the vast majority of news today is first broken on blogs with virtually zero standards of quality or journalistic integrity, only to be later regurgitated by bigger organizations. This cycle is precisely why and how fake stories prevail and sweep through the news cycle on a daily basis-it's a quest for clicks, not truth.

Let's talk Trump for a moment. Whether you love or hate him, he's probably clever to continue using Twitter-it's a venue where he can communicate to the world unfiltered by the cycle of Yellow; it's a place he can spar with the Yellow and refute it, or even create his own.

I'd argue we're in a media phase transition. Competition in all walks of life tends to destroy the old model in favor of the new. Today's news is pretty chaotic, but it will continue evolving. What shape that takes and over what time period ... who knows. The New York Times and The Wall Street Journal both issued reports on their planned paths forward last year that don't seem encouraging for the lover of rich investigative journalism. We may have lost a large degree of journalistic integrity we'll never see again.

For investors, that means both a greater challenge and greater opportunity ahead. Today, a large swath of analysts treat investing as though it is an exercise in formulaic modeling of various mathematical inputs. There are aspects of that in investing, for sure. But it seems to me reading comprehension and testing narratives is a lost art, and it's one that's gaining primacy.