Why Does Fake News Exist? A Look Inside A Highly Lucrative Business
4:12 AM
As an online media entrepreneur who types from San Francisco, plenty of people have been asking me why there’s been such a proliferation of fake, very fake, or overly biased news. To understand fake news, we must understand the cast of characters:
1) The Creators
2) The Enablers
3) The Establishment
Let’s discuss each one of them in more detail. I’ll also touch upon how money is made.
The Creators Of Fake News
There are two main creators of fake news. The most egregious creator comes from non-journalists who put out spammy garbage you see on the web that’s simply untrue. The second creator of fake news is not so much fake news, but biased news coming from journalists with an agenda. Biased news isn’t as egregious since we all have our biases that are hard to extricate from our actions. However, biased journalists can do greater damage due to their large platforms.
With the use of clickbait titles, misinformation, and satire, fake news has the ability to affect public opinion about a person, country or issue. Here are some of the more outrageous fake news examples.
Why does fake news exist? Is it because people have nothing better to do with their time? Or maybe it’s because people are all serious trolls on the internet? Maybe.
The main reason why fake news exists is simply due to the desire for MONEY, lots of it! Once you follow the money, everything becomes much clearer.
The #1 goal of every fake news creator is to get as many impressionable readers to click on their fake news articles as possible. More clicks means more advertising revenue.
Clickbait titles are very important because fake news creators cannot compete on substance. None of their articles will ever rank well on search (Google, Bing, Duckduckgo, etc) because most of their content is very thin and filled with grammatical errors on topics that are very ephemeral e.g. Southern California Floods Sweep Away Neverland Ranch, Revealing Michael Jackson Is Still Alive!
The average fake news article might contain 250 words of gibberish, whereas the average article on Financial Samurai tends to be more evergreen with well over 1,200 words, complemented with charts and graphs. Due to the way search engines work, a fake news article would unlikely ever rank above an article I write about on the same topic. If it did, the search engine would be discredited and eventually lose a ton of money themselves.
Fake news creators are paid generally in the range of $1 – $10 per 1,000 impressions. Therefore, if a fake news creator can get 1,000,000 impressions a month, his website stands to earn $1,000 – $10,000 a month. If you’re a fake news teen earning $10,000 a month living in Macedonia, you’re crushing it because the Macedonia GDP per capita is less than $5,000. That’s like making $960,000 a year here in the U.S.!
To provide some perspective, only about 5% of Financial Samurai’s total revenue comes from click ads and banner ads compared to 100% of revenue for fake news sites. My business model is about creating direct long-term partnerships with companies I believe will create value for everyone.
Same paper, same dates, different markets. Media sometimes caters to what their audience predominantly wants to hear.
The Enablers Of Fake News
So how do spammy garbage sites exist on the web if they can’t rank well in search?
The first reason is due to low barriers to entry. Anybody can start a website for less than $50 a year nowadays and compete with the Yahoos, the Forbes, The New York Times, and the Googles of the world. WordPress and other platforms make it easy to create good looking sites that used to cost tens of thousands to create. Chances of creating a reputable website off of fake news are low, but so is the opportunity cost.
Before I started Financial Samurai, I clearly remember thinking it would be relatively easy to create a reputable personal finance site because I was reading so much garbage on the web by authors who had minimal to no financial background or experience. Circa 2008 there was a NYT bestseller by Ramit Sethi called, “I Will Teach You To Be Rich,” at Barnes & Noble by a recent college grad with no job. I thought to myself, America is awesome because anything is possible! What I’ve learned since meeting Ramit, who readily admits the book’s title is spammy, is that it’s all about marketing.
The second reason why fake news exists is due to the enablers. More specifically: Facebook.
Facebook has almost two billion mindless users each day who waste about an hour of their lives on their platform. Facebook is the largest, most engaged social media platform in the world. Fake news creators know that people who spend lots of time on Facebook are often lonely, highly impressionable people who are looking for validation and a way out of their misery. Since misery loves company, negative fake news does very well.
Why does Facebook enable so much garbage in everybody’s news feed? Money, money, and more MONEY! Facebook spent years trying to convince companies to build likes on their Facebook page. The assumption was, the more likes your company page has, the more easily you can “organically” reach your target consumer. Then Facebook changed the rules after companies spent billions of dollars trying to get consumers to like their pages. They told companies they now had to also pay to get the people who liked their pages to see what they posted! Talk about luring your customers in and beating them with a stick.
Facebook is currently worth roughly $385 billion because they earn over $30 billion in advertising revenue a year. Some have estimated Facebook earns roughly half of their revenue from fake news advertising. But let’s say they earn just 10% of their revenue from fake news. That’s still $3 billion in revenue Facebook doesn’t want to lose, especially since Zuckerberg is worth ~$55B alone.
Fake news dominate’s Facebook’s news feed during the election
Online Marketing 101
From the fake news creator’s perspective, if he can spend $1 on advertising to make $1.10 in advertising revenue off a bogus article, he’ll do it all day long until marginal cost exceeds marginal revenue. If you are a skilled fake news creator, sometimes you can spend $1 to make $2 in revenue, which is an absolute goldmine until arbitrage whittles away all profits.
Paying for clicks is what paid marketing is all about. Based on my experience consulting for various marketing departments who regularly spent $50,000 – $200,000 a month on online marketing, Facebook has the highest return on investment in paid marketing, much more so than Google Adwords, LinkedIn, and Twitter.
The reason? Facebook knows more about you than every other platform because you’re spending the most amount of time clicking and sharing on their platform. They track all your behavior and know everything you like and do. Therefore, an advertiser can target their ideal consumer much more granularly e.g. a get rich quick scammer can target an insecure guy in massive credit card debt who constantly posts selfies of himself with things he cannot afford.
Why Not Just Prohibit Fake News?
I’ve spoken to many engineers at Facebook, LinkedIn, Twitter, and Google about how easy it is to stop fake news from running on their platforms, and they all said it is very easy to do. All Facebook has to do is create a new screening algorithm and employ a team to randomly vet the output of these algorithms before articles are advertised on other people’s news feeds. Sure, they won’t catch all fake news, because “good” fake news almost seems like real news, but they’ll certainly reduce the number of fake news articles on their platform.
Ask yourself why there is no fake news on your LinkedIn feed compared to all the garbage on Facebook. The first reason is because LinkedIn doesn’t allow fake news. The second reason is because LinkedIn’s members won’t stand for fake news. They’ll actively report a fake news article and ruin the reputation of the fake news creator/poster. In other words, the quality of users is quite different.
Don’t think for one second a company with over $30 billion in revenues can’t do more to squash fake news on their platform. Even if you are worth millions or multi-billions, the desire for more money is often too strong to allow a person to do the right thing.
If you are worth $55 billion, why is there a single person in poverty within your community? If you can earn $140 million a year in risk-free income without touching principal, why would you sue the indigenous people of Kauai out of their lands when you already bought 700 acres?
Remember: no matter how hard Golem tries, he cannot escape the power of the ring. This is why the ungodly rich continue to hoard and obsess over how to make even more money.
The Establishment Of Fake News
Percentage of supporters who follow various media organizations
The Establishment refers to traditional media, which consists mostly of unbiased journalists who simply want to report the truth (veritas). I’ve met plenty of journalists and reporters since I started Financial Samurai in 2009, and every one of them has been great, that is until Gawker and Buzzfeed came along.
Traditional journalists aren’t paid much so there’s really no incentive for them to report fake, misleading, biased, or sensationalist news. If they did, they’d probably get fired or at least have to write an embarrassing retraction that would blight their careers.
But something happened more than a decade ago. CNN stopped simply reporting the news and started going the “superstar model” where they created media personalities out of anointed journalists. Once this started, every other major news station followed suit because consumers love to read, watch, and listen to what they already believe in. To become a personality, you need a view. And that is how big media bias began.
With the superstar model paying people like Bill O’Reilly and Megyn Kelly $15M – $20M a year, journalists suddenly found it OK to push their agendas. The mandate comes from the top; the CEOs’ main purpose is to drive viewership and generate revenue at all costs. The Establishment was getting crushed by online media, including bloggers who were taking tremendous market share. The push for biased news has everything to do with MONEY.
Global digital ad market revenue market share 2016
Example Of Bias By Traditional Media
As a personal finance blogger, I’m consistently surprised that real estate journalists seldom discuss rising income and increased employment as key reasons why home prices and rents have increased. It’s as if they believe real estate prices just rise due to magic. But as finance people understand, the value of anything is largely predicated on the demand for the asset and the income each asset produces.
Instead of focusing on fundamentals, biased real estate reporters focus on how unaffordable so and so city is, how greedy existing homeowners and developers are, and how there should be more subsidized housing paid for by the very people who pay the most taxes. They cherry pick an expensive property and then extrapolate how unaffordable it is for median income earning citizens. Their reports are totally misleading.
You and I know the United States has some of the cheapest real estate in the world. Yet, when I show reporters this latest chart about how U.S. property is inexpensive on a price-to-income ratio, they refuse to acknowledge.
Go New Zealand! Could all these sources be wrong?
Inevitably, every single reporter who is negatively biased towards real estate is a renter. They’ve let their desire for affordable housing (based on their income), cloud their judgment to the detriment of their readers. Not owning real estate over the long term is one of the biggest reasons for the widening wealth gap. I’m pretty sure that in 20+ years, I’ll be kicking myself if I don’t take advantage of the weakness in the luxury Honolulu property market within the next three years.
If you missed out on the 220%+ S&P 500 run since 2009 by holding 100% cash, you’re probably feeling foolish as a stock market reporter. Even though you might be incredulous or simply jealous of other people for making a small fortune, it’s much harder to be a biased stock market reporter because there’s not much you can manipulate in your article. The Dow Jones is above 20,000 for now. The S&P 500 is at a record high. Whatsapp really did sell for $19B+ in 2014. Prices are as clear as day with the stock market.
If the countries in the real estate chart above were simply the respective countries’ main stock market indices, there’s no way a journalist would argue that the S&P 500 doesn’t look undervalued compared to the NZX 50 (New Zealand) and every other country in the chart.
Always Think For Yourself
You might love Financial Samurai because you think like me. I’m totally biased in believing there’s a high correlation between effort and reward. I also believe everything can be explained with logic to the frustration of many. For example, if you want something bad enough, you’re going to do everything possible to get it. If not, then you simply don’t want it bad enough. The problem with liking Financial Samurai due to our similar philosophies is that we end up with group think.
Therefore, the key to learning is to understand our own biases and consume with an open mind. I’ve tried hard to frequently write from a different perspective to make sure we’re not missing anything. More often than not, there’s some new revelation that helps us become better financial freedom seekers.
Fake news is all about taking advantage of impressionable people in order to make more money. Thank goodness I’m not in the business of reporting the news because that is a never ending grind. But thank goodness there is fake news because it allows media people who build a brand based on substance get ahead in the long run.
Key Points To Review
1) Facebook is the #1 culprit of fake news because they enable the creators to disseminate their crap on their platform with almost 2 billion unique users a day. No other traditional media platform comes close to Facebook’s reach. Frequent users on Facebook are younger and more impressionable, which is why Facebook is so much more profitable. Little to no fake news exists on LinkedIn because it’s not allowed.
2) Google, the dominant online ad earner, is not seen as a culprit of fake news because if Google allows fake news to rank well in their search results, Google will ruin their brand, hurt their search traffic, and ultimately hurt their valuation. Unfortunately, Google+ never took off, which means they don’t have a large social network to actively monitor like Facebook. You can still advertise fake news articles and get rich scams using Google Adwords, but they just aren’t as effective.
3) The creators of fake news come from all over the world due to low barriers to entry. Geoarbitrage makes earning money online from a poorer country much more attractive. If all you have to do is make $417 a month in Macedonia ($5,000 per capita GDP) to replicate the $4,416 purchasing power a month in the United States ($53,000 per capita GDP), you’ll absolutely be drawn to the fake news business.
4) Fake news is a get rich quick scheme. You cannot build a reputable website off of fake news, unless you’ve built a reputation based on satire, like The Onion. There’s a huge army of freelance writers who pump out crap to see what sticks. With cheap and frequent advertising tests on Facebook, fake news creators can fine tune a profitable ad campaign until marginal cost equals marginal revenue.
5) Traditional journalists are predominantly honest people who are just trying to report the facts. However, like everyone, they have their biases that are sometimes hard to root out from their reporting. We should recognize the journalist’s biases by understanding his or her personal background and reporting history. Further, we should recognize the inherent bias that comes from the very top of every news organization. The country is divided, so of course there is a war between the media and the president.
6) Finally, we are fools if we don’t spend time thinking for ourselves. Fake news exists because it preys on people who aren’t willing to think things through. Fake news will never stop because it’s much too lucrative.
Readers, why do people spend so much time on Facebook when the newsfeed is now full of garbage? Do you really believe Facebook can’t stop fake news from showing up on its platform like LinkedIn? Were you aware of the endless possibilities to make lots of money online? What else am I missing about fake news?
from Financial Samurai
via Finance Xpress
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