U.S. Fake News Sales Slide

One indication that the controversy over the unattributed use of video news releases (VNRs) is beginning to bite is buried in the latest quarterly financial report of Medialink Worldwide, the $30 million a year behemoth of the fake news industry. Tucked away in the report the company notes that revenue in the quarter to September 30 from its "domestic broadcast services" dropped by 12.9% or $706,000, compared to the same period last year. Medialink attributes the slide in sales to "softness in the domestic marketplace."

Of course, companies rarely admit that their revenue is being affected by a public controversy. And it is true that there are factors other than debate over VNR disclosure standards that affect demand for fake news products. For example, the amount spent on VNRs is influenced by the general state of the economy and whether specific companies marketing and PR budgets are contracting or not. But a 13% drop in revenue in one year is big in anyone's terms.

Medialink rather optimistically claims in its report to the U.S. Securities and Exchange Commission that there have been no significant changes in risk factors beyond those disclosed in its 2005 annual report. Perhaps Medialink thinks that since it mentioned "potential regulatory action" as a risk factor for the first time in its statement for the first quarter of 2005 it doesn't need to go any further now. The one significant difference between early 2005 and now is that the probability of regulatory action by the Federal Communication Commission (FCC) appears to be more towards the "likely" end of the scale than than just being "possible".

Even the company's own actions support this assessment. In June this year, Medialink's founder and CEO Larry Moskowitz told PR Week that "if the FCC is considering an inquiry, we've got to take that seriously." A few months back, Medialink was one of the founding members of the new VNR trade association, the National Association of Broadcast Communicators (NABC). One of NABC's primary goals is to try and kill off an investigation by the FCC into the stations revealed in the Center for Media and Democracy's April 2006 report "Fake TV News" to have broadcast VNRs without attribution. (The same day Medialink's latest quarterly report was released, CMD released our latest report, "Still Not the News." The FCC has promised to investigate all the additional stations revealed to have used unattributed VNRs, including some created by Medialink.)

The implications of the FCC investigation for Medialink are significant. With its core service pushing VNRs in domestic decline, the company has pinned its hopes on a three-pronged strategy: increasing international sales of VNRs and associated services, selling off some of its business operations and boosting the performance of Teletrax, a video watermaking company of which it owns 76%.

To boost international sales, which grew enough to offset just under half the drop from domestic VNRs income, Medialink reports that it has sought to expand its "international client base." But relying on expanding international consumption of VNRs is also vulnerable to regulators elsewhere following the FCC's lead. Selling business operations, while providing a short-term cash boost, is at best only a stalling action. In late September this year the company sold its U.S. Newswire division to PR Newswire Association for $19 million. In December 2004 it sold Delahaye, its research division, for $8 million to the Swedish PR company Observer AB. But soon there will come a point when there is little else left to sell that will yield enough to offset Medialink's ongoing operating losses.

In presentations to investors, Larry Moskowitz has emphasized how important the success of Teletrax is to the company. Teletrax, which was launched in 2002, enables clients using a video watermarking system to track exactly where their material is being aired. There is no doubt that the income from Teletrax has been growing rapidly, but with only $1.9 million coming in the first nine months of the year, there is still a long way to go before it offsets the company's vulnerability to a potentially big drop in income from VNRs.