A small scandal has raised ire on social media after Twitter added the mention of “publicly funded media” under the twitter handle of the British Broadcasting Corporation (BBC) and National Public Radio (NPR). In Canada, the conservative leader of the official opposition jumped on the opportunity and asked that the Canadian Broadcasting Corporation (CBC) be branded with a similar label.

The reaction from such media outlets and their defenders has been to point out that it is an unfair attempt to stigmatize them by likening them to true state propaganda outlets in countries like Russia or China. To be sure, these entities have high degrees of editorial autonomy and independence. Calling them “propaganda outlets” (either explicitly or implicitly) is untrue.

This does not mean, however, that state-funding of media outlets is good for democracy. In fact, many people simply assume that editorial independence is sufficient proof of the absence of political interference. In fact, the very existence of these editorially independent organizations and of subsidies to media outlets are proof of interference by political actors unduly using the powers of the state.

To see how this can be, one must understand the basic economics of the media. Each media has different types of cost structures due to the nature of how they produce their services – newspapers, radio broadcasters, television broadcasters, etc.  Each media type has “fixed costs” which are incurred when they are setting themselves up. As they start producing, however, average costs start falling. These are economies of scale that different media outlets want to exploit, and thus they want a large mass of customers.

The problem is that the revenues that a media outlet obtains follow somewhat different rules. Yes, advertising revenues depend on the number of people reached. But only in part. They depend also on the number of people reached that engage with the advertising content. This means that a media outlet needs to find content that speaks to what could be very small groups of customers that are likely to purchase advertised goods and services. As such, media outlets cannot simply care about reaching more people, they have to care about reaching intense customers.

This may seem like a trivial nuance, but it is not. It is crucial. It means that each media will have a bias in what it chooses to print or air. Advertisers and politicians are aware of these biases. Advertisers know who their likely customers are, so they pick the best outlet in which to advertise. Politicians know what types of voters are likely to listen to a particular outlet, so they carefully pick the ones they choose to talk to about their campaign promises. It’s why, for example, right-leaning politicians tend to favor radio outlets whereas left-leaning politicians tend to favor print.

The ability of politicians to identify these pre-existing biases is why we should be wary of public funding. A politician in power can shape state funding to enhance the predominance of a particular type of media outlet whose biases are politically beneficial to him in terms of reaching his voters. Similarly, he could shape the terms of funding to go to certain outlets which can then expand their market shares at the expense of their competitors (whose biases favor his political opponents). In either case, the result is political interference by those in office who misuse the power of the state for their own interests.

Notice that no arm-twisting is needed to arrive at this loss of media independence. No politician needs to enter a newsroom to coerce a newscaster. No politician needs to bribe a journalist. All that is needed is a politician’s power to sculpt the shape of the news market in ways that are to his advantage.

In the end, the danger from state-funding is not the loss of editorial independence that could turn the CBC, BBC or NPR into arms of the state as in Russia and China. The danger is that the state’s power is being subtly used to favor a certain set of political interests by shaping the market’s structure. That danger is far harder to identify. Yet, it is a danger that too few recognize.