In the past few months, the media sector in the United States has gone through one of its worst rounds of layoffs in decades, with some voices within the sector even asking if journalism is a viable career path despite surging subscriptions at publications like The New York Times.
Most recently, outlets like Vice and the sports blog Deadspin were decimated in a massive round of job cuts. Vice ended its online publication, and Deadspin laid off its entire editorial team.
These are the latest in a slew of headcount reductions at countless newsrooms around the US over the past decade at the hands of wealthy owners. The latter overwhelming have the backing of some of the biggest private equity and wealth management firms in the US like Apollo Global Management, Fortress Investment Group and Alden Capital, to name a few. These institutions are also called shadow banks.
A surge in private equity investments in media, experts said, has led to decisions that benefit investors but not always the companies and their employees, similar to the 2008 housing crisis and private equity’s ability to flourish during that time.
While the media business is in the spotlight now, it is a microcosm of a bigger challenge across the US economy. What makes it stand out is that it’s been a long and high-profile battle.
One such moment came with tech’s control (overwhelmingly led by Meta, then Facebook) in 2018 over audience traffic, which made newspapers, magazines and news portals beholden to the algorithmic choices of social media giants like Facebook and Twitter, which ultimately hurt the sector.
That was an optimal entry point for private equity to get a stronger foothold in the media business.
“Media companies were struggling at the time but not nearly enough as the journalism community was led to believe,” explained Margot Susca, the author of How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy.
“Funds use these market conditions to justify the gutting of these American institutions,” said Susca, who is also a professor of journalism at American University in Washington, DC.
‘Liquidating the entire industry for profit’
Like in the housing market, financial institutions capitalised on someone else’s misfortune to make money from it. In the 2008 recession, it was lenders and big investment banks ranging from Lehman Brothers to Washington Mutual, a move that ultimately led to their collapse.
The key is real estate. In the housing crisis, banks seized foreclosed homes for pennies on the dollar after homeowners defaulted on subprime mortgages.
In the case of the media sector, shadow banks are going after physical newsrooms and selling them. For instance, in 2018, Gannett sold the headquarters of the Asheville Citizen Times to Twenty Lakes Holdings, a real-estate affiliate of Alden Capital. Gannett sold the building for $3.2m. Alden then sold it to developers for $5.3m.
A comparable move happened at Vice last year. Only months after Fortress Investment Group acquired the publication, it left its office in Brooklyn, New York.
There’s a lot of real estate at shadow banks’ disposal. Private equity, hedge funds and other comparable firms control roughly half of all daily newspapers in the US.
“The problem with the news media sector is not its viability. The problem with the news media sector are these locust funds that are liquidating the entire industry for profit,” Susca said.
But where do shadow banks go once physical assets like real estate have been liquidated?
They squeeze out revenue where they can for as long as they can. That often means cutting staff.
G/O Media, formerly known as Gizmodo Media Group, sold off Deadspin, its sports blog. The new owner, Lineup Publishing, said it would not bring over any existing editorial staffers even though it aimed to “be reverential to Deadspin’s unique voice”, G/O CEO Jim Spanfeller said in an email to employees.
Great Hill Partners acquired the media brand in 2019 and drastically shifted Deadspin’s editorial vision. The publication was a sports-centric one that also housed vibrant cultural commentary on a variety of topics. At the direction of the new owner, the publication was directed to “stick to sports”. The announcement led to mass resignations.
This week, G/O Media sold two more publications from its portfolio — The AV Club and The Takeout.
G/O is not in a financially dire position, according to Spanfeller, who told Axios this year, “We’re not strapped for cash.”
According to the Writers Guild of America East, which includes various unions representing editorial staff from multiple media firms, Great Hill Partners made an estimated $44m in revenue in 2023. The guild suggests that Great Hill Partners has enough money to make decisions that do not undermine the financial security of its staffers.
When Spanfeller was appointed in 2019, the private equity firm said he was a significant investor in the company but did not disclose the specifics of the financial agreement. Spanfeller’s appointment came directly from the firm suggesting that it intended to oversee day-to-day editorial operations across G/O’s portfolio.
Great Hill Partners did not respond to Al Jazeera’s request for comment.
G/O is the latest in a string of companies laying off workers in the last few months alone.
Last month, Engadget, a brand owned by Yahoo, had a series of layoffs including of high-profile editors. It came amid a reported refocus on traffic growth. But how can you drive more traffic with high-quality reporting with fewer people to make the product?
Meanwhile, Apollo Global Management, which now owns Yahoo, is doing very well. The asset management firm’s stock is up nearly 250 percent over a roughly five-year period – 80 percent this past year alone. The firm acquired Yahoo in 2021 and also has a significant stake in several other large media companies, including Gannett, which owns hundreds of newspapers around the US, including USA Today, the fifth largest. In 2019, Apollo provided $1.8bn to finance the acquisition of the newspaper giant and merge it with GateHouse Media.
‘Layoffs were the core strategy’
Once Gannett’s acquisition of GateHouse was complete, it scrapped hundreds of jobs immediately. In 2022, the newspaper group slashed roughly 600 more jobs in two rounds of cuts in August and November.
Apollo also acquired both Northwest Broadcasting and Cox Media Group, which included 54 radio stations, and 33 TV stations.
“After funds became owners, layoffs were the core strategy to try to maximise revenue. [These are] firms that just had profit as the sole motivation,” Susca said. “Layoffs are the stark reality of hedge fund ownership and private equity investment.”
Historically, private equity firm involvement has led to layoffs – an average of 4.4 percent of job losses in two years as well as a 1.7 percent decrease in pay, according to a study from the University of Chicago.
That is what happened at Cox Media Group. Almost immediately after its acquisition, talent from local TV and radio stations across the country was laid off.
Apollo Management did not respond to Al Jazeera’s request for comment.
New York-based Alden Capital operates a similar job-cutting strategy and is one of the most infamous hedge funds in the sector for decimating a number of newspapers around the country.
In 2020, Vanity Fair referred to the firm as the “grim reaper of American newspapers”.
Vanity Fair’s stern critique is because of the massive slate of layoffs at the papers Alden Capital owns, including the Denver Post, even as one of the company’s executives said “advertising revenue has been significantly better”, according to reporting from Bloomberg in 2018.
Alden bought Tribune Publishing and gutted many of its newsrooms. At the time, Tribune was profitable, but Alden still moved forward to strip down its papers to make more profits.
Alden often pushed to beef up subscriptions even after shedding physical assets like office space and social assets like its people, which, Tim Franklin, senior associate dean at Northwestern University Medill School of Journalism, suggests is a losing strategy.
“It’s like charging for 16 ounces of Coca-Cola and putting it in a 12-ounce bottle. You’re giving people less and then expecting people to pay. The problem is that you end up in this doom loop. You’re getting less digital subscription revenue because you are providing less content, so then you make cuts and then you see even less revenue and you make more cuts. It’s this never-ending cycle of rinse and repeat,” Franklin said.
Alden Capital did not respond to Al Jazeera’s request for comment.
Doomed to failure
Shadow banks and big banks have made risky investments and hoped they would work out financially.
They sold the idea that someone could very well make payments on a subprime mortgage. Now, the idea is that a media company can create quality reporting on a shoestring budget and a fraction of its headcount. But those are unrealistic expectations and doomed for failure.
During the 2008 housing crisis, big banks essentially created an insurance plan for themselves: sell the debt and make money off the interest. Now private equity is employing a comparable strategy for media.
In the housing crisis, the banks bundled the mortgage loans in a package and sold them to the bond market to random investors. The banks had protections. If a lender defaults, they sell the debt on the secondary market for a profit. The strategy was to bet on the homeowners who were most likely not going to be able to afford the mortgage payments. But ultimately, that backfired, and the resultant housing crisis has been well documented.
“The only people there [who] were able to buy homes at the point could do so with cash or with Wall Street financing because that cash was still flowing,” said Aaron Glantz, author of Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream.
“Private equity is not depending on that credit system,” Glatz added.
In either situation, the protections afforded investors were not passed down to homeowners in 2008 or writers, editors, on-air talent and others in the media industry now.
While some savings and lending banks failed and were the recipients of massive bailouts, shadow banks flourished. Generally speaking, these companies make money during times of economic vulnerability, leading to an even more challenging situation for average people.
In the wake of the 2008 financial crisis, funds were largely criticised for buying up distressed housing across New York City and forcing out longtime residents – a move that brought rent-stabilised properties to market rate, which ultimately allowed them to drive up prices on their buildings and raise the value of the buildings around them.
“They’re reliant on cash that is just sitting around ready to be spent or credit lines that they can get from banks like JPMorgan Chase or they can leverage other assets. They own so many other assets,” Glatz said.
One of those assets over the past decade is a growing number of media companies.
But even then, it poses the question: If all these media companies are struggling, why are their executives so wealthy?
Behind a number of these mass layoffs are uber-wealthy executives. That’s the case for Business Insider, The Washington Post and Vice, just to name a few.
In January, Business Insider, owned by the German media giant Axel Springer, laid off 8 percent of its workforce. Axel Springer, however, is doing well financially. Its CEO, Mathias Doepfner, has a net worth of $1.2bn.
Executives on both the editorial and business side at the short-lived outlet The Messenger raked in close to million-dollar salaries. Meanwhile, editorial staffers launched a crowdfunding campaign to make ends meet because the outlet did not give them any severance packages.
NBC and MSNBC laid off 75 people this year. Brian Roberts, the CEO of NBC’s parent company, Comcast, raked in more than $32m in 2022.
Despite the recent layoffs, the network hired former Republican National Committee Chairwoman Ronna McDaniel as a contributor. Hiring McDaniel was met with swift backlash from high-profile talent across the news organisation and the NBC News Guild, the union representing journalists across the network.
The union in particular pointed out that McDaniel – who was known for helping to enable former President Donald Trump’s baseless claims that the 2020 presidential election was rigged – was hired after the company laid off more than a dozen unionised journalists. Amid the backlash, NBC cut its ties with McDaniel.
NBC is just the latest major network to make job cuts. At CBS, despite its high viewership during American football’s Super Bowl, parent company Paramount laid off staffers the following day at CBS News. Meanwhile, CEO Bob Bakish made $32m in 2022.
In November, Conde Nast laid off 5 percent of its workforce. The Newhouse family, which leads Advance Publications, the parent company of the magazine giant, has a net worth of $24.1bn, according to Forbes.
In recent weeks, Vice laid off hundreds of employees and ended publishing on its website. It has been plagued with a nearly endless series of layoffs in the past few years. Prior to filing for Chapter 11 bankruptcy last year, the media company paid its executives roughly $11m – even though its executives were notoriously known for mismanagement.
Yet they were bailed out. Amid the Chapter 11 filing, Fortress Investment Group acquired Vice – a company that was once valued at $5.7bn – for $225m. Executives left with hefty paycheques while staffers were left jobless with little notice.
Fortress did not respond to Al Jazeera’s request for comment.
The Washington Post eliminated 240 jobs, yet it is owned by Jeff Bezos, the founder of Amazon, who is worth more than $200bn, according to the Bloomberg Billionaires Index, making him the second-richest person in the world.
In 2019, Senator Sherrod Brown sent a stern letter to Alden Capital, pressing the fund not to buy Gannett. Brown was unsuccessful.
In 2021, Brown, alongside Senators Tammy Baldwin and Elizabeth Warren, introduced the Stop Wall Street Looting Act, which would have reformed the private equity industry.
The bill never made it past committee, so it never had a vote in the full Senate.
Experts believe that Washington has not done nearly enough to curb the power of private equity.
“You have a government system, a regulatory, legislative system that has basically failed at every turn to stop the growth of these hedge funds,” Susca said. “And private equity firms in the journalism market, to me, is an institutional failure.”
