Private Equity Vultures Killed Splinter. Your Company Could Be Next
Credit to Author: Brendan O’Connor| Date: Thu, 10 Oct 2019 22:02:07 +0000
This week, executives at G/O Media, formerly known as Gizmodo Media Group (GMG), formerly known as Gawker Media, announced that they would be shutting down the left-leaning news and politics website, Splinter. According to an internal memo, the company is ceasing the two-year-old site's publication because it hadn't built up a large enough audience, but this is not really true in any meaningful sense. Actually, the company is closing Splinter because the workplace under capitalism is a dictatorship, and the dictatorship of private equity is an especially arbitrary one.
The memo from editorial director Paul Maidment stated that the shuttered website's staff would be redistributed to other G/O Media sites like Jezebel and Deadspin, but multiple Splinter writers and editors—as well as freelance contractors—reported having been laid off. In a statement, the GMG Union said that it would be negotiating with Great Hill Partners, which owns G/O Media, over severance and "next steps."
The death of Splinter sent shockwaves through the ranks of left-leaning journalists, but it should also matter to the broader public. The site's closure shows that apart from long-term trends decimating the media industry, there are outlets being gutted by cynical investors stripping media companies for parts. And the same forces that decimated Splinter are working insidiously to impact industries as varied as healthcare and retail.
Earlier this year, Great Hill acquired GMG from Univision, a major media multinational that had been purchased for $13.7 billion in 2006 by a consortium of private equity firms; Univision had bought Gawker Media after the latter declared bankruptcy following a series of events involving a famous wrestler's sex tape and a reactionary billionaire with a grudge that do not get any less bizarre as time goes on. (Full disclosure: I was on staff at Gawker and then at GMG until taking a buyout last year.)
Univision, as investigative reporters at the company would come to report in great detail, was "a fucking mess" thanks to a combination of mismangement and cuts. It didn't take long to see that matters were unlikely to improve with Great Hill, which has been accused by G/O staffers of promoting men rather than qualified women, engaging in laughably archaic business strategies, and changing the editorial directions of successful sites.
Throughout all of this, the overwhelming feeling—in the newsroom, at least—has been one of confusion and dismay. Why, for example, would a publisher choose to shut down a news and politics website in the middle of the most tumultuous presidency in a generation? If this seems nonsensical, that is because it is—if you imagine a publisher of journalism being someone who cares about publishing journalism. Private equity firms like Great Hill do not care about journalism; private equity firms care about nothing other than extracting as much profit as quickly as possible with as little investment in the businesses they come to own as possible. It is, as Hamilton Nolan wrote for Splinter, "one of the most perfectly soulless industries ever invented by capitalism."
This model of financial capital began to develop in the 1970s, as the United States and the United Kingdom began to loosen banking regulations, but exploded following the economic crisis of 2008. Today, according to Bloomberg Businessweek, the private equity industry manages trillions of dollars in assets, backing more than 8,000 businesses—almost double the number of publicly-listed companies. Avoiding public markets allows private equity firms to be extremely ruthless with the companies they acquire to generate short-term profit, often at the expense of the long-term health of these companies—and with no regard, of course, for the employees who are suddenly out of work.
In practice, this means that PE-run companies often lay off workers, slash benefits, or sell off parts of the business in order to get quick cash—which the companies sometimes need because PE firms load their acquired companies up with the debt they used to finance the purchase of those companies. This has led to predictable results: Toys R Us and Sears fell into bankruptcy when they were unable to pay off the debt their private equity owners saddled them with after purchasing them. The same thing happened to the healthcare provider ManorCare, to the great detriment of the elderly patients under its care.
This business model, as exploitative as it is, is profitable for the people behind these bankruptcies, who can ransack firms on their way out the door by paying themselves management fees and special dividends. One study cited by Bloomberg has found that there are more private equity managers who make more than $100 million annually than investment bankers, top financial executives, and professional athletes combined.
"The massive growth of private equity over the past decade means that this industry’s influence, economic and political, has mushroomed," Heather Slavkin Corzo, director of capital market policies at the union federation AFL-CIO, told Businessweek. "It’s hardly an exaggeration to say that we are all stakeholders in private equity these days, one way or another."
The news of Splinter's demise follows quickly on the heels of Sports Illustrated being gutted by a different set of private equity managers, who have laid off half the staff and intend to replace them with underpaid freelancers. (The CEO called the situation "awesome.") In fact, private equity firms have exploited the crisis in journalism precipitated by the internet to suck up all kinds of publications, not just legacy print magazines or digital media outlets but also local and regional newspapers across the country. (VICE Media is independently owned, but has been invested in by private equity.)
There is no version of capitalism that is free of exploitation or coercion, for so long as private property exists and the functioning of society is built on the profit motive, we will all be subject to bosses to whose whims we must adapt. (Unionize your workplace today!) The rise of private equity, however, means that in addition to all the regular bosses, we now have to live with a subset of capitalists whose entire business model is contingent upon not only keeping costs down and revenues high but limiting their investments in the first place—hence the reliance on debt and leveraged buyouts.
Forget about treating the workers they employ with dignity, these people barely care about ensuring the businesses they own can function as businesses. Great Hill didn't care about making Splinter, a good website, even better; that would have required time and money. Like all private equity firms, Great Hill's only concern is extracting value. Surrounded by billions of dollars, they live in a world abstracted from the one the rest of us inhabit. Perhaps if they did not have so much money, these things would not be happening. There's only one way to find out.
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This article originally appeared on VICE US.