Absentee Capitalism

Ed Zitron 8 min read

When I wrote The Rot Economy, I spoke to the fundamental problem in modern business — the pursuit of eternal growth at all costs. This cancerous economic principle means that executives and venture capitalists have abandoned the concept of value within a business.

Through decades of corporate greed, production has become almost entirely separated from capital, meaning that executives (and higher-ups) are no longer able to understand the nature of the businesses they are growing. By not actively participating in the creation of the labor that enriches them, they are unable to truly understand trends within their business, because they’re only aware of how it works on the most distant level. And because they do not participate, they do not appreciate profit — they only appreciate more profit than they previously had.

The Writers Guild of America is currently striking over a number of extremely reasonable requests, including but not limited to asking for higher residual bases (the compensation for use of a show or movie beyond the initial compensation), weekly rates, and guarantees around the use of artificial intelligence in union productions.

These are reasonable requests. Hollywood may claim that it can’t afford raises, but both Warner Brothers and Disney remain highly profitable — but perhaps not as highly profitable as Wall Street demands. And the understandable anxiety of the Writer’s Guild is that studio executives will use AI as a means of replacing writers entirely, both by using their material to train models to create future projects and by using AI-authored content instead of stuff written by people.

The WGA has met stiff opposition from the Alliance of Motion Picture and Television Producers, who staunchly rejected the proposal, offering instead to have “annual meetings to discuss advancements in technology,” a statement that means absolutely nothing and provides no guarantees. This is rot economics in action.

It’s somewhat cliché, but Hollywood is not concerned about creating interesting, or good, or unique content, but more content that can be used to make more things that can be used to make more profit to increase the stock price. It’s not about whether something’s good, or new, but whether or not it is marketable and “good enough” for consumers. The only thing that truly holds them back are unions like the WGA who can — and have proven to in the past — advocate for the rights of those who are responsible for media executives’ outsized paychecks.

Executive excitement around generative AI is borne from these disconnected economics, because none of these people actually create anything. They are not writers, or producers, or even present on sets. They are not active participants in creating value of any kind, other than moving chunks of money around and making vague cuts to things — including by scrapping already-complete TV shows to lower tax liabilities, a move that disproportionately affects those creatives who rely on residuals for a living, particularly writers.

Former Vice CEO Nancy Dubuc made $1.5 million a year before leaving in February following her failure to sell the company. Co-founder Shane Smith made more than $100 million in 2014 alone. Vice is now headed for bankruptcy despite laying off hundreds of people, in part because Vice simply wasn’t paying its bills to vendors.

Under Smith, Vice had grown from an arts and culture magazine into a corporate behemoth more interested in — you guessed it — growing into a $50 billion media organization that could sell ads to executives scared of being left behind. He has not published anything on Vice since 2015. Dubuc’s replacements were Bruce Dixon (effectively a CFO) and Hozefa Lokhandwala, Vice’s former Chief Strategy Officer who’s previous role was Managing Director, Head of Content & Entertainment Investment Banking at J.P. Morgan.

These are the stewards of one of the best-known media brands in the world — lawyers, financial analysts and media executives who did not contribute to the actual product in any way, shape, or form. They worked to sell advertising and build product not based on any true understanding of what journalism is, or how it is produced, or how it is consumed, but rather their own intuition from doing a sort-of-similar job a decade or two ago.

When Dubuc joined, she declared that she would reduce Vice’s headcount — 2500 people at the time — by 10% and “focus on growth areas like film and television production and branded content.” Instead of focusing on being profitable or sustainable, Vice continued to pursue growth.

One of the common refrains in these stories is that it’s “hard to make news pay.” Yet there never seems to be any consideration of how huge these organizations were. Buzzfeed has 1200 people - and has now laid off all 60 of their Buzzfeed News department. Vice had 2500 people. Vox laid off 7% of its workforce — 130 people — in January, meaning that Vox has a headcount of over 1700 people.

These organizations always follow a pattern of avaricious growth. They grow to the point that advertising becomes valuable. They offer to make content for brands. They pivot into video production or another “new media” channel. They massively overstaff. And then, when reality bites, they start laying off people to try and keep an organization together that no longer resembles a creative pursuit. The business minds behind these organizations treat content as a commodity that one can simply create more of and sell advertising next to, rather than something that people actually like to consume and share.

That’s because one cannot grow a media organization that makes interesting stuff at the rapid speed that the markets desire. There is no joy in a sustainable, profitable and equitable company for Wall Street, venture capital or private equity. If it’s not a growth organization, it is somehow inferior to a lumbering, unprofitable piece of shit. If there is no potential pivot into new media, no “big idea” that could potentially lead to content deals or syndication, said media organization is going to be “left in its tracks,” despite seemingly every pivot into new media being colossally unsuccessful.

The “media business” is really more of a channel for advertising, run by people with advertisers’ brains, in a way that echoes the problems that face most modern social media platforms. As long as those in power are obsessed with growth metrics, the media will suffer, because journalists and their journalism will always be seen as parts of a P&L statement.

While there is definitely a need for business-minded people in the media industry — after all, these outlets do need to make money — they are almost immediately doomed by the interests of venture capital.

When Politico launched their own tech site Protocol in 2019, they started with 25 people (of which 13 were laid off two months later during the pandemic) - and around $10 million of funding, ballooning to 60, and then 80 people within a few years — along with the expectation that they would be, and I quote, “as big as Politico.” Yet it was shut down in 2022 after Politico was acquired by Axel Springer for $1 billion in part because it fell short of revenue targets, with Business Insider citing a source that said “Axel Springer [Business Insider’s parent company] gave Protocol a real shot.” On a personal note, I enjoyed reading Protocol a great deal, and I do not believe it was given a fair shot at all.

[Editor’s Note: I incorrectly stated that Protocol had 60 staffers on founding, and I’ve cleaned up exactly how many people worked there and when.]

The real “shot” they could’ve given Protocol would have been to not launch a 60-person newsroom with massive expectations into a crowded, competitive tech media market. Instead of starting with something sustainable and growing it into a major brand (it’s important to note that Politico started with four people), Protocol was built to be judged not on the quality of its journalism, but on how big its audience was and how quickly said audience could be monetized.

Buzzfeed — love it or hate it — is another great example. The site that asked “Which Indoor Plant Are You?” launched Buzzfeed News, a serious journalism venture, in 2011. Despite its trite origins, the site published some genuinely groundbreaking investigative journalism across topics as diverse as international relations and celebrity sexual misconduct.

In June 2022, Karolina Waclawiak took the mantle of Buzzfeed News Editor-In-Chief with a mandate to reach profitability within one year. According to an email sent to Buzzfeed News staffers, the company was on the way to becoming “financially sustainable”, having exceeded its Q1 goals. But she didn’t get the chance to complete her mission.

In an all-hands email, Peretti attributed the decision to axe Buzzfeed News the broader headwinds buttressing the tech sector, citing a “fading SPAC market,” troubles in the digital ad business, and a lack of support from tech platforms. According to Crunchbase, Buzzfeed has raised nearly $700m since its inception. That — combined with the fact that Buzzfeed trades at less than one-tenth of its December, 2021 IPO price, and now faces the very real prospect of being delisted from the NASDAQ — provides a perverse incentive to cut, no matter how prestigious or respected the masthead.

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Defector, an employee-owned sports and media company, is living proof that there’s an alternative model that actually works. Defector is profitable and sustainable with a staff of 27 people, with employee-owners paid living wages (a rarity in the media industry) and receiving shares of the profits. They appear to have sold subscriptions based on the crazy idea that people will pay for good stuff that they like, and I’d wager people will continue to do so as the writers continue to write. (Full disclosure: I have been a subscriber since launch, and I have personally advised Defector on Public Relations activities on a pro bono basis.)

Other obvious examples are the many successful Substacks that have come from people leaving large media entities. While I may have my disagreements with Eric Newcomer, he’s turned his newsletter into a functional business, one that’s now hiring their first reporters not named “Eric.” Casey Newton has made Platformer a real name in tech journalism, and done so (along with the excellent Zoë Schiffer) by… reporting and writing stories in a way that’s digestible and interesting.

Every single successful media story has been the result of actual reporters and writers and content creators creating something, and using their knowledge of this process to sell it to an audience. Every painful series of layoffs and outlet closures has been a result of executives (with no stake nor place nor interest in the creation of any kind of media) making stupid decision after stupid decision. It is that goddamn simple, and it is sickening to see these cycles repeat themselves. The people with the money and power in media are ignorant, disconnected and foolish, and are actively using and abusing the world’s creative talent in the process.

Ultimately, venture capital and private equity are antithetical to good companies. The markets only reward growth. Human capital and quality products are subordinate to watching numbers go up. Google laid off 12,000 people, yet CEO Sundar Pichai made $226 million in 2022 because he appealed to public markets that value eternal growth over good sense or a sustainable business. Meta’s stock hit a 15-month high despite bleeding billions of dollars on a concept they are barely paying attention to and flat growth in their monthly active user count — and, of course, laying off nearly twenty thousand people. And these companies actively make their products worse to juice these numbers, because the only thing that ever matters is growth, growth, and more growth.

We live in a cancerous economy, one that regularly rewards those that can abstract as much value from labor with as little participation or value of the actual work product as possible. The rot will continue until the markets realize that a company cannot grow forever, and we societally reevaluate how we value a business.

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