The Market for Bad Journalism

Bad news for the journalism world this week as BuzzFeed announced layoffs at its Pulitzer Prize-winning newsroom. Overall, the media company was profitable – in fact, profits are up – but producing high-quality news is expensive. The market was demanding higher returns, so BuzzFeed’s management acted. But who is the market, exactly?

The Washington Post?covered the decline of local news and?journalism?most poignantly in?the story, “These mass shooting survivors were called journalism heroes. Then the buyouts came.” The story is partly about the trial of the mass shooter – a disgruntled reader — who killed five people in Capital Gazette newsroom in Annapolis, Md. But it’s also about a company called Alden Global Capital, an investment firm?The Post’s Margaret Sullivan called “one of the most ruthless of the corporate strip-miners seemingly intent on destroying local journalism.” The company is now one of the largest newspaper operators in the country. Alden?recognized, smartly from an investment perspective, that local newspapers are cash cows. The firm will likely keep milking subscription revenue and cutting costs until the newspapers are dead.

But Alden doesn’t really own those newspapers. Nor does Vanguard (BuzzFeed’s largest shareholder) own BuzzFeed, exactly. They are merely investment companies. They’re a little more than hired hands, but at the end of the day, they’re managers. Alden is a private equity company, which means we have no information on who the owners are – likely a mix of other private funds and wealthy families, and maybe some with no love for America.

We could figure out some of the owners of BuzzFeed, because it’s publicly held, but only some. There are also private equity funds in its ownership table. And when middle class people own stock, usually through their retirement funds, they don’t pay much attention to what the holdings are. In general, we know that the wealthiest 10% of American now own a record 89% of all U.S. stocks.

The question here is not about ruthless managers (which have and always will exist). The question here is how to create better incentives and regulations in the financial system. As long as the world’s wealthiest families set the demand for high returns and the rest of us follow, and as long as the responsibility for the damage done is hidden, the damage will continue.

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