Happy Tuesday, everyone! I hope you’re getting back into the swing of things after the long 3-day weekend. Which Presidents did you celebrate yesterday?
Just kidding. There’s a lot going on in the news. Let’s get to it.
Vice Media’s financial obligations are nothing new for a beleaguered news media industry
Last week the Wall Street Journal published an in-depth look at Vice Media’s financial situation, including news insights on the company’s relationship with its private equity backer, TPG Capital.
What emerges is not a pretty picture:
TPG’s $450 million investment in 2017 gave Vice an eye-popping $5.7 billion valuation, but the cash infusion came with high costs, including up to $400 million in payments to TPG between 2020 and 2024.
At the time of investment, Vice’s management team wasn’t overly concerned about fulfilling its obligations to TPG: the company had its eyes on an IPO or acquisition. But neither came to fruition, and Vice is yet to become profitable, losing $50 million in 2019.
Vice renegotiated deal terms with TPG last year, adjusting the payments to favor stock over cash, with TPG reportedly set to become Vice’s largest outside shareholder in the near future.
Why it matters:
Beyond the issue of solvency, TPG’s ownership is bound to bleed into Vice’s strategic direction and the journalism it practices.
Vice already laid off 10% of its workforce in 2019, and private equity owners are notorious for implementing draconian cost-cutting measures. More layoffs are in store if Vice’s financial situation doesn’t rapidly improve.
But Vice’s predicament is hardly unique for media companies, which have been butting heads with private equity owners in recent years:
Hedge fund Alden Global Capital has been gutting the newsrooms of hundreds of local newspapers across the United States – most infamously the Denver Post in 2018. Through its holding company, Digital First Media, Alden has laid off newspaper employees twice as quickly as the (already worryingly high) national average.
The staff of Deadspin, a popular sports blog known for its irreverent style, resigned in 2019 in protest over the editorial interference of its new owner, Boston-based private equity firm Great Hill Partners, which urged Deadspin’s writers to “stick to sports.”
The 2019 merger of GateHouse Media and Gannett, the two largest newspaper publishers which collectively own hundreds of local outlets, portends more layoffs in the months to come under the direction of Gannett’s private equity backer, Fortress Investment Group, which is itself owned by SoftBank, the Japanese conglomerate that’s been wreaking havoc in the startup world.
But the problems faced by newspaper companies are deeper than an influx of private investment firms and consolidation, which seem to be more symptom than cause. The shift to online news consumption (and the concurrent rise of a digital ad duopoly in the form of Facebook and Google) is eroding the foundation of the publishing business model – particularly for local newspapers.
These systemic forces are impacting publishing companies of all stripes. According to a recent report from PEN America, 20 percent of all U.S. newspapers have shut down since 2004, resulting in a 47 percent cut to all newspaper jobs. And just this week, the publicly traded newspaper company McClatchy filed for bankruptcy.
How can journalism have a sustainable financial future?
There is no panacea for the news publishing industry. Different types of media companies need different types of solutions. But there are broad glimmers of hope:
Subscription Models: Digital media startups like The Athletic have achieved considerable growth and built loyal readerships through high-quality, subscription-based journalism.
Benevolent Billionaire Owners: With the financial backing of Amazon CEO and world’s richest person Jeff Bezos, the Washington Post has thrived, expanding its newsroom and producing high-quality journalism.
Diversification: Publishers like Vox Media and Axios are banking on podcasts and television partnerships to supplement ad money from their website traffic.
Public Funding: Local newspapers, more so than their digital media and national news peers, are in dire need of systemic change. The former dean of the Columbia University journalism school recently argued that local papers serve a public good, and therefore warrant public funding.
In sum:
Vice Media finds itself in a tough spot, but national news outlets and digital media startups are in a better position than the local news media, which has fallen into the hands of cost-cutting investors.
Boris Johnson’s cabinet shakeup is part of the Tory-Labour balancing act he must continue playing
In an unexpected move last Thursday, Prime Minister Boris Johnson ousted his Chancellor of the Exchequer, Sajid Javid, a rising star in Mr. Johnson’s Conservative party. The move comes amid Mr. Johnson’s consolidation of power after his Conservative party’s runaway victory in December’s national election.
Why it matters:
The Treasury is the most powerful department in Britain’s government, and the Treasury chief is typically the second most influential official in the country, behind only the Prime Minister.
Mr. Javid’s ouster stemmed from a brief power struggle: per The New York Times, “Mr. Johnson’s office insisted that Mr. Javid fire his advisers, who would be replaced by a unit of special advisers working for both Downing Street and the Treasury… Mr. Javid would effectively have lost control of some of his top staff, which proved too much for him to stomach.”
What’s next?
The departure of Mr. Javid – an ex-banker and fiscal conservative in the mold of Margaret Thatcher – is a boon for Mr. Johnson’s plans to boost public spending, which is a stark departure from the Tories’ tradition of austerity.
Two days before Mr. Javid’s resignation, Mr. Johnson pushed ahead with plans for a $130 billion high-speed railroad project that would connect London with the English Midlands and northern England - an ambitious and expensive infrastructure project that’s drawn criticism from within Johnson’s Conservative party.
Mr. Johnson’s railway scheme is, if not politically motivated, politically savvy nonetheless: Mr. Johnson owes his parliamentary majority to the voters in England’s heartland, the post-industrial cities and towns north of London. These voters traditionally vote Labour, but they supported Brexit three years ago and cast their first votes for the Tories in December in support of Mr. Johnson’s promise to “get Brexit done.”
If one thing has become clear in the early months of Mr. Johnson’s premiership, it’s that he will be a different sort of policymaker than U.S. President Donald Trump, to whom he is frequently compared.
While Mr. Trump and Mr. Johnson are both opportunistic populists who rode anti-immigrant and anti-establishment sentiment into seats of national power, the two have different economic visions for their countries.
Whereas Mr. Johnson booted his Treasury chief for not supporting more state spending, U.S. Treasury Secretary Steven Mnuchin has enforced Mr. Trump’s pro-business agenda from the beginning of his presidency, most notably by helping spearhead Mr. Trump’s most significant legislative achievement to date, the Tax Cuts and Jobs Act of 2017.
And while Mr. Trump’s efforts to dismantle Obamacare - both through Congress and the Courts - have been a central theme throughout his presidency, Mr. Johnson has promised to shore up Britain’s National Health Service with more spending.
None of which is to say that Mr. Trump is a dyed-in-the-wool economic conservative: his trade wars are a significant departure from Republicans’ long-standing support of free trade, and he’s plenty happy to run up the national deficit (to the chagrin of many Tea Party era Republicans). Even so, the divergence between Mr. Trump’s populist rhetoric and pro-business policies stands in contrast to the early days of Mr. Johnson’s premiership.
In sum:
Mr. Johnson is trying to remake the Conservative party’s economic agenda in response to Brexit headwinds, to consolidate his popularity among voters who defected from Labour, and to fulfill his campaign promises.
Coronavirus is more than a health crisis for China’s government
Not yet two months old, the coronavirus has already wreaked havoc on China’s economy and dented the country’s 2020 growth outlook.
In the last couple of weeks, the People’s Bank of China (PBOC) has responded vigorously with a combination of fiscal and monetary stimulus:
February 2-4: The PBOC injects over $240 billion into the Chinese banking system and cuts reverse repo rates to boost liquidity and prop up Chinese lenders.
February 14: China’s banking regulators says they will tolerate a greater number of bad loans and pledges to “support qualified firms so that they can resume work and production as soon as possible.”
February 16: The People’s Bank of China (PBOC) slashes the interest rate from 3.25% to 3.15% on its one-year loan (MLF), which is closely tied to China’s benchmark rate.
As a result of the PBOC’s heavy-handedness and the Chinese government’s all-hands-on-deck approach to containing the virus, global stock markets have steadied, and some market observers think that China may still hit its projected GDP growth of around 6% in 2020.
But the greatest long-term impact of the virus may be social, rather than economic
The death of Li Wenliang, a doctor who tried to warn of the coronavirus during its initial outbreak, sparked a maelstrom on Chinese social media the likes of which has not been seen before.
Business executives, celebrities, ordinary people, and even some government officials were united in mourning Wenliang’s death and protesting their government’s response the doctor’s truth telling.
The hashtag #wewantfreedomofspeech briefly circulated on Weibo, China’s popular social media platform, receiving over two million views before being deleted by censors.
Since Weibo’s death, the momentum for freedom of speech has continued growing. Two Chinese citizens – an outspoken lawyer and an ordinary Wuhan resident – have reportedly been taken into custody for acting as “citizen journalists,” who captured and shared online unauthorized videos of Wuhan hospitals and empty streets. The videos included critiques of the government’s response to the crisis.
Of course, a news media blackout is hardly ‘news’ in China. The Chinese are frustrated with their government because they’ve been in this situation before.
When the SARS epidemic broke out in 2003, China’s government officials were slow to react and not forthcoming. A 2004 report found that a “fatal period of hesitation regarding information sharing and action” led to SARS being worse than it may have been.
Communist officials similarly disallowed independent media coverage in 2011 after a high-speed train crash killed 38 people. And they slowed down investigations into shoddily constructed buildings after a 2008 earthquake killed 70,000 people.
And so on and so on.
But what differentiates the response to the Coronavirus is the newfound omnipresence of smartphones and social media in China. The death of Wenliang has made clear that not even China’s powerful censors can contain the rage of hundreds of millions of Chinese citizens on social media.
In sum:
The coronavirus is bad news for China’s economy, but five years down the line, it may be best remembered for seeding a free speech movement among the Chinese people.