Zombies are not just a growing and increasingly lucrative sub-genre. The term also refers to organizations that are too weak to survive and grow on their own. They require constant support, crowding the market and eating up available financing. They also drain the life-force of dedicated staff fighting to keep them alive for just a little longer.
After more than a decade of steady decline, the media sector is full of zombies. It’s time to have an honest conversation about how we can help them transform back from their undead status or move on and make room for a new generation of media outlets.
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In economics, a zombie company is a firm that needs constant bailouts and support to survive. Usually, such companies are able to cover core operating expenses, but not, say, the cost of repaying their debts. So they get hooked on never-ending life support.
The most famous example is perhaps that of “zombie banks”, which first appeared in Japan in the 1990s. Following a real estate and stock market crash numerous banks needed to be bailed out. The government response was weak – enough to avoid the banks going bust, but too little to revive the financial institutions.
This creates a pretty thorny problem. Zombie banks were too shaky to expand lending and help the economy grow. But they also crowded the market, making it difficult for new players to rise up and provide an alternative service.
Zombie banks have been linked to Japan’s “lost decade” – a prolonged period of stagnation throughout the 1990s. But the problem went much further than banks themselves. The infection spread through the economy and soon a whole range of firms were exhibiting “zombie-like” characteristics.
“The presence of the zombie firms infected healthy firms by creating ongoing distortions that lowered job creation and industry productivity,” commented Anil Kashyap, University of Chicago Graduate School of Business professor and co-author of the study Zombie Lending and Depressed Restructuring in Japan.
“Usually when an industry is hit by a bad shock, many firms exit”, Kashyap explains. “In Japan, firms never exited. Given that they never exited, it is not surprising that new firms weren’t created”.
It’s easy to draw parallels with the media sector, which is now into its second, own lost decade. Media incomes for US reporters started declining in 2008. The industry has bled jobs at a slow and steadily depressing pace – down 25% over 2008-2018, according to CJR.
Thousands of news media, especially local outlets, have been closed down. But many more have hung on for dear life, persisting against the odds. Stakhanovite editors and journalists keep producing copy even as their newsrooms slowly fall apart.
The media sector’s reaction typically falls into one of two buckets. On the one hand, we glorify those who keep raging against the “dying of the light”. They become martyrs sacrificed on the altar of journalism (sometimes we appeal for more funding to keep them going).
On the other hand we mourn those who “betrayed” or gave up, who forsook the mission and left to other sectors. We joke about them joining the Dark Side. (Check out this excellent Poynter column on how we should approach “public writers”, who bring their skills and values to other industries).
Neither approach is particularly fair to the people involved. Imagine you’re one of a handful of people keeping a legacy publication alive (or worse, a founder, hanging on and hoping to uphold your reputation). You are basically condemned to die a slow but glorious death, spending precious years to hold off the inevitable.
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“Agony is the natural state of the news industry”, opens a 2017 long-read in The Atlantic. Lamenting the shift from desktop to mobile, and from news sites to platforms, the piece digs into the decline. But then it blames venture capital and finance, at least partially, for the industry’s woes, deeply misunderstanding the role they play.
There is a tradition of deep mistrust of finance among journalists. Recent years have seen a steady barrage of criticism of private equity (often mistaken for hedge funds and vice versa) and venture capital in particular. Much of the criticism is based on misunderstanding how financial players work.
Take private equity. PE firms buy troubled companies, after which one of two things happens – either the acquired companies are restructured and sold at a higher value, or they are broken up and sold for parts. This is often not pretty to watch and involves job losses or increased debt, but it works.
There’s a reason why being bought by a PE can “feel like a death knell” for the media, and that’s because killing zombie companies is a part of the PE business model. If a company cannot be saved, it is put to rest – and the industry is healthier because of it.
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In turn, venture capital is criticized because many VC investments are overly ambitious and/or fail. But again, that is part of the business model. The goal of VCs is to bet on a bunch of companies in the hopes that one will scale and succeed – something that is much harder if a horde of zombie companies are crowding the market.
To counter the risks of VCs and PEs, many have called for public or philanthropic funding (and to a lesser extent, billionaire funding) to save the sector.
But whether it will be part of the solution or not depends on how this funding will address the zombie question. Will it be used to prop up the undead? Or will it go to carry out gentler but still PE-style turnarounds, or help jumpstart and scale new ventures (a sort of “VC with a human face”)?
The growing emphasis on sustainability among donors suggests the latter two options are winning. This is encouraging news. Rather than endlessly covering costs of media already a decade into stagnation, philanthropy should help revitalize the sector.
Many of the start-ups featured in the recent Sifted piece, rightly celebrated, have started off with donor backing (or social VC), which gives them the opportunity to pick a balance strategy but also re-energize the sector.
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One of the best entrepreneurship classes I ever took part in was called “Your First 100 Days”. It covered typical challenges that new managers would run into after taking over a company. The goal – help would-be managers take charge of a struggling company and quickly turn it around.
Not all companies can be saved. Sometimes, the right thing is to close down a struggling business and start anew. But that, too, is not an easy task. At one point in the course the discussion turned to how we should prepare for the “Last 100 days”.
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That is an uncomfortable topic that we often avoid in the media. But we shouldn’t. Rather than pressuring some of our colleagues to keep untenable situations going, we should look at how we can make the transition effective.
One problem to be solved is how to transfer ownership of non-profit projects or organizations to new managers. Another is how to safeguard valuable data or archives. Or how to transfer followers/ audiences to newcomers (for free or on a commercial basis).
None of these, or many other related problems, are easy to solve. But we need to tackle them if we want to save our industry from the undead, and help those fighting a losing battle dedicate their energy to building a better future for journalism.