Will private equity save American democracy?
That question, which has lurked behind the defamation lawsuit Dominion Voting Systems filed against Fox News, was answered today in an unsurprising fashion: no.
Fox and Dominion reached a $787.5 million settlement just moments before opening arguments were set to begin in the Delaware trial. A jury had been selected, and everyone was preparing for what seemed likely to be a six-week trial that would scrutinize Fox’s broadcasting of false conspiracy theories that Dominion machines stole votes from then-President Donald Trump in 2020. Dominion was seeking $1.6 billion in damages from Fox.
The settlement is not a total shocker. Just days ago, there was a flurry of speculation that Fox wanted to settle, with the goal of avoiding a court’s verdict that it had lied with malice when it aired false accusations — from its hosts and guests like Sidney Powell and Rudy Giuliani — that Dominion had tried to rig the presidential election.
The settlement is unlikely to be welcomed by Fox critics who believed that a guilty verdict would serve a mortal blow to the network’s reputation. The idea was that Fox, on the ropes, should not be allowed to slip away by writing a settlement check and mumbling an insincere apology. As a headline from The New Republic pleaded amid the settlement rumors a few days ago, “Don’t Settle, Dominion! Drag Fox News Across the Coals.” It argued that with a guilty verdict, “we will be able to say, with a certainty we can’t quite claim now, that Fox News lies.”
Dominion does not exist to serve the public interest. It is a for-profit company owned by a small private equity firm.
But Dominion does not exist to serve the public interest or liberal magazines. It is a for-profit company owned by Staple Street Capital, a small private equity firm. Staple Street has fewer than 50 employees and claims $900 million of assets under management (a modest amount in its industry). It was founded in 2009 by Hootan Yaghoobzadeh and Stephen D. Owens, who previously worked at Carlyle Group and Cerberus Capital Management, giants in private equity. Yaghoobzadeh and Owens graduated from Harvard Business School and have no records of political donations or political activity; they are business people, not pro-democracy agitators.
The size of the settlement represents a windfall on Staple Street’s investment in Dominion: Its controlling stake cost just $38.3 million in 2018, according to a filing in the case. While Dominion’s lawsuit has attracted an enormous amount of attention, it’s actually not a large company, as the market for its vote-counting services is limited; its expected revenues in 2022 were just $98 million, according to the filing.
While Dominion and Staple Street have not explained why they agreed to the settlement, the rationale is pretty clear. Their case was strong, but it wasn’t certain that a jury would deliver as much as they were seeking, and it also was not certain how quickly they might see any award, as Fox would likely appeal. The owners of Staple Street — along with John Poulos, who is Dominion’s chief executive and has a 12 percent stake in the firm — were unlikely to have been strapped for cash before the settlement, but now their companies will reap an immediate and significant bounty. In its discovery efforts, Fox unearthed a text message from a former Staple Street employee to a current executive that noted, “Would be pretty unreal if you guys like 20x’d your Dominion investment with these lawsuits.”
Speaking to reporters after the settlement was announced, a lawyer for Dominion, Justin Nelson, said, “The truth matters. Lies have consequences.” A statement from Fox said, “We acknowledge the court’s rulings finding certain claims about Dominion to be false.”
It’s not uncommon for a company to turn its back on the public good for the sake of enriching its owners (a transaction that’s traditionally known as maximizing shareholder value). That’s essentially what happened, for instance, when Twitter’s board eagerly decided to sell the company to Elon Musk for the generous sum of $44 billion. The board lunged at the lucrative transaction even though it was widely predicted that Musk would diminish the usefulness of the social media site, which has indeed happened (Musk recently admitted the company is now worth half as much as he paid for it).
Triumph of American Capitalism
The discovery process that preceded the trial’s opening was a nightmare for Fox, because it exposed in detail the levels of deceit practiced by hosts and executives as they pumped out the conspiracy theory that Trump actually won the 2020 election. But those disclosures appear to have had zero impact on the network’s ratings, which remain strong. While Fox’s reputation is at rock bottom with its critics, its viewers have remained loyal, and it’s not clear that a jury’s verdict would have influenced them any more than the bounty of evidence that emerged in discovery. It’s pretty certain, however, that a settlement will have even less sway.
The high hopes that were riding on the trial reflected the exasperated state of the longtime — and so far unsuccessful — effort to counteract the deceptive and racist programming that has been Fox’s hallmark since its founding in 1996 by Rupert Murdoch, who is now 92 years old and oversees the network with his eldest son, Lachlan (both were deposed and were expected to testify in the trial). Despite years of criticism from journalists and politicians — Sen. Elizabeth Warren, D-Mass., memorably described Fox as a “hate-for-profit racket” — the network has prospered. While most advertisers have fled its airwaves, Fox remains profitable because the bulk of its income consists of exorbitant payments from cable and satellite providers (so-called carriage fees). Despite several years of attempts to pressure those companies, there has been little success, though a renewed push is underway.
“Cable and satellite providers have to stop paying Fox News the carrying fees that are really Fox’s bread and butter, far more than ad revenue,” noted The New Republic. “If the jury finds against Fox, pressure must mount for that to end as well.”
These hopes, while widely held among Fox’s detractors, constitute the kind of magical thinking that circled around earlier efforts to undo the lies and violence of the Trump era. Just as the investigation led by special counsel Robert Mueller failed to deliver the knockout blow that was hoped for by its supporters, the now-settled lawsuit filed by Dominion is unlikely to alter the nature of Fox News, as the network has escaped the legal, moral, and financial punishment of a judicial verdict. We probably shouldn’t be surprised by this outcome: One terrible limb of American capitalism was always unlikely to save us from another terrible limb.