Chicago Reader Goes the Way of Clear Channel and Leverage Is the Culprit

Private equity seems all the rage for financially troubled media properties, though I contend that is a bad thing. As I report on this week’s radioshow, all of the alternative weeklies owned by Atlanta-based Creative Loafing Inc. became the property of New York-based Atalaya Capital Management, which won a bankruptcy auction buying the company for $5 million. That seems like a bargain until you realize that Atalaya was already owed $30 million which it loaned Creative Loafing when the publisher acquired the Chicago Reader and Washington City Paper in 2007.

Alas, the economic downturn, a depressed ad market and a mountain of debt pushed Creative Loafing into bankruptcy just a year into owning these two additional papers, and a bankruptcy auction was set to resolve its problems. Former Creative Loafing CEO Ben Eason attempted to convince the bankruptcy judge that his $2.3 million bid to retain control of the company should be preferred because he and his partners were more experienced to shepherd the future of the firm’s papers. The judge rejected this argument, siding with Atalaya’s larger $5 million bid.

In addition to the Reader and Washington City paper Creative Loafing owns alternative weeklies in Charlotte, NC, Sarasota and Tampa Florida. The company got its start with the Atlanta-based namesake paper Creative Loafing, founded by former-CEO Eason’s parents in 1972.

Eason told the Reader’s media columnist Michael Miner that the Reader is a profitable paper, claiming that’s due to measures his management team took to reduce costs. He also told Miner that he doesn’t regret buying the Reader and the Washington City Paper, saying “Creative Loafing with the Reader and the City Paper is far stronger than Creative Loafing alone.”

Miner, who has an obvious stake in the situation, has been keeping a close eye on the transfer of ownership on his News Bites blog. On Thursday he summed up the quick devolution of the Creative Loafing relationship in a post titled, “That Didn’t Work Out So Well, Did It?” He notes that,

Life at the Reader was just wonderful for a long time. Lots of stories, lots of listings, lots of ads, lots of classifieds — plus memorable staff parties and a Christmas bonus that was roughly a month’s salary.

And although the Reader’s former owners appeared to be taking care in choosing a buyer, Miner reports that

Eason, as he negotiated the purchase of the Reader and City Paper, was being advised by his board that the deal was a terrible idea. That’s a possibility that apparently didn’t occur to the sellers. “It’s like, I guess we thought — he had the money so he could afford it,” [former editor and co-owner] Lenehan said.

It’s true the Reader has it’s own troubles prior to the Creative Loafing deal, not the least of which was a rift amongst the owners with the largest stakes in the paper. Nevertheless adding $40 million of debt to the mix is what really screwed things up.

For all the talk of the death of print journalism and print in general, when you look at the individual cases of newspapers in peril the single most common source of problem is not ad revenue by itself. Rather, the root cause is consolidation and the enormous debt that companies take on in order to drive their acquisitions. That’s what drove the Tribune Company, the Sun-Times and Clear Channel into bankruptcy, and that’s why the Chicago Reader is now owned by private equity firm, rather than an actual newspaper company.

I can only imagine how different the world of print publishing would be right now without all of the useless debt sandbagging the industry brought on by the roller-derby race to the bottom that is consolidation. This isn’t the failure of publishing or journalism, it’s just really bad business that very few had a say in, but that affects us all.

Mediageek Radioshow Notes for April 9, 2009

I’m going to try and get back in the saddle with posting show notes for each week’s radioshow so that listeners can check out some of the news items and other relevant stuff that comes up during the show. Since the show is produced live, often featuring live guests, I’ll be treating these posts as dynamic documents. This means I’ll add links to stuff that comes up spontaneously during the show after the live broadcast is over, and maybe even after the podcast version is posted.

So, here’s the notes for the April 9, 2009 edition of the radioshow (now online):

Bloomberg – Todd Shields: FCC Head Says Agency Should Reconsider Newspaper Ownership Rule

Huffington Post – Jeff Jarvis To Newspaper Moguls: You Blew It

ArsTechnica – Julian Sanchez: AP launches campaign against Internet “misappropriation”

FCC’s Press Release on National Broadband Plan (PDF).

FCC’s Notice of Inquiry on National Broadband Plan (PDF).

mediageek radioshow for 11 December 2008: Looking Behind the Curtain at the Tribune Bankruptcy

Mitchell Szczepanczyk from Chicago Media Action joins to discuss the Dec. 8 filing for bankruptcy by the Tribune Company. Mitchell has been watching Tribune for many years now, since the company is a major media player both in the Chicago area and nationally. So he has some longitudinal perspective often lacking in press reports.

Download/Podcast:

mediageek 11 December 2008 broadcast quality mp3

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On Tonight’s Radioshow: Breaking Down the Tribune Bankruptcy

Over at Chicago Media Action Mitchell Szczepanczyk has written a concise “Chicago Citizen Activist’s Guide to the Tribune Bankruptcy” that makes simple work of untangling the how and why the Tribune company is in the financial dumps:

The Tribune debt didn’t just happen. It happened because Zell used the debt to buy the company.

Why did Zell buy the company? Because a Tribune shareholder revolt in the summer of 2006 demanded a change of ownership, and the following spring they got it.

Why did Tribune shareholders revolt? Because the Tribune thought that by 2006 they would be rolling in cash for having a bunch of TV-newspaper duopolies. They banked their future on it. And for good reason: The Tribune already owned four such duopolies across America, and what, you were expecting media concentration to stop or something? Are you some kind of anti-market communist freak?

Mitchell will be my guest on the radioshow tonight (9 PM WNUR 89.3 FM, Evanston-Chicago, IL) to talk more in depth about the greed, incompetence, arrogance and myopia that led to so many job losses, eroded journalism and who-knows-what-more.

I’m working on my own piece triggered by the Tribune bankruptcy, but more broadly aimed at the rotten outcome of the post-1996 consolidation era. Some observers, free-marketeers and big media apologists are now claiming that such disasters as Clear Channel going private equity and all these bankruptcies are evidence that we don’t need ownership regs, because clearly the market is acting to correct the excesses of consolidation: See, now these big consolidated behemoths will be broken back down into littler pieces.

But what they fail to account for is the real human toll — the lost jobs, the lost public service, the diminished local content, news and information.