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.
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