Thursday, August 27, 2009
Media / News Bites That Didn't Work Out So Well, Did It?
Posted by Michael Miner on Thu, Aug 27, 2009 at 3:49 PM
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.
But by 2006 the Reader was operating at a loss, and at the end of the year one of the founding owners, Tom Rehwaldt — long estranged from the others — filed a suit that accused them of, essentially, mismanaging the company in order to depress the value of his stock and punish him. Outraged by the suit, but finding themselves with little appetite for spending money to fight it in court as the business collapsed around them, the owners began thinking more seriously than they ever had before of getting out.
Ben Eason, CEO of Creative Loafing Inc., a chain of four alt weeklies in the south, got wind of the troubles among the board and moved in. In July of 2007 the owners got out from under the suit by selling Eason the Reader and Washington's City Paper. The announcement shocked this paper's staff more than it surprised it — though many of us had never heard of either Eason or his company.
It wasn't just the suit, the old owners told me. They'd been at it since 1971, and they were feeling old and tired and out of ideas. Eason was younger and fresher and sounded as if he had some.
What he actually had was $40 million in debt he couldn't manage. On Tuesday a bankruptcy judge in Tampa turned Creative Loafing over to Eason's primary creditor, Atalaya Capital Management of New York. And who knows what's ahead for the Reader now?
I called Mike Lenehan, a former editor of the Reader who owned a small piece of it, and asked for his thoughts.
"Maybe we should have been smarter, or less starry-eyed about it," he told me, "but we thought and hoped Eason would succeed. I don't think there would have been much sentiment to do [the deal] if we thought he'd turn out to be Ben Eason. Maybe we should have known better — but that's what we thought."
It's not as if the founding owners didn't care who bought the Reader, Lenehan said. "That was definitely part of the conversation — are these guys smart, do they know what they're doing, do they have an idea? Not that we understood what the right idea was supposed to be. If we did, we wouldn't have been in the position we were in."
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," Lenehan said. "Whether he could operate a bunch of papers with that crushing debt — I wonder if a seller ever thinks of that. The way we looked at it, somebody who thinks and says they're smarter than us...and these New York investment guys think he can pull this off and lend him the money to do it...and at that moment we didn't feel tremendously intelligent — the trend lines were going down everywhere you looked — at some point you think, 'Maybe these guys have got a better idea.' And it was a conventional wisdom better idea, it was the better idea everyone was spouting at the time — Web first, and we'll make our money on the strength of Web advertising, and the paper may dwindle away but by the time it does we'll be strong on the Web and we'll do all these things to maximize our Web presence, and yadda yadda yadda."
Comments (14)
Showing 1-14 of 14
I get the sense that this article casts Mike Lenehan as Dr. Faustus and Ben Eason is therefore Satan. I think that's unfair. If anyone is to blame, it's Tom Rehwaldt, who demanded to be paid for stock that turned out to have negative value. Then again, he's an investor who managed to squeeze money out of nothing, so he's not quite the fool either. What's really happening is the old "crabs in a barrel" situation where everyone is going to be eaten by predators because anyone who has the sense to get out is dragged down by the others.
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I'm actually not sure what the point of this post is, Mike. If your thesis is that the Reader didn't work out well under Creative Loafing, well, so what else is new. Virtually *no* media company -- in Chicago or anywhere else, really -- has had things go well during the interval that Creative Loafing owned the Reader. That of course has less to do (well, nothing to do) with Ben Eason, and entirely is about industry fundamentals. (IE, I could imagine you writing a "That didn't work out so well, did it?" post about the reign of *any* buyer that had owned the Reader -- or any other alt-weekly -- over an identical interval.) Yeah, Eason had a lot of debt, and that obviously has now left the Reader in the hands of a hedge fund with an unclear ability to turn around companies facing industrywide transitions and secular declines in revenues. But the hedge fund won't own you guys for long; they'll turn around and unload the Reader, and soon, I'd predict, to someone else if they can find a buyer (the "greater fool" theory). And I'm not sure how things would be different if a non-debt-laden buyer had purchased you all. Sure, that buyer might have had some continued operating flexibility (and wouldn't have needed to lay off outstanding journalists and class acts like John Conroy, Harold Henderson, Tori Marlan and Steve Bogira), but it wouldn't change the basic fact that the industry is in a tailspin with no signs of things turning around anytime soon.
The bigger question is, what if the deal had never been done, and the founders still owned it today? Then what? My guess is they'd be incredibly depressed right now at the realization that the value of their respective stakes in the Reader had fallen by a colossal percentage. The investors who sold out of the Reader (and this includes Lenehan) don't really get to count their money from the Creative Loafing deal (which I'm they're all doing) *and* then at the same time have the right to whine and wring their hands over what that deal hath wrought on the Reader. Once they gave the keys to Creative Loafing, they really stopped having a right to make moral judgments over what Creative Loafing has done/did.
Was Rehwaldt *really* a catalyst for a sale? Maybe. But my guess is that Eason would have approached you all even if there *weren't* a battle among the founders. And given that you were operating at a loss in '06, it's hard for me to think that your founders weren't open to listening to *any* reasonable offers for the paper.
By the way, I don't know Rehwaldt (or any of the founders, or anyone at the Reader at all), so I hold no brief for him (or anyone else mentioned here).
McCarthy, for what it's worth, you make a completely uncompelling case for a general and unanalytical viewpoint in prose that in unclear and next to indecipherable. . . .
McCarthy, for what it's worth, you make a completely uncompelling case for a general and unanalytical viewpoint in prose that in unclear and next to indecipherable. . . .
Rembrandt, your comment is a joke, right? You call my prose "next to indecipherable" when you yourself make several grammatical errors and sloppily post your unintelligible comment twice. So "for what it's worth," *you* actually make a completely uncompelling case about *my* comment! Well played.
Given your questionable writing ability and obviously low level of English instruction (third grade? fourth grade?), I'll make my "case" about Miner's meandering post in easy-to-read, concise bullet points that even people at your level can understand. Below I re-post my comment for people like Rembrandt -- complete with short sentences and the word "analysis" in parentheses after analytical statements. This way, even easily confused people like Rembrandt can understand:
--Miner's post isn't particularly groundbreaking and offers little new. (analysis) The remaining bullets below explain why:
--It didn't work out for the Reader under Creative Loafing. However, are any other alt-weeklies or newspapers right now doing well under other owners? No. So it's pointless to insult Creative Loafing, given the trends they faced. (analysis)
--The industry sucks right now, and things obviously would suck for the Reader even if the old owners still were in charge. (analysis)
--Creative Loafing shouldn't have done the deal, but that's been the case for every media deal in the last decade (look at the Tribune and Sun-Times' parades of ill-advised acquisitions). Media deals universally have failed. This one is no different.
--Atalaya won't own the Reader long. They will try (and fail) to recoup their losses and also will work to find a buyer as quickly as possible. (analysis and prediction) I wish them all the luck in the world with that -- they'll need it.
--Had someone other than CL bought the Reader, maybe a few more good journalists would still have their jobs. (analysis) That's worth ruing. However, even if Conroy et al still were there, they surely would be on borrowed time, given where the industry is going. (analysis)
--The founders should thank their lucky stars they got out when they did, for such a high sale price relative to the Reader's worth today. (analysis) If they're not grateful, they're idiots. And given that they cashed out, they really have no right to complain about what happened to the Reader. If they'd really cared about its future, they shouldn't have sold it. (analysis)
Q: Are any other alt-weeklies or newspapers right now doing well under other owners?
A: Yes, there are other alt-weeklies doing well under other owners. More to the point: There are no other alt-weeklies in bankruptcy.
Eric, you are writing about things you know little about.
Richard Karpel
Executive Director
Association of Alternative Newsweeklies
1250 Eye Street N.W., Suite 804
Washington, D.C. 20005-5982
202/289-8484
http://aan.org
http://AltWeeklies.com
Eric McCarthy, please don't do that again. Comments want to be free, so let them go.
Re whether the old owners wanted out. Yes, obviously. The Reader had been floundering for a handful of years -- in content as well as in finances.
There's no reason why a weekly along the lines of the old Reader can't survive in today's marketplace. Atalaya apparently knows that, and decided it was better off owning the paper than to settle for less than what it gave to Eason, who was a schmuck, by the way.
To venture into the cosmic for a moment: I wonder whether the problems confronting newspapers and some alt weeklies is really traceable to the fact that there is simply a dwindling population of people who wish to be informed in any meaningful or useful way about much of anything that matters.
This obviously doesn't pertain to anyone with enough interest to post a comment here. But in general, we're talking about a population whose attention is siphoned off in a million directions for the first time in human history. From the old media, meanwhile (chiefly newspapers), the public is coming off a decades-long steady diet of sort of mailed-in journalism, if you can call it that, that basically served as a conduit for the daily emanations from the power centers, where the public voice or public interest essentially mean nothing.
Combine those two--ineffectual old media and frittery new media--and you end up with a public on a kind of permanent media sugar high who, sadly, have a reduced appetite for, and radically diminished capacity to even comprehend, the longer-form, innovative and meaningfully informative journalism that good alt weeklies have traditionally offered.
So in the end, it just doesn't matter much who owns or operates the Reader. Whoever it is will be confronted with the impossible task of drawing in new readers whose attention spans have shrunk down to roughly the Planck length.
"I wonder whether the problems confronting newspapers and some alt weeklies is really traceable to the fact that there is simply a dwindling population of people who wish to be informed in any meaningful or useful way about much of anything that matters."
I don't think so - I'm always surprised at the remarkable readership of political bloggers like Glenn Greenwald and Marcy Wheeler, just to name two of many. Firedoglake raised almost $100k on the promise of employing the latter. Not saying that people are making money hand over fist, but it's still encouraging.
On the other hand, I see a lot of that in national politics, but less so in state and local politics (Capitol Fax and Calitics are exceptions, and I'm sure there are some others).
I think a big part of the struggle is this - a lot of alt-weekly content is pitched towards 20-30 year olds in cities. That's just not a good audience for local political content, unfortunately, even if a nontrivial percentage of those folks are smart, politically oriented, and well-meaning.
Here's why. Take me: I went to school in Hyde Park, and was still registered to vote in Virginia. After graduating, I took a job around Medical Center, and my fiancee took a job in Oak Brook, so we moved to Oak Park. Then I got a job downtown. After two years in Oak Park, we moved to Noble Square, where we lived for a year. Then she started law school (she mostly applied to schools in the city, but we were close to moving to Madison), so we moved to Woodlawn to be close to the school. But it was a long trip for me, and we have lots of friends on the north side, so after a year we moved to West Town, where we're just starting our second year. We're pretty committed to Chicago (I've built a lot of intellectual capital that would vanish if I moved), but the law market is tough, so it's not inconceivable that we'd move out of state.
So all that time we've lived under one national government, one state government, two local governments, and four aldermen. And it's entirely possible that we might move again. And I think that's a pretty common scenario, at least from personal observation. It'd be great if we could both lock down jobs we like, settle on a neighborhood, buy some property, and start the longterm process of being informed residents of a ward instead of just a city or state. But it's a very complicated process.
What I'm saying is that a lot of alt-weeklies serve an inherently footloose audience while being devoted to content that's difficult to pitch to such an audience. It's unfortunate, but it's just tough to sell people who haven't settled down on local and microlocal political coverage because they probably aren't going to be in one place long enough to develop the sort of long-term interest that really allows you to understand politics.
So when you see papers writing on generic midcult topics, it's possible they're just catering to base interests, but it's also worth considering the practical demographic considerations of a younger audience - even if you're trying to hit a thoughtful, well-educated portion of that audience.
I'm not saying we shouldn't do it; I think there are very good reasons for what alt-weeklies cover; it's why I wanted to work for one, and why I continue to do so. But it's a logistically difficult mission.
not to wade into the eric mccarthy-vs.-others debate too much, but, richard karpel, i'm not sure i'd so quickly dismiss eric's comment about other alt-weeklies not doing well. it's comforting to me to read from you that no other alt-weeklies are in bankruptcy right now. at the same time, richard, can you give us some other data to back things up? this article from today, about (non-alt-weekly) newspapers' q2 ad sales being down 29pct, is scary:
http://www.google.com/hostednews/ap/article/ALeqM5jST82Ofm0irwAxT-0T0-83DmhsgwD9ABGLD80
richard karpel, can you honestly tell us that alt-weeklies, with their historic reliance on classifieds, are not seeing significantly declining ad sales right now? merely not being in bankruptcy probably isn't the best benchmark. who out there is growing/doing well? what are they doing that the reader could emulate?
aramirez, I didn't say that alt-weeklies aren't facing many of the same challenges as other print publications. I was reacting to McCarthy's statement that the Reader's problems could be chalked up completely to "industry fundamentals" and had nothing to do with Ben Eason and CL's huge debt load.
There were about 30 alt-weeklies that grew the top line in 2008. Mostly they were in smaller and medium-sized markets.
You're wrong about alt-weeklies "historic reliance on classifieds." The great majority have always relied more on display ads. The Chicago Reader and Village Voice, with their huge apartment-rental franchises, were exceptions.
Excellent points, Mr. Moser, re my comments about the possibly dwindling population of people who care about being informed. It's something I should've glommed onto myself, because in my 20s and 30s I also was moving around a lot. When you were living "under one national government, one state government, two local governments, and four aldermen," I also lived under one national government but seven municipal governments in six states, as well as three Chicago aldermen (although, is it really possible to distinguish between aldermen; at the quantum level, they're all identical, right?).
By the way, this scattershot mobility of the young tends to support my point, made elsewhere, that local newspapers--no matter how small or strapped--make a huge, bloody stupid mistake by going hyperlocal, especially in the flat, predictable, civic-booster way that most of them do. At least alt weeklies exhibit originality, depth and occasionally a spirit of high adventure in their local coverage. Forced into a choice between reading a local daily and a decent alt weekly, I'd opt for the latter.
'cause change is the only constant the wonderful life at the reader was bound to end, which is a real shame, along with all of the other shames evidenced by this thread.
once did a couple stories for lenehan - who was a good, smart editor - and at the end of the year out of the blue received a check for a few dollars ... not much, but it was a negotiable reader check.
it was long ago & the details escape me, but lenehan explained there was an annual fund that was cut up & distributed based on what freelancers were paid that year...don't know if it was that x-mas bonus miner mentioned, but it sure was nice.
do recall thinking at the time was how much goodwill the trib could have spread around its army of regular freelancers w/ just one of those sky blue checks sent at the end of the yr, if only for a few bucks.
re: Combine those two--ineffectual old media and frittery new media--and you end up with a public on a kind of permanent media sugar high who, sadly, have a reduced appetite for, and radically diminished capacity to even comprehend, the longer-form, innovative and meaningfully informative journalism that good alt weeklies have traditionally offered.
Pelham - I appreciate your thoughts about why alternative news weeklies are a money-losing proposition, but I think you're wrong about what that means to the average consumer. folks are still looking for in-depth commentary on interesting topics -- but with the scope of outlets available, they are turning back to trusted sources -- word-of-mouth. This could mean comments in a thread, Yahoo! Answers, the forum of Salon.com, friends of friends, the ratings on Amazon, and of course through social networks. The conversation is there, live, and happening -- it just isn't moderated.
I think it's lazy to say that people simply don't care about news anymore. They do - but they're looking for it in different ways. Our literacy rate is far higher than fifty years ago, people are far more educated. We just no longer control the way people interact with information.
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