The Blog

This is not a surprise!

The following two paragraphs strike me as "The check is in the mail" sort of comments. Didn't Eason say something similar about changes to the Reader when the sale was first announced? Come to think of it, didn't the former owners of the Reader say similar crap when it's future first became shaky? Let's be honest, the old owners dragged their feet on fixes, then cashed out in a rush to a barely qualified group which didn't quite understand quality and stability. Since then the Reader has thinned out and become less useful and appealing. For example, the change to the Reader's listings involved a prepackaged program rather than a modification driven by research into what the local readership wanted. >>"This isn't a failing company," said Eason in e-mail to the same executives, "but instead one caught squarely by this challenging economy between old media and new media." He insisted that the purchase of the Reader and City Paper "has been successful," yet "the assumptions we made have not turned out to be so successful. The print business has been under siege from all quarters" -- readership excepted. Anyway, how can anyone read the following without thinking, "Yeah, right." >>>Creative Loafing had also been considering reducing the editorial budget to help manage its debt. Now Eason says for the time being those cuts are on hold, which means that an immediate effect of bankruptcy on the Reader is to make it easier to keep up its standards.<<<

Well, this is sad news, but seemed inevitable. I'm most sympathetic to the Reader staffers who, despite what must be a really crappy, chaotic work enviroment still toil away, doing their best. It's a great moment in history to be a writer--but probably the worst moment in history to try to make a reliable living as a writer.

I often think those who got canned at the beginning were the luckiest. This was inevitable. Later will be worse.

Wow, it almost makes Crystal look prescient for bailing out a couple weeks ago. And I didn't think anything could make him look that bright.

I am sorry to hear this...

How much to buy the Reader and bring it back to its roots of true entertainment and informative dialog?

The board made a decision to put the company into Chapter 11 Bankruptcy protection today. The filing is intended to give the Company a fresh start to work through our digital transition and a brutal economy. The term “bankruptcy” conjures up all kinds of images and demons but it is essentially a legal proceeding designed to give an over-leveraged company the time, process and a safe harbor for which to reorganize its finances. Chapter 11 was the natural place for the Company to go to accomplish an orderly reorganization of our finances. The practical effect of a successful chapter 11 reorganization will leave the company with a manageable debt load and a different arrangement with its shareholders. This should not affect the core operations of the business. There are a few practical things we have to work out this week before a judge that we’d normally do in the ordinary course of business – asking permission to pay our printer, payroll, etc. but these things typically get sorted out within a day or two. We all have jobs and there is absolutely no change in plans. We are not under obligation to pay interest or principal on the debt so the net effect is that the Company has plenty of cash on hand to carry on operations. We have made the decision to leave the editorial spend at 12% of revenues so the immediate effect of this filing is to preserve those jobs. I am going to need one big thing from everyone in the Company. I need your brains, energies, and spirit to get us quickly to a daily publishing web company that happens to have a weekly print publication that is a reference point for the web. Take a look at what Erik is doing with the City Paper and you’ll see the beginnings of where we are heading. There are a lot of people willing to invest in companies that have ramping online traffic, solid sales teams that can monetize that traffic and a staff that “gets it” in the new bundled digital world. Our revenue is 90+% weekly print and this is our challenge. We simply don’t need that much online revenue to make up for losses in print. Bottom line is that once this Company becomes a digital company. T,the money will follow our transformation. This filing will give us time – not an infinite amount of time – but enough time to make this all happen. I feel good about this decision and hope you’ll support this with everything you’ve got. The job losses actually may be fewer as a result of the filing than if we continued to have to reach bank numbers according to a plan set forth 18 months ago. Creative Loafing is a profitable business and we’ve done an extraordinary job in the past year positioning the company for the future. We have an incredibly loyal audience and we get results for our advertisers. Our online business grew from roughly $200,000 in revenue to a run rate of $1,200,000 currently. The confidence in our sales force for selling online bundles has given an incredible shot of energy into the Company since January and we’re confident that once we can get a corresponding growth in online traffic that we’ll be able to quickly sell any new inventory. The Company is incubating a digital ad network, re-launching the Straight Dope site, and moving quickly to become competitive to the new content aggregation models that are quickly replacing the old media paradigms. This isn’t a failing company but instead one caught squarely by this challenging economy between old media and new media. I made a deal last year to buy the Reader and City Paper based on a set of assumptions and a plan. The plan has been correct, the assumptions have proven to be ill-timed. The plan has always been as follows: (1) to restore the Reader to profitability and to bring the City Paper to a level of profits appropriate to its size; (2) use the existing footprint of our six markets plus the Straight Dope site, to begin to forge a nationally scaled internet strategy; and (3) to use the combined strength of print and online, work in partnership with other alternatives in the US, to grow our business on top of this scale. This plan has progressed as we had hoped. Currently, the Reader and City Paper produce half the profits of the Company. This filing has little to do with the acquisition and everyone should feel very proud of what we’ve accomplished. It hasn’t been easy but it has been successful. The assumptions we made have not turned out to be so successful. The print business has been under siege from all quarters with the exception of the one place that counts; audience. We continue to maintain our audience in print and generate solid results for our advertisers. Our analysis of how the economy would perform and how quickly advertisers would migrate from print to online have been the source of our problems. The ad markets have contracted in our space by 15% - along similar lines as the daily newspapers and slightly ahead of the problems in broadcasting. I’ve never in my life seen an ad market down greater than 5-10%. The good news is that our audience measures have remained very strong across both print and online. Typically, ads follow the eyeballs. In this instance, the digital disruption has caused a lot of advertisers to shift spend to the emerging digital mediaand to try out new programs. We’ve sold out just about every bit of inventory we have in most of our markets so we’re experiencing this as well. The problem is that the ad spend is moving rapidly away from traditional media at a pace that few of us expected. Ironically, our classified business, the source of much of the revenue loss at the Reader, has stabilized. I’ve attached a sheet to this email for “frequently asked questions” that hopefully will get you answers to your questions. Please feel free to send me direct emails and I’ll get back to you as quickly as I can. Ben

Reread Miner's sentences: "Creative Loafing had also been considering reducing the editorial budget to help manage its debt. Now Eason says for the time being those cuts are on hold, which means that an immediate effect of bankruptcy on the Reader is to make it easier to keep up its standards." OMFG. And to think that when the purchase came down just 14 months ago we hoped that CL was bringing new life and new ideas into the business, instead of the same old tired Sam Zell ones. Now I'm trying to think of a word for any publication in any medium that has to depend (for the moment) on a bankruptcy filing to protect its standards *against its own owners.* Signed, A Bot Sent to Spam

Crappy and chaotic, well summarized. Thanks for the backing. Regards, One Who Toils

Mike, thanks for spreading the news. I have to say it's unsurprising considering the history of the last year. Just 12 months or so ago Eason was crowing about his abilities in "pioneering the opportunities offered by convergent print, web, and new media applications." Seems those opportunities have eluded him. Anyway, for all of you still at the Reader I'm sorry. The slow and steady decline of the paper has been a sad one to witness. I'm sure it's been even sadder to be in the middle of. I often think, Mike, that you're the true barometer of the life of the paper. When you're gone, it won't be long for this world. Unless they ask you to stick around and turn off the lights. Mike, thanks for continuing to be a powerful voice in Chicago media. Dan Sinker PS. I've blogged about all this many times, but here's the new one: http://myeyesglazeover.blogspot.com/2008/09/chicago-reader-deathwatch-part-1000.html

I'm on occasional freelancer. I have two small checks received in recent weeks and not yet deposited, and one or two short pieces printed and not yet paid for. Do CL's obligations to me just go into the bankruptcy, or can I safely deposit my checks, and safely expect payment for present and future articles?

Freelancer, You should be fine to deposit your checks; at least that's how I understand the bankruptcy process.

and you'll be paid as usual for the other stuff.

What a drag. As a "Reader reader" for 20 years + my heart goes out to you all. I'd subscribe in a heartbeat, btw, especially as I see little reason to re-subscribe to the Booster, which decided to stop covering my neighborhood.

Thanks, Whet and Kiki. I assumed all was probably OK, but worried that I might just have to stand in line with the other creditors. Good luck to the Reader staff in dealing with the new situation.

you really think Mike Crystal left of his own volition? just magically decided to retire one year after the sale, just as Creative Loafing's (massive) debt was coming due? really? ok then.

Freelancer: Word is it's not that kind of bankruptcy.

It's not that kind of bankruptcy... yet. In this economic climate things are going to go down long before they go up again, especially in the kinds of national media buys that Eason seems to have staked the company on. He's got a lot of ground to cover in order to sell real web advertising, and by all appearances he's just starting to think about a strategy. That's a very steep hill to climb in a short amount of time. Not to mention that it's not the kind of economy to smile warmly on debt ratings, restructurings, and applications for credit. So he's not going to be able to buy a lot of maneuverability.

What kind of bankruptcy is it, Kiki?

Chicago Man: Chapter 11. Not the kind where liquidation is imminent. I'm just learning along with you guys what all the nuances are, but CL is still paying all its vendors. Dan, your key words here are "by all appearances." Do most competitive businesses make their strategies available to the public as they go along?

"It's not that kind of bankruptcy.. yet." Dan's right. I'm sorry to say that any kind of bankruptcy in this environment is bad news. The ad markets are not going to get better any time soon. Maybe things have changed since I left, but I don't think online rates have risen to the point where they can even partially cover the costs of a print operation. The crisis in the capital markets does not give Creative Loafing a lot of options to renegotiate financing. In fact, the credit markets are so locked up it almost makes it impossible. So I think the best outcome for the Reader and City Paper will be a sale to an all cash buyer with an appreciation for your position in the market. Hopefully, that is what Eason is trying to do with his Chap. 11 filing. That may be why he made his strategy public. I do hope that he is communicating with the staff with more than just an email. It would not give me a lot of confidence in his leadership abilities in a crisis if that is all I received this week. I am really sorry for all the staff who remain. I pray that the Reader and City Paper will emerge from this without too much carnage.

Hey Rena. I meant that the specifics of CL's strategy are *not* public. Generally, of course, they're following the same game plan every newspaper is following right now--move online in advance of advertisers. But what I was trying to point out to Dan was that it would be naive to imagine that Eason is "just starting to think about a strategy."

Would be bad to lose the only two reporters doing real investigative work of the county, city and state crackpots who have for decades slowly dried out the public coffers for their own benefit.

First you fire some of your best journalists, now this? Your self deprecating title, Creative Loafing, seems all too appropriate. All sympathies to the current staff.

The advertising environment is bad--national advertisers have already tightened up and are tightening more--but I believe the local market has been the reader's bread and butter. I wonder how many local advertisers were estranged when the page size changed, finding their ad sizes reduced and rates jacked up. For instance, a 5x8" quarter page ad became 4.875x~5" and cost several hundred dollars more. I imagine that was hard to stomach for a local business in an era of declining faith in the value of newspaper advertising. In addition, the elimination of the "sections" further diminished the ability of the paper to offer "prestige" placement for advertisers, as opposed to the having their ads buried in the middle of the paper. At the old reader, you would never find two facing pages ganged up with multiple advertisers, essentially throwing those advertising dollars to the wind.

Thank god for Dan Sinker's I told you so attitude to provide some chuckles. He's so wisened in the ways of how to keep a publishing empire afloat.

I kind of agree with Florence. I could make my own criticisms of the Reader, but it's a lot easier to criticize from the sidelines than to deal with the tough decisions of actually publishing something that has to both be reasonably credible make a profit.

Don't forget that the Reader was already in trouble before Eason came along. He has made things worse, of course, but the Reader already decided to become just another desperate pop culture rag.

Yes, times have gotten harder for newspapers, but they're still profitable in the right hands. They're just not wildly profitable in ways that please stockholders who don't work for a living. The odd thing? Research shows that what people want are hard-hitting investigative articles, such as the Reader used to do. That's what brings in readers and -- by extension -- profits. And I don't see Creative Loafing as making resources avalable for that. It strikes me more as a failing company saw their chance to enter the big time and institute the same "cost saving" measures that are killing their minor-league rags.

Yes, well, I don't necessarily agree with the driection the Reader has taken in recent years, going back to the 2004 redesign. It seems that they tried to make themselves more like other publications, such as "Time Out," and less unique. Most likely the Reader would have lost readers whatever they did, but I think they lost more by becoming "briter" and "liter" and more colorful and shorter. Many, many people stopped reading the Reader for exactly that reason. This is sad, because there is still good reporting in it, Miner and Joravsky being prime examples.

It's time to say "good night" to the Reader :(