Ben Eason testifies about shift to digital in Creative Loafing bankruptcy hearing
March 13, 2009 at 6:41 am by Wayne Garcia
It was A Tale of Two Media Companies as Creative Loafing CEO and President Ben Eason testified Thursday afternoon during a hearing to determine whether he keeps ownership of the alt-newspaper chain.
Or perhaps I should write, ownership of the alt-digital media company. Much of Eason’s testimony concerned the collapse of the print news publishing economic model starting in 2005 and accelerating with the advent of the current recession in mid-2008. Under direct examination from CL’s bankruptcy lawyer David Jennis, Eason detailed how the company responded to 20 percent decreases in advertising revenues that he says company officials started seeing in July 2008.
“There’s been significant changes in our business…” Eason said in what qualified as the understatement of the day.
Eason described how he realized by September of last year — after revenues remained “soft” for the papers’ best month and special issue, the Best Of’s — that the print business model was going away and that he would have to shift to an online emphasis, with its lower revenues but greater ability to cut costs and increase margins. The print dominnance in classified ads and community news that papers once had was finis.
“You don’t have the full attention of that user,” Eason said. “You don’t have the monopoly that we once had.”
Eason detailed how the company’s “Digital Transformation Plan” was first implemented in Tampa in a matter of a few months after the bankruptcy court filing; staffing cuts were made (ironically, one of those cut, Alex Pickett, was in the courtroom with a reporter’s notebook), and news was put on a “Web First” basis, later published in a redesigned weekly newspaper designed to highlight online offerings and guide readers to the web. Eason testified that web traffic, both pageviews and unique visitors, is dramatically increased in Tampa as a result, but efforts to introduce those stats into evidence beyond his testimony were blocked by lawyers for Atalaya Capital Management LP on procedural grounds. Atalaya, which is owed $31 million, is seeking control of the company, claiming it is being harmed by a dropping value in the company as it is protected in bankruptcy court.
Eason also testified about how the 2007 purchase of the Chicago Reader and Washington City Paper, financed by Atalaya, for $17 million-$18 million gave CL a national platform to do deals with small, tech-savvy firms to develop new online media products. “We realized that we needed to be on a national stage…” he said. He also detailed how CL’s new Digital Ad Network, which puts together large-scale online ad buys for the CL websites and others beyond, had its largest revenue month in Feburary, $25,000.
Under a withering cross-examination by Atalaya’s lawyer Tyler Brown, a different picture emerged. Brown painted the digital plan as futile, not producing enough profits to make up for print losses for at least the next 10 years by Creative Loafing’s own projections. Brown attacked what he saw as Eason’s lack openness with Atalaya’s rep, Michael Bogdan, insisting that the company hadn’t fully disclosed its increasingly difficult revenue situation as it adopted a budget in Sept. 11 last year. (Eason has testified that enough financial data was sent to Atalaya weekly that it should have been able to tell that revenues were falling and advertisers were struggling. He also said he discussed the matter on a telephone call with Bogdan, but acknowledged not mentioning it during a budget presentation to Atalaya on Sept. 11.)
Brown meticulously walked Eason through his own financials, getting Eason to begrudgingly acknowledge that online revenues have dropped month-over-month since CL went into bankruptcy court on Sept. 29, 2008. (Eason countered that those aren’t “real” decreases, and that the numbers are explained by differently sized months, some with four weeks and others with five weeks, as well as seasonality. On a month vs. previous year’s month basis, online advertising is significantly up, he testified. “I believe that the trends that we put out there are positive.” He elaborated on the company’s online growth during rebuttal testimony early in the evening.)
Brown asked Eason about the $3.5 million-$4 million in cuts made to the current year’s budget, which resulted in about 50 layoffs, 40 percent of which came in editorial news departments. Brown’s questions insinuated that the cuts actually hurt the chain and profits and forced Eason to admit that the chain’s “preeminent position” in its cities slid in Atlanta, where the paper was founded. A Media Audit in November showed the rival weekly Sunday Paper having a higher readership than the Atlanta flagship paper, a fact that it took 3-4 attempts by Brown to get Eason to agree, although Eason added that he believes the papers are still the top alt-products in their respective cities. (In later re-direct testimony, the judge asked if what was meant by Sunday Paper, feeding the notion that the rival weekly’s readership is inflated by misunderstandings by those surveyed by Media Audit who may have thought “the Sunday Paper” referred to the weekly or to the Sunday edition of the Atlanta Journal-Constitution.)
The cross-exam was tense but not openly contentious, with Eason making one sotto voce snide remark aimed at Brown at one point and disagreeing strongly with the dire portrayal of the company by Atalaya throughout. His most common answers were “That’s not true” and that’s “not necessarily the case.” The cross went after 6:30 p.m., after which rebuttal testimony was expected.
Finally, Eason was asked about morale at the newspapers. In blog stories and in anonymous blog comments, some CL employees have said morale is low, and an attempt by Atalaya’s Bodgan on Wednesday to testify about that digital chatter was blocked on hearsay grounds. Eason disagreed under direct examination: “I actually think that our morale has been really good.
“All of our employees have an understanding of the challenges in this industry. [We challenged them to ask themselves,] ‘Can I reach within myself and make a big change?’ They’ve done that, and now they are more confident they can do this…, to be able to do more with less.”
Those who have made the digital adjustment are “confident and happy,” Eason said. “So the morale has actually been pretty good.”
On Tuesday, CL’s CFO Angela LaFon and its valuation expert are set to testify. The judge will then rule on who gets control of Creative Loafing.
March 13th, 2009 at 9:21 am
Wayne, I know you did not have the opportunity to stay for the rebuttal, so I will elaborate on what you missed during Ben’s rebuttal testimony: (1) Online revenue – due to seasonal changes and the number of weeks in a month, you will not see trends in revenue by comparing one month to the next month; you need to compare the revenue for the month to the same month last year. [My notes here: Case in point - many newspapers and magazines do not print a publication the last week of the year because of low advertising revenue.] So December will always be lower in revenue than October. We are seeing similar seasonality in our online revenue, with the exception of Tampa. If you compare numbers year over year, our online revenue is significantly up. (2) Media Audit numbers for The Sunday Paper – this was an attempt by Atalaya to paint it black, but the judge was one step ahead of Mr. Brown. Before the rebuttal testimony began, the judge asked for clarification on “the Sunday paper” – was Mr. Brown referring to the Sunday edition of the daily or the community paper called The Sunday Paper? During rebuttal testimony Ben explained that CL had repeatedly asked (for the last three years) Media Audit to clarify the question asked by its representatives when performing the telephone surveys to specify “Sunday Paper, the weekly community paper not to be confused with the Sunday edition of the daily paper.” Ben noted that if you look at the demographics for The Sunday Paper in Media Audit, it reflects and audience in the 45 year-old and up category which falls in line with people who read the Sunday edition of the daily. Ben also clarified that the circulation of the Atlanta CL was double that of The Sunday Paper.
We are looking forward to Tuesday where we will be able to present more positive details about the status of Creative Loafing.
March 13th, 2009 at 9:34 am
Having been in one of the leadership roles over the past four years at CL, I oversee one of the main areas of the company. My department had been affected by cost cuts during the course of last year a few times – and for a Manager, these decisions are not easy and weigh heavily on you. But I can only say this: every single member of my team has dealt with all the changes admirably – never hesitating to adapt by changing internal schedules, taking on more responsibilities, doing more with less, and having each other’s back. I am very proud to be the one leading them. Each of us understands the reality – that this is not a CL or leadership problem, but that the whole industry is changing like never before.
March 13th, 2009 at 9:48 am
Creative Loafing is a potemkin village of a company. “Alt-digital media company”? Ha! Ask him how scalable his model is with nobody to build it, no technology to run it on, and no idea of how to run it outside of Tampa.
March 13th, 2009 at 10:02 am
the sunday paper is a joke. the name isn’t fooling anyone.
but i still don’t understand why CL purchased papers in chicago or washington for $17 million.
March 13th, 2009 at 10:46 am
Potemkin village, a term for fake settlements, named after Grigori Potemkin
Potemkin (emulator), a Sony PlayStation Portable emulator
Potemkin Stairs, a giant stairway in Odessa, Ukraine
Potemkin, a character in Celebration, a 1969 musical by Tom Jones
Potemkin (Guilty Gear), a character in the Guilty Gear series of fighting games
Potemkin City Limits, an album by the band Propagandhi
Potemkin (architecture), a steel park by Casagrande & Rintala in Japan
A class of Warship in the Battletech universe
March 13th, 2009 at 11:59 am
Jennie — thanks for the rebuttal info, some of which had already found its way into my account but yours is much more complete. (I had to leave before Ben’s rebuttal could begin, some time after 6:30 pm)
March 13th, 2009 at 12:26 pm
“Can I reach within myself and find a new job?”
March 13th, 2009 at 1:28 pm
What is a Alt-digital media company? I thought that was a scruffy techie posting rants on his wordpress blog?
March 13th, 2009 at 2:18 pm
Ed — well, I actually didn’t shave today …
March 13th, 2009 at 3:00 pm
Ms. Eason – Media Audit DOES ask a “clarifying” question regarding The Sunday Paper in an effort to do EXACTLY what Ben claims he’s requested for the past 3 years.
The actual question asked is:
“A weekly newspaper called “The Sunday Paper” is published once a week in Atlanta. Did you read or look into any of the last 4 editions of “The Sunday Paper:” if yes: did you read or look into last week’s edition?” What possible reason would an independent audit company have to mislead its participants? If you’d like a copy of the survey, I’d be more than happy to forward you a copy.
I’m surprised Ben would make such a silly statement. He questions the validity of Media Audit’s survey… all the while using the same survey for his own readership numbers? Interesting.
March 13th, 2009 at 3:16 pm
Patrick – if you don’t see the difference between the question Ben requested and the question you claim Media Audit currently asks, then I can’t help you buddy…
March 13th, 2009 at 4:06 pm
Good luck on Tuesday… buddy.
March 13th, 2009 at 4:24 pm
The debate about the validity of Media Audit’s methodology is a bigger can of worms than any of you are doing justice to in this back and forth exchange. To single out this one “Sunday Paper” question, aided recall, short-cut answer, or whatever you want to call it is really a non-issue. We’ve been dealing with much larger “questions” about Media Audit for years.
No one should be building an argument in court one way or another based on Media Audit’s numbers.
March 13th, 2009 at 4:41 pm
You’re right, Mark. The Sunday Paper’s succes, and Creative Loafing’s current problems, have nothing to do with Media Audit.
March 13th, 2009 at 4:50 pm
You’re right, Mark. The Sunday Paper’s success, and Creative Loafing’s current problems, have nothing to do with Media Audit.
March 13th, 2009 at 5:28 pm
that is a good question, wesley, why would they buy papers in DC and Chicago? it makes no sense. they couldn’t afford the buy, obviously, won’t admit that they screwed up, and Ben is talking about morale being up? i have never seen Reader employees look so beaten and heard so many people say how much they don’t like going to work. it wasn’t that way before CL showed up. they made a huge purchase and then put the screws on everyone so that everyone could make up for their mistakes. so what they have now is at lease one group (and i am sure many more groups) that have no morale and view the company as cheats, liars, and horrible decision makers. upper management is concerned with one thing which is themselves and only themselves. they do not care about workers or the content of the paper. it’s disgusting
March 13th, 2009 at 6:49 pm
Not sure I understand the Sunday Paper bashing. Questions regarding its readership aside, our latest issue just went to press at 88 pages and we are profitable. Most importantly, we’re hiring, not firing, which, in this economy, speaks volumes about Patrick’s ability to run a newspaper. Personally, I’ve been an admirer of Creative Loafing for twenty years – hence my interest in purchasing it. However, I believe at heart it is a newspaper chain and should remain so.
March 13th, 2009 at 9:26 pm
BAD MORALE at THE CHICAGO READER!
I completely agree with this statement and for Ben Eason to even say that employees have high morale is a joke. Upper management of CL cares nothing about producing a great paper, their employees or even their readers and advertisers. It’s a shame what he was allowed to do do what was one of Chicago’s finest papers, it’s employees, readers and not to mention our brothers and sisters at the DC paper. He had no business buying something he could not afford. It was like he purchased a Mercedes he could not afford to get oil changes, maintain the mechanics of the vehicle, pay the insurance on it or the LOAN for that matter. We pray if ATALAYA gets control that they actually talk to the employees of the Chicago Reader and the Washington DC paper to find out how people REALLY feel! There are some great people working there who have been dedicated for YEARS. They are the heartbeat of the paper and because of CL’s business practices, those heartbeats are barely going…
March 13th, 2009 at 9:35 pm
Quoting Eason…
“All of our employees have an understanding of the challenges in this industry. [We challenged them to ask themselves,] ‘Can I reach within myself and make a big change?’ They’ve done that, and now they are more confident they can do this…, to be able to do more with less.”
Those who have made the digital adjustment are “confident and happy,” Eason said. “So the morale has actually been pretty good.”
REALLY BEN? When did you reach within yourself to cut the pay of your administrative team? A week before you went back to court?
Do more with less? You barely have enough staff to make the papers function or even try to grow what you have. Find me one of those employees who care “Confident and Happy”?
Those employees are about as elusive as your business acumin.
March 14th, 2009 at 12:06 pm
Wayne – how does the fact that the Sunday Paper in Atlanta has an offer to buy CL factor into them being used as a benchmark and being bashed?
March 14th, 2009 at 4:55 pm
The current CL management team from Tampa to Chicago can not save the Reader. They do not understand Chicago. In fact, none have ever lived in Chicago. It’s said but the Reader has become irrelevant.
Newspapers are not dead. Only those that make bad decisions will fail.
March 15th, 2009 at 8:18 am
Yes and Creative Loafing is one bad decision after another!
March 15th, 2009 at 8:49 am
Ed — not sure it factors at all. The issue was raised by Atalaya’s attorney as an attempt to show the court that Eason’s management decision to change the print model has harmed the chain’s pre-eminence in its markets. The only example of that, and it is disputed by Eason, is in Atlanta, where that one Media Audit gave the nod to Sunday Paper. There is a general undertone to all the testimony and discussions regarding Sunday Paper and Conley that much of what it is trying to do (purchase CL or at least the Atlanta paper alone) is aimed not at being serious bids but at playing out in the media to harm CL’s chance in bankruptcy court. I can’t say one way or the other if that is true, but certainly the judge has heard some of that debate in court and could weigh it as part of her decision on the Atalaya motion to lift the automatic stay of its default declaration against CL.
As far as the being bashed part, you’re always going to get competitors speaking ill of each other, especially in this case where Mr. Best was the former ad director in ATL for Creative Loafing. Folks in that city have strong feelings, both pro and con, about both publications.
March 16th, 2009 at 10:31 am
Hmmm… maybe the Chicago and DC employees who hate CL so much can sneak out with company data go work for Patrick at the Sunday Paper (he knows how that works.) I mean, that is the honorable thing to do, no? There are plenty of us at CL that are in this to win. We believe in our product in a time that is really tough for anyone in media anywhere – or any industry, for that matter. Those that don’t would be better served to get out. But you seem to prefer hating Ben and letting him pay you to do so every two weeks. Nice.
March 16th, 2009 at 10:41 am
Wayne, Ed, it’s a little bit of conspiracy theory to suggest that Best’s offer (actually, Conley’s) is merely to influence the judge. That would assume there’s a very weak judge, which obviously isn’t the case. It would also assume the information isn’t relevant to the case, but it clearly is. CL is a failing enterprise in Atlanta, and that’s something the judge should know. You can argue about why CL’s fortunes (literally) have evaporated — bad management, economy, implosion of advertising — but the fact that one paper in a city is making money while a similar publication isn’t, that’s pertinent to this case. More to the point, the $13 million offer by Conley/Best is well within the ballpark of what the company is worth today, by any calculation. For Atalaya, the issue might be as simple as being able to get about half of its investment back. The issue with Media Audit isn’t simple, but as Best points out above, Ben has his salespeople use Media Audit in their pitches, and now that the survey has turned against him, he cries “unfair.” Either Media Audit is a good indicator or it isn’t. That said, all such surveys have a broad gray area. Clearly, Sunday Paper is publishing more pages in the last several weeks than CL in Atlanta, which is an amazing turnaround in relative position. The once fine CL editorial content under Ken Edelstein, who Ben fired, is vastly diminished, CL’s distribution sucks — so to the extent that Media Audit points to trends, there’s nothing surprising in a trend away from reading CL. I think the Media Audit question adequately distinguishes between the Sunday Paper and the Sunday edition of the Journal-Constitution. Full disclosure: I and several other Creative Loafing shareholders, although representing only a minority interest, do not support the bankruptcy.
March 16th, 2009 at 10:48 am
I wondered if the SP was coming up more often, and bashed in court and here, due to the offer but I see that is not the case.
I did not that the current valuation of CL hits online with what the SP was reported to have offered.
March 16th, 2009 at 4:42 pm
I have read CL and The Sunday Paper.
As a reader, I am hoping that CL makes it through this. As a former journalist, I can say that Sunday Paper is not worth using as an umbrella on a rainy day.
March 17th, 2009 at 6:51 am
In response to GM:
Quote:
Hmmm… maybe the Chicago and DC employees who hate CL so much can sneak out with company data go work for Patrick at the Sunday Paper (he knows how that works.) I mean, that is the honorable thing to do, no? There are plenty of us at CL that are in this to win. We believe in our product in a time that is really tough for anyone in media anywhere – or any industry, for that matter. Those that don’t would be better served to get out. But you seem to prefer hating Ben and letting him pay you to do so every two weeks. Nice.
Trust me… Most in Chicago and DC are not there for BEN or because we love Creative Loafing! CL decimated the Chicago Reader. The Reader and DC have a great product it’s being ruined by BAD business practices. Bottom line is he had no business buying something he could not afford, maintain or execute properly! CL has absolutely NO concept of running the Reader or the DC paper. So you ask why am I sitting here collecting a pay check from someone I dislike? Because I am loyal to Chicago and I am loyal to the paper and I stay optimistic that the judge makes the best decision based upon the best interest of the paper, its employees, its readers and the community it serves.
March 17th, 2009 at 12:30 pm
Wayne: Thanks for covering this story straight up. It’ll be interesting to see what happens today.
Two more things in response to “GM” (who I am guessing is Atlanta GM Gia Coppi, because she’s said similar things to me):
1) Ben is most certainly NOT paying CLI employees; in fact, it’s a matter of dispute whether he even owns the company. That’s what the bankruptcy case is about! It isn’t a matter of dispute that the company is only able to make payroll because it defaulted on the $40 million Ben Eason borrowed from two investment funds with the SECURED understanding that he would pay them back.
2) The feudalistic attitude that the people sweated day and night to build these newspaper are obliged to scoot out the door because they disagree with bad management decisions says all we need to know about the unenlightened approach of Ben and the small group of loyalists who surround him.
March 17th, 2009 at 3:48 pm
“the small group of loyalists who surround him.”
Who is that? For all I am aware he is the thorn on all peoples sides accept those he hired at management to be his small group of power and he has to pay them!!
He just need to take a long hike along with his managgement cronies.
March 17th, 2009 at 10:09 pm
Something that is not being mentioned here is that if you go to a totally digital paper MORE people are going to lose their jobs. And it’s not just the ones that work in the office but the Carriers, some who depend on the income from delivering papers to pay their mortagage, car payment, college. It’s not just fun money for most of them. They use their own cars, pay their own gas, insurance, maint. and sometimes even risk their life to deliver the paper. What thanks do they get but have their pay cut and no help when gas reached $4 a gallon. Going totally digital will be the death of the paper. It’s also very techno-snobish to think everyone carries a laptop or blackberry around to read CL or the other papers. What about the people who just want to pick up a copy and read it while having lunch, waiting for the bus, etc. I thought Alt-weeklies were fighting for the little people, I guest it’s just going to be a big bloated non-caring corp. OK enough ranting and more thing…
How does Ben really believe morale is good when people come into work wondering if they are going to be the next one to be layed off. Dream on and power to the little people!