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.
