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CL files for Chapter 11

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In the end, Creative Loafing Inc. and the alternative newspaper industry are mirrors of society.

In the 1960s, the newspapers were the firebrand voices of dissent, with heartbeats in rhythm to the protest songs of Dylan and Baez. By the 1970s and '80s, the thrum had turned to hedonism, disco and punk, with everybody in the Reaganesque "me-first" mode. The 1990s ushered in big deal-making among the "alts," replete with investment bankers, capital "partners," and lots and lots of debt.

And in 2008 – as the nation stands in fear of financial forces it barely can comprehend, much less manage – Creative Loafing Inc. is filing for Chapter 11 bankruptcy protection. Unlike for the huge Wall Street banks, there is no federal bailout program for newspapers.

CL's bankruptcy petition was made in Tampa, where the company is now headquartered. But Creative Loafing was founded in 1972 in Atlanta. It grew to be a chain of feisty, sometimes strident voices of the non-establishment crowd.

Creative Loafing now describes itself as the second-largest group of alternative publications in the United States, with 2 million unique visitors to its websites each month and 1 million print readers each week for six newspapers targeted to consumers age 18 to 39.

"The company owed more money than it can pay back right now," said CEO Ben Eason. Lenders are owed more than $40 million. The bankruptcy petition was timed to preclude an interest payment due Wednesday.

A statement issued by Eason said: "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."

Eason emphasized that bankruptcy ensures that "everybody gets paid." He's talking about the staff when he says that. When it comes to lenders, everybody hasn't been paid. According to the St. Petersburg Times, CL missed interest payments of $282,219 on Dec. 24 and $294,369 on Jan. 24.

On the other hand, employees are still getting paychecks. Writers and editors are still producing blogs, listings and articles. Ads are being sold. The paper's being printed and distributed.

Eason also stressed that the move was a "fresh start," that it was "reorganization, not liquidation" and that it's "full steam ahead" for the company's current strategies. Of course, it can be argued that those strategies are what got Creative Loafing into bankruptcy court. Consider:

Last year, CL purchased two of the nation's larger alternatives, the Washington City Paper and the Chicago Reader. That move – to expand from four papers to six on the cusp of a recession, and to hope that the combined "national footprint" held potential for online advertising sales – jacked the company debt from $20-something-million to more than $40 million. Since the acquisitions, print revenues have plunged – as they have for most everyone in the print business. Although CL has operating profits of about $4 million on an annual basis, that number's been heading in the wrong direction.

The company has made interest payments – but the principal hasn't been reduced, much like Joe Consumer who barely meets the minimum payments on his Visa card, never hacking down the debt. To meet its debt payments, the company has slashed costs. That's another way of saying people have been fired. As with newspapers of all stripes – dailies and weeklies – among the hardest hit have been the editorial departments. After all, the money guys figure, great journalism can't be tabulated on the bottom line, so who needs it? So dailies and weeklies, including Creative Loafing, have shrunk their staffs.

CL's new online buzzword is "aggregation," meaning the online edition will include headlines, blurbs and links to other websites' content. The logic, and it befuddles many, including me, is that people will rush to CL websites to be routed to material produced by other newspapers, websites, bloggers and the like.

The third strategy has to do with print publications in general, CL specifically. What publishers have known for years is that newspapers are "newsosaurs." Old farts like me still feel kinship with papers they can touch, fold and use to line their birdcages. Younger generations were born with laptops and cell phones in their hands. They don't need newsPAPERS. More than anything, newspapers don't change very fast, and today's media reinvents itself every month, hell, every 10 minutes.

Daily newspapers own presses, and they are loath to give up these antiquated technologies, so, like the AJC, they ax their reporters, eviscerate their content and pray readers don't notice. But readers do, and cancel subscriptions.

Alternative newspapers don't own presses, but they are wed to their print edition for the revenue it generates, and the publishers pay a huge percentage of their sales to keep someone else's printing press running. The result is the same. Print advertising revenues have dropped at stomach-wrenching speed, yet the costs of printing have gone up. So, many alternative publishers fire their reporters and hope readers won't notice. But they do.

The parties not yet heard from are the lenders. Creative Loafing's "senior" debt – think of it as the first mortgage on your house – is held by Atalaya Funding II LP and is about $30 million. The "mezzanine" lender, BIA Digital Partners SBIC II LP (whose loan is like your home-improvement second mortgage) is owed about $10 million.

Whenever I've written about Creative Loafing in the last decade, I've generally noted that I'm a shareholder. That's another way of saying I'm a true believer in the need for great journalism. Looking at those columns today, it's another way of saying I drank the Kool-Aid. To me, content should be king. But at every struggling newspaper in America, the first sign of distress is killing the good content. Which is the true background story of Creative Loafing's bankruptcy.

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