Wednesday, July 25, 2007

Chicago Reader's Buyout Lesson Begins

The Chicago Reader, the alternative local weekly newspaper that was just sold, is about to get a lesson in how a corporate takeover works. Frankly, it's too early to say what exact changes the new title-holder--Tampa-based Creative Loafing Inc.--is going to make at the Reader, which for the last 30 years has successfully operated under only one ownership group.
Nevertheless, the Reader is entering a new chapter, one that promises operational and journalistic transformation. What follows is my outsider's assessment of the Chicago Reader's new circumstances and its likely impact on the publication's loyal workers, readers and advertisers:
--There's a new business plan in town. It calls for: boosting earnings, cutting costs and jobs, consolidating some administrative and editorial operations, limiting local reporting, increasing marketing and aggressively positioning the company to compete in the "digital age".
--Job One: Keep the partner happy. Creative Loafing didn't buy the Reader all by itself. It has a deep-pocketed collaborator, BIA Digital Partners, a venture capital firm that provided the financing needed to seal this deal. BIA typically spends between $4 and $12 million when investing its own money and up to $25 million when "co-investing" in a deal (which appears to be the case here.)
That's not to say the Reader got top dollar but it indicates that a nice chunk of change is going to the Reader's owners and investors. Terms of the deal weren't disclosed. But BIA is protecting its investment by having one of its executives serve on Creative Loafing's board of directors. This is like having your banker take a room in your newly-mortgaged house.
--Cost savings, job cuts, redesign.When an enterprise--even one that's had a long, successful run like the Reader--is purchased at a premium, the new owner tries to quickly recapture some of that money through cost-savings. Right off the bat, much of the Reader's administrative duties will be incorporated into the parent firm's operation. What's more, the Reader's production, art and graphics duties will likely be consolidated into Creative Loafing's system. Also, I'd expect the Reader will eventually be redesigned to more closely mimic templates within Creative Loafing's papers in other markets (Atlanta, Charlotte and Sarasota.) Redesign is not a one-way street, however, some of the Reader look may be incorporated into those papers--if Creative Loafing management is open to that idea.
I suspect you'll also see some system wide sharing of editorial columns and features, which will mean requiring fewer local freelance contributions, which saves money.
--A less-filling news hole. Redesign or not, the news hole is probably going to shrink. It cost lots of money to produce a newspaper and the Reader is already feeling the pain of declining classified ads and has cut back on sections. Under the new owner, expect those long, long lead stories to be trimmed and other editorial offerings tightened up even more. The result? Out of necessity, the Reader will morph into more of an "editor's paper" and less of a "writer's paper".
--Local coverage? That's an important question. I guess it depends on how Creative Loafing defines local coverage. Listings? Reviews? Neighborhood profiles? Investigative stories? Columns? It's going to take time to sort it all out. The Reader delivers some great metro coverage that's better than the dailies (for example, the ongoing stories about Tax Increment Financing abuse). Unfortunately, local coverage will have to fight for space in a way it didn't before.
--Online side of the deal.Remember the name of Creative Loafing's partner? It's BIA DIGITAL Partners. Look at its portfolio of clients, including a couple of Chicago-area media companies, and you'll get the idea that this venture capitalist firm invests with companies that have significant online potential.If money is to be spent, chances are it will be pumped into the Reader and/or Creative Loafing's digital sites. That could mean upgrading the current Reader web site, offering new web-based publications, capitalizing more on the weekly's classified advertising prowess, partnering with the area's blogs and other web-based news and information sites or tapping into the growing appetite for "citizen media" web outlets and sites.
Potentially, the Reader may become a local portal for all this stuff, provided there's a buck to be made via advertiser support. Or perhaps it will be part of national online platform that features other Creative Loafing sites or other BIA-backed media concerns.
--Don't rule out a name change. Yeah, I know the new owners say dropping the Reader logo is not going to happen. (Shades of Marshall Field's & Co. and Macy's). But it could, especially if the parent company makes more acquisitions in other markets, and decides that one brand name is better than an assortment of different titles, especially when trying to build a national brand online.
--Don't expect another 30-year ownership reign. This is strictly my opinion. But this venture smells like a "roll-up" to me. That means, Creative Loafing/BIA are going to acquire other similar print/online properties, bundle them up into a neat package, and then sell out to some large media or web company (which are dying to tap the super-local advertising business and don't yet know how to accomplish that task.) Selling companies is, after all, what venture capitalists do.
The new owner says no radical changes are on tap. Still, it's been my experience that most buyers of established, and popular, companies tend to say this at the time of purchase (Even Rupert Murdoch is taking the oath to buy the publisher of the Wall Street Journal.)
Afterward, they put their stamp on the company. That's the name of the game.
At least, Chicago Reader loyalists can take cold comfort in knowing they aren't alone--the entire newspaper industry is undergoing massive upheaval--just look at what's going on at the Tribune Co.
So get ready, folks. School is in session at the Chicago Reader and the corporate takeover lesson has only started.