11/09/2008 05:12 am ET | Updated May 25, 2011

Uncreative Leveraging

Three years ago, I moved from LA to Atlanta for a week. I had taken a job as publisher of that city's alternative newsweekly, Creative Loafing, but knew almost immediately it wouldn't work. The fact that I was unable to get a key to my new office was scary enough (don't ask), but I could also see right away that the company had a more serious problem: it had taken on so much debt that it would be impossible for me to achieve the goals I'd been given. Fortunately, I hadn't sold my house and beelined back to Laurel Canyon.

Last week, Creative Loafing, the nation's No. 2 publisher of alternative newsweeklies, with papers throughout the South and in Chicago and Washington, D.C., lived up to its name by declaring Chapter 11 bankruptcy simply because it was too highly leveraged. Its papers are making millions, but the company has to fork over huge interest payments to bankers and "vulture capital" outfits -- the very institutions melting down before our eyes -- before spending a dime on writers, sales people, designers and capital equipment.

And Creative Loafing isn't alone. Even before the current financial crisis, print media already faced what seemed a perfect storm. Consumers are getting more and more of their information via the Internet, and newspapers and magazines are taking a huge hit in advertising and circulation. Companies looking to cut their own costs often settle first on advertising, making it that much more difficult for publications to make a buck. And, in perhaps the cruelest blow, and contrary to the general rule that commodity prices drop in a recession, the price of paper has gone up a staggering 37 percent in the past year; in this recession, even as revenues and page counts plunge, the weak dollar doesn't buy nearly as much paper as it used to. A friend who runs a printing plant told me half his clients are going under and the rest are struggling. But as he put it, "I can't subsidize the publishing business."

Now the financial crisis has exposed the dangers of the reckless leveraging pursued by so many media companies over the past decade in the name of consolidation and growth. As the recession and credit crunch continue, the bankruptcies and massive editorial staff layoffs we've seen -- the debt-laden Los Angeles Times announced yet another round of firings this week -- could be the tip of the iceberg.

Perpetual downsizing and loss of jobs are tragic in any industry, but there's an extra dimension when it happens to our key sources of news reporting and analysis. On-line media are without a doubt transforming the way we communicate. But how can we hope to prevent future crises if we lose the daily and weekly newspapers and magazines which still produce most of the reporting that forms the backbone of good journalism?