Published on Saturday, October 14, 2006 by the Los Angeles Times
Air America Parent Files for Chapter 11
by Claire Hoffman
Red ink finally got the better of the nation's blue-state radio network.
The parent of Air America Radio, plagued by management and financial problems since its inception, filed Friday for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
The filing in New York by Piquant, the network's parent company, became necessary after negotiations with one of the privately held company's founding creditors broke down, said Air America spokeswoman Jaime Horn. She declined to identify the creditor, but Piquant has had troubles in the past with its business partner, MultiCultural Broadcasting Inc.
The liberal radio network, which bills itself as a progressive spot on the dial, will remain on the air — including on Los Angeles affiliate KTLK-AM (1150) — while operating under Bankruptcy Court protection.
"By running such a poor business they did a disservice to liberal talk radio by making it seem like the problem was that they were liberal," said Michael Harrison, the publisher of Talkers magazine, a talk-radio industry trade publication. "Before you change the world, make sure you pay your bills."
Last month, the network's star commentator, comedian Al Franken, complained publicly that his paychecks had stopped.
Air America made headlines when it was founded two years ago, trumpeting itself as a response to radio's many conservative voices such as Rush Limbaugh and Sean Hannity. The network's on-air talent has included actress Janeane Garofalo and talk-show host Jerry Springer as well as Franken.
The Bankruptcy Court filing shows an operation in a deep financial hole.
Assets of $4.3 million are far outstripped by $20.3 million in liabilities, according to the filing. Creditors include Franken, who is listed as being owed $360,749.
During the bankruptcy proceedings, Air America will continue to operate with funding from Democracy Allies, an investor group that includes Rob Glaser, chief executive of RealNetworks Inc., who made his initial fortune as a Microsoft Corp. executive.
Glaser, who once served as chairman of Air America, holds a one-third stake in the company. He resigned Friday as a director of Piquant.
Horn said that Scott Elberg, who has been at the network since 2005, had been named its chief executive. Before joining Air America, he worked on two radio stations in New York.
"Nobody likes filing for bankruptcy," Elberg said in a statement. "However, this move will enable us to concentrate on informing and entertaining our audience during the coming months."
From the start Air America has lost money, including $13.1 million so far this year, according to the Chapter 11 filing. In 2005, its operating loss reached $19.2 million, up from 2004's $8.6 million.
The network also has become a revolving door, the filing indicates. Two board members, Douglas Kreeger and Tom Embrescia, have left. In June, Gray Krantz left as president. Executive Vice President Tom Athans and Chief Operating Officer Carl Ginsburg exited in July.
The ride was bumpy for the New York-based network before it even hit the air, with changes in ownership, management, on-air lineups and even its name.
The network began as the brainchild of Chicago-area entrepreneurs Sheldon and Anita Drobny, longtime Democratic fundraisers, who, weary of what they described as a conservative political monologue on the airwaves, aimed to purchase radio stations and launch a left-leaning talk-radio network.
But in November 2003 they sold most of their stake in what was then dubbed Central Air to investors including Mark Walsh, a onetime America Online executive and former Internet advisor to the Democratic National Committee, and New York venture capitalist Evan Cohen.
Plans to go live in time for the presidential primaries in early 2004 were pushed back, and the network finally debuted with Franken's show on March 31, 2004, on six stations including KBLA-AM (1580) in Santa Monica. But two weeks later it was off the air in Santa Monica and in Chicago, when affiliate owner MultiCultural Radio Broadcasting yanked the service because of a payment dispute.
Start-up funds for the network, reportedly about $20 million, turned out to be far less. Cohen, who at the time was also a director of the Gloria Wise Boys & Girls Club in the Bronx, transferred $875,000 from the nonprofit to Air America, according to the New York City Department of Investigation.
Before the network made it through its first few months, Walsh, Cohen and several other executives were gone. A new parent company, Piquant, led by Glaser and others, took over Air America in May 2004. Piquant repaid the $875,000 to the children's organization.
"None of the current management had any involvement with the original loan," Horn said.
KTLK-AM is one of 25 "Progressive Talk" stations owned by giant Clear Channel Communications. Freelance writer Steve Carney contributed to this report.
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