Major Trouble at CK Media

CK Media, parent company of Creating Keepsakes and PaperCrafts magazines, can no longer deny (after months of rumors) that it is in financial trouble after word has come out publicly that the company has hired turnaround and bankruptcy consultants CRG Partners to assist it.

A representative for CRG Partners confirmed to Scrapbook Update today that CK Media is a client of CRG but declined further comment.

A message requesting comment left with CK Media's parent company, Sandler Capital Management, was not returned.

CK Media had the following to say when asked for comment:

Economic times are tough. Like so many companies, CK Media is feeling the hardships that come from being in a recession. In order to continue doing business during such tumultuous times, a time when so many magazines are closing their doors, the company is restructuring its finances to settle outstanding debt and keep its doors open. Our lenders have contracted with an outside firm called CRG Partners to resolve this debt.

Supporting the crafting industry has always been a top priority for our company, and this step, however difficult it may be, is a necessary one we must take in order to continue offering that support. Please know that this is a business decision and in no way changes or reflects how much we value and appreciate our business partners and readers. After all, it’s because of their contributions and the support they give that we have products to provide. This restructuring is the best opportunity our company has to move forward and continue producing our various crafting titles.

This statement is very similar in wording to an email that was reportedly sent to PaperCrafts creditors whose payments are past due, instructing them to contact CRG Partners regarding their payments.

The most important part of this statement is the veiled admission that CK's lenders are taking a direct hand in the company's financial management by bringing in CRG. This is eerily reminiscent of the recent situation of Creative Memories, which was basically forced into bankruptcy court by its lenders after missing loan payments.

CRG told an unnamed Scrapbook Update source who is owed money from CK Media that the company has $70 million in debt and only $20 million in assets. The creditor was offered 25 cents on the dollar to settle their debt, and was told that 80% of the company's major creditors would have to agree to similar settlements within 30 days to satisfy CK Media's lenders.

Based on the timing of CRG's contact with that creditor, the clock will be running out very soon on CK Media's 30 day deadline from their lenders.  Given the challenge of getting concessions from that large a percentage of the company's creditors, it seems a distinct possibility that the company will be forced into bankruptcy court by their lenders in the very near future.

So how did CK Media get to the point of its lenders calling in a turnaround specialist for it that is threatening bankruptcy to its creditors?

CK Media was created by Sandler Capital Management when it bought the crafts magazines group from struggling Primedia in June 2006.

In the past 18 months, CK Media has shut down 4 magazines. First to go, after its Sept/Oct 2007 issue, was the Memorytrends trade publication for the scrapbook industry. Then in July 2008, the company's other trade publication, Craftrends, shut down its print operation in favor of a web publication. In November 2008, the death of the surviving Craftrends web operation occurred, along with the demise of Digital Scrapbooking Magazine's print operations. The slashing continued with the announcement last month of the shutdown of Simple Scrapbooks magazine.

A major contributor to the company's problems would appear to be the same advertising slump that has taken down many other non-scrapbooking magazines in the past 12 months. A survey of Creating Keepsakes issues during the past 12 months shows a drastic decrease in the amount of ad content in the issues. Between March and October 2008, the issues that I surveyed contained between 33% and 38% of their pages devoted to paid advertising space (excluding CK's own ads). Examining the March 2009 issue, the issue is 8 pages shorter than the standard length of the 2008 issues, and the paid ad space still only equals 22% of the issue's pages.

One obvious shortfall in the ad space occurs in the "Store Directory" section. In June 2008, this section was 14 pages long and contained 248 store listings. In the March 2009 issue, the store directory section is only 6 pages long and contains only 137 stores. The missing 111 stores add up to over $16,000 in lost revenue if calculated at the $150 "CHA Special" rate for the directory listings being offered on CK Media's advertising handouts in Anaheim.  Some of those stores also probably advertised on the CK's website, which cost an additional $55 at the CHA special rate in Anaheim last month, resulting in even more lost revenue. Many of these stores have probably closed due to the economy.

And that is just the "Store Directory" ads. The March 2009 issue of CK had 21.5 pages of paid display advertising in it. In March 2008 that number was 31 pages. The June 2008 and October 2008 issues had even more pages of advertising than the March 2008 issue had. The October issue had seventeen more pages of paid display advertising than the current March 2009 issue.

These numbers just reflect the state of CK Media's flagship publication, Creating Keepsakes, but it is hard to imagine that the company's other publications (PaperCrafts and an array of quilting and sewing titles) have not been affected as well by the advertising downturn that has been hammering the entire publishing industry.

There does seem to be one bit of good news for CK Media - their events operations seem fairly healthy. The same total number of CK Conventions/CKU/Creative Photography Retreat events are scheduled for 2009 as for 2008. How successful those events will be for the company remains to be seen in most cases, but CK apparently felt secure enough to not cut back on events for this year at a time when the company is slashing in other areas.

Will it be enough? We may not have to wait very long to find out.