http://www.nytimes.com/2006/12/18/business/media/18air.htmlAfter Bankruptcy Filing, Recriminations Fly at Air America
By ELIZABETH JENSEN and LIA MILLER
In its search for a new chief executive this past summer, Air America Radio interviewed seasoned media executives in an effort to revive the faltering network. One interview took a bizarre turn, however, when the executive got into a political argument with Randi Rhodes, one of the network’s on-air hosts.
“I laughed and said, ‘You sound like Republican talking points,’ ” Ms. Rhodes recalled.
At Air America, business and politics always mixed, and that was the problem, critics contend. Begun with an onslaught of publicity in spring 2004 as an alternative to right-wing talk radio, the network is given some of the credit by its supporters for having helped achieve the Democrats’ Congressional election victory in November.
Detractors label the liberal network’s programming as combative, one-note and emotional. At least its business dealings seem to fit that last description. Even before Air America and its corporate parent, Piquant L.L.C., sought bankruptcy protection on Oct. 13, its management was engulfed in a series of financial crises. The search for new investors and managers has been marred by infighting among those who want the network to succeed, according to people in the organization.
In recent weeks, Air America, which has its headquarters in New York and reaches about 2.4 million listeners weekly, has suffered the defection of a handful of its more than 80 affiliated stations and soon faces the likely departure of its most visible host, Al Franken, even as it cobbles together a plan to emerge from Chapter 11.
A possible solution surfaced on Friday. Douglas Kreeger, an initial investor and former chief executive who stabilized the network in its early months, said in a telephone interview that there is “a signed letter of intent” for a new group to take over the network and that he is “likely” to be a part. The lead equity position would be taken by Terence F. Kelly, of Madison, Wis., also an Air America investor from the beginning and a former board chairman.
Mr. Kelly said in a separate interview that the investor group included a new strategic media partner he declined to name, and both men would not predict when a deal might come to fruition.
“Any number of things can happen,” Mr. Kreeger said.
This is only the latest twist in the short but contentious history of Air America. At the root of its problems, some critics and competitors say, has been an inability to negotiate a middle path between its political mission and its business.
“It’s my feeling that they really put this together without broadcasters,” said Stuart Krane, a former ABC Radio executive who is the president of Product First, which owns the program of a liberal talk-show host, Ed Schultz. “If you have a healthy business, then your agenda will be put forth.”
Air America ran into financial trouble within days of its appearance on March 31, 2004, when it turned out that its original chairman, Evan Cohen, did not have the backing he said he did. Weeks later, Mr. Kelly, a former owner of Midwest radio and television stations, stepped in to take charge of the board. At the end of 2004, he ceded the chairmanship to a new investor, Rob Glaser, chief executive of RealNetworks.
Some people at Air America assert that, under Mr. Glaser and the team he put in place, the network was top-heavy with management, inept at selling ads, unwilling to make program compromises that veered from the liberal message and overstaffed with more than 100 employees when two dozen would have sufficed.
“What they did for $45 million they could have done for $10 million,” said Sheldon Drobny, an investor with a contentious relationship with the network. Mr. Drobny and his wife, Anita, longtime Democratic activists, are credited with the idea for Air America.
The network has run through a stream of operational executives. Danny Goldberg, a music executive who served as chief for about a year before leaving in April 2006, said the problem was “a big gap between the ambitions of the company and the funding available to accomplish those ambitions.”
“There was no way to manage around that gap,” he said. “Either lower your expectations or raise more money. No one wanted to change the ambitions.”
Faced with constant money woes, the board considered a takeover by the Democracy Alliance, a loose group of moneyed progressives, including George Soros, who had pooled resources to support projects they considered worthy. But the group ultimately rejected the appeal, because “Air America needed to do certain things to make it a more attractive business,” Mr. Kreeger said.
Mr. Kelly said he was disappointed that rich Democrats did not step up to support the network’s political goals. On fund-raising calls, he said, he was often turned down because the business plan was too risky.
He agreed that the network over-spent, “out of enthusiasm for what we were doing.” But he said it also “inherited so many difficulties not of our own making.”
Saying that Air America reaches millions of listeners and “clearly had an impact on the 2006 elections,” Mr Kelly added, “I think with a relatively small amount of money, we have succeeded wildly.”
Late in August, the network lost its lease with WLIB in New York and switched to a weaker station, WWRL 1600. Some liberals blamed Product First, which was negotiating its own WLIB deal. It later fell through.
“We just saw WLIB as something we might own and do very well with,” Mr. Krane said. “There was never any nefarious plot here.”
Late in September, the Drobnys tried to buy Air America for $2.5 million, but the deal fell apart because, Mr. Drobny says, the terms were changed. He said he would have had to put the money into Piquant’s operating account, where it could have been tapped by creditors, instead of into a shielded holding company.
In an e-mail message to the board, Mr. Drobny wrote that “one or more of the board members and attorneys have intentionally taken steps to put the company into Chapter 11 and have taken actions that are intentionally to the detriment of the current members and their creditors.”
Tracy L. Klestadt, the network’s bankruptcy lawyer, termed that “absolutely inaccurate,” saying the terms always called for the purchaser to invest in Piquant L.L.C. and “the Drobnys would not agree to it.”
As for the bankruptcy filing, which came after a creditor, MultiCultural Radio Broadcasting, sought to freeze company accounts, Mr. Klestadt said the board decided a Chapter 11 proceeding “would be the best way to maximize the value of the assets.”
Mr. Glaser, who resigned from the board along with Mr. Kreeger and Mr. Kelly at the time of the filing, declined to comment. He is the network’s largest creditor with $9.8 million in claims.
Since Air America sought bankruptcy protection, 5 to 10 potential buyers have looked at the books, Mr. Klestadt said. Late Friday, it told affiliates that “an official letter of intent has been signed,” but declined to name the prospective buyer “due to the sensitive nature of this deal.”
Some affiliates have grown weary. In recent weeks, an affiliate in the Quad Cities market of western Illinois and eastern Iowa switched its programming to Christmas music, and stations owned by Clear Channel in Boston, Cincinnati and Madison announced plans to bail out.
Moreover, Jerry Springer just ended his Air America-syndicated radio show, which never gained a wide audience. Mr. Franken has been telling associates that he is likely to run for the Senate from Minnesota.
Mr. Franken, who is on a U.S.O. tour of Iraq and Afghanistan and says he is owed $360,750 by the network, declined requests for comment. Through Air America’s spokeswoman, he said, that “although I do not know the specific details about A.A.R.’s progress through the Chapter 11 restructuring process, I was pleased to hear that they had received a letter of intent from a prospective buyer.” He added his hope “that the network’s ownership situation and financing difficulties will be resolved while I am away.”
When he returns, he faces competition from an unexpected source: Product First’s Ed Schultz, who went on the air in January 2004, three months before Air America. Last week, Mr. Schultz’s program moved to a live broadcast against Mr. Franken’s.
Mr. Franken “gave visibility to the format, but at the end of the day, you’d better be selling a commercial,” Mr. Schultz said. “You have to run it like a business.”
Mr. Franken said he was “pleased to welcome Ed Shultz as a direct competitor.”
“Ed’s success,” he added, “is proof of the vitality of the progressive talk format. I consider Ed a friend — unless he starts beating me in the ratings, at which point I plan to downgrade him to acquaintance.”
The Drobnys have started their own network, Nova M Radio, which has two stations and two talk hosts, Mike Newcomb and a former Air America broadcaster, Mike Malloy. They are courting other liberal media people to do programs for the 15 to 20 affiliates they said will soon join them. Mr. Drobny called the effort, “the second coming of Air America.” Mr. Kelly said Air America is also in “active discussions” with new progressive hosts and hopes to add an investigative unit if his group is successful.
Mr. Kreeger added that “it will be up to us to really create compelling content” and lure affiliates back. Until then, there is an existing deal with XM Satellite Radio and the network’s Web site, which he said had “absolute untapped potential for 24/7 online streaming that has never been effectively monetized.”
He disputes the idea that Air America “was a vanity project,” but acknowledged that things may be done differently in the future. “I have come to understand very clearly that the radio component of this requires a radio professional,” he said.
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