The Dallas Morning Blues

It’s been nothing but bad news lately for Belo, the media conglomerate that owns the state’s leading newspaper. But to understand how Texas’s oldest company can survive in the brave new world, you have to read between the lines.

January 2005By Comments

THE FOLLOWING TABLOID-STYLE HEADLINE would never run in the conservative, sober-sided Dallas Morning News: “Scandal Shocks Family Empire!” Nor would this shamelessly embellished subhead: “Company Reels From Onslaught of Bad News.” Both, however, could easily describe, in a sensationalized and distinctly un—Morning News sort of way, the current plight of Belo Corp., the company that owns the Dallas newspaper.

In August, Belo chairman Robert Decherd indeed shocked his family’s empire when he announced that the Morning News had somehow “overstated” its Sunday circulation by 11.5 percent and its daily circulation by 5 percent. Though some critics preferred the word “fudged,” either way, the numbers—a key determinant of ad rates—were staggering, and a deep embarrassment to the paper. (The errors were later upwardly revised to 11.9 percent and 5.1 percent.) They meant, among other things, that sales of more than 90,000 Sunday papers were pure fiction. Belo’s stock price tumbled, while Decherd and his fellow officers scrambled to control the damage. Decherd immediately announced a plan to compensate advertisers by sending out 19,000 checks worth a total of $21 million, fired most of the managers in the circulation department, canceled management bonuses, including his own, and paid a law firm $2 million to find out how such an unthinkable mistake had been made.

The effect on the people who own and manage the company was, by their own accounts, devastating. Belo is not just any media outfit. It is Texas’s oldest and most influential company. Robert Decherd is a great-grandson of G. B. Dealey, the man who founded the Morning News in 1885, as is the paper’s publisher, Jim Moroney. Though Belo owns four newspapers and nineteen television stations across the country, including WFAA, in Dallas, KHOU, in Houston, and KVUE, in Austin, its financial and spiritual hub has always been the Morning News. “You could not have come up with something,” says Decherd, “that would have been more disappointing or more hurtful to the men and women who run this company at the top.”

But it was not the end of the bad news. Less than two months later, Belo announced that it was laying off 250 workers—150 at the Morning News alone—citing sluggish growth and depressed ad revenues. The paper, as it turns out, was losing readers and circulation even before the scandal. Home delivery had dropped 10 percent since 2000. Its Sunday circulation had dropped 3.9 percent from the previous year. Profitability had been off 35 percent in the previous three years. Meanwhile, over at WFAA, Belo’s broadcast flagship, ratings were half what they had been a decade before. Critics—mostly former star reporters for the Morning News and WFAA—suggested that the declines at both of these holdings were due at least in part to the diminishing quality of their news.

At the same time, Belo said that it was abandoning three local cable news stations it operated with Time Warner at a cost of nearly $19 million, eliminating another 190 jobs. Its third-quarter earnings plunged by two thirds due to charges for all of the above. Belo’s five-year-old Texas Cable News Network (TXCN) continued to bleed red ink, as did its two newest print publications, the Metroplex Spanish-language daily Al Dia and the free, easy-read tabloid Quick. By the fall of 2004 Belo had begun to suggest to some observers a sort of corporate Mr. Magoo, blundering myopically from deal to deal, creating financial havoc and ruin, all with the best of intentions. While none of this signals that Belo is in financial trouble—it isn’t—one has to wonder about what investors call the “trend line.” And one has to wonder, as it might be phrased in the headline of a Morning News business story: “Can an Old-line, Family-Run Media Company Survive in Today’s Cutthroat Market?”

BY MOST MEASURES, Robert Decherd, the slender, earnest, and somewhat boyish-looking 53-year-old who has run Belo for eighteen years, is one of the more remarkable figures in American journalism. He is a Dealey, to be sure, but his rise to the top of Belo had more to do with drive, guts, and brains than pedigree. At 22, a year out of Harvard, he ruffled family feathers by asking for a seat on the board. At 23 he played a crucial role in defeating the powerful Pressmen’s union. At 30 he led the drive to take the closely held family company public (while retaining private control), and at 33 he assumed the presidency, edging out older family members. In the eighties he and his hand-picked editor, Burl Osborne, took on and decisively beat the Dallas Times Herald in one of the great, protracted newspaper wars of the latter twentieth century. By spending more than $2 billion on acquisitions of television stations and newspapers between 1983 and 1997, Decherd remade Belo into a media powerhouse whose television stations now reach 13.8 percent of the American public and whose newspapers—the Morning News, the Providence Journal, the Denton Record-Chronicle, and the Riverside (CA) Press-Enterprise—have a circulation of 1.2 million. He now personally controls 28 percent of the company’s voting stock; the extended Dealey heirs control 50 percent.

Nowadays, Decherd wrestles with a more subtle, insidious challenge than vanquishing the Times Herald: declining numbers of people who want his company’s principal products. In 1964, 80.8 percent of American adults read a newspaper. By 2004, thanks in no small part to the rise of the Internet and the accompanying blogosphere, that percentage had fallen to 52.8. The numbers for local and network TV are even worse. What they add up to is sluggish growth at best for midsized media companies like Belo. Wall Street, of course, abhors sluggish growth, which has forced Belo and its peers to try all sorts of nontraditional business ventures to boost revenues. Hence the Internet and cable plays; hence all the mistakes.

But listening to Decherd in the hushed, odorless corporate air of his seventeenth-floor office in the Belo Building, in Dallas, the turbulence seems far away. Indeed, what looks like disaster down below looks like top-line revenue growth up here. “If you look at the third quarter and take out all these special events—‘charges,’ as we say,” says Decherd, chuckling at his own euphemism, “we actually grew. Not that those charges are unimportant. But the underlying business grew in the third quarter, and it will grow in the fourth quarter.” In spite of Belo’s sins, over the past five years its stock has outpaced both the S&P 500 and its industry peers.

Okay—but what about all these misfires and multimillion-dollar losses? Decherd is happy to take them on one by one. He insists that Belo has already weathered its circulation scandal and that—amazingly—the company will not have to drop its advertising rates. (Only time will tell if the Morning News really can hold the line.) As for what caused it, the $2 million investigation suggested that it was the result of overzealous circulation managers pushing distributors too hard and of incentive and bonus programs that encouraged delivery contractors to, as Decherd puts it, “behave badly.” And while he was generally applauded for his forthright handling of the problem, he was also criticized for failing to fire his second cousin, Morning News publisher Jim Moroney. Last year two other major papers—Newsday and the Chicago Sun-Times—had similar circulation scandals, and both fired their publishers. “The message is that Jimmy is protected,” says one source close to the company.

Of the paper’s year-old, money-losing projects Quick and Al Dia, he says simply: “We have a business model where each of those become cash-flow-positive within the next two to three years. We believe we are on track for that to happen.” The layoffs were painful, he admits, but they address the long-term weakness in the North Texas economy and will boost the paper’s bottom line. And he says the Morning News’ new Collin County edition, which has yet to yield circulation gains, is similarly “on track.”

What about Belo Interactive, which includes the various Web sites of the company’s newspapers and TV stations and which has been losing money for five years? Though it finally hit black ink in the third quarter of 2004, Belo announced in December that it will shut the company down and return control of the Web sites to their mother ships. And TXCN, which is almost universally acknowledged to be a flop? On December 3 Belo announced that the network is dropping all of its original programming except weather reports; 45 of its 75 employees will lose their jobs, including all anchors, sports staff, sales, and creative-services personnel. It will rely heavily on repackaging material from its other Texas stations.

It might be easy to dismiss everything that Decherd says as irrational optimism except for the fact that a Greek chorus of Wall Street analysts agrees with him. “They are refocusing on their core business,” says Edward Atorino, of Fulcrum Global Partners, in New York, a leading industry analyst. “They have got top-notch properties. Their balance sheet is in good shape. They are paying down debt, downsizing the workforce, eliminating marginal operations.” In other words, they are putting their mistakes behind them.

NONE OF THIS, of course, addresses the fact that Belo’s two most important assets, the Morning News and WFAA, are visibly struggling, a circumstance that has everyone in the Dallas media world talking. The newspaper was the subject of blistering feature stories in both the Columbia Journalism Review and the Dallas Observer last year. In the CJR story, former Morning News Pulitzer prize winner Craig Flournoy portrayed a management that protected “sacred cows” such as Ross Perot Senior and Junior, American Airlines, and Tom Hicks while determinedly squelching investigative stories by its best reporters. His argument, with which many former staffers agree, is that after winning an unprecedented six Pulitzer prizes from 1986 to 1994 (the paper had not won a single one before that) and putting the rival Times Herald out of business, the paper became fat, happy, and deliberately bland. “A huge, glaring example was coverage of Ross Perot’s bid for the presidency,” says Gayle Reaves, the editor of the Fort Worth Weekly and another Pulitzer prize winner who left the paper, as did all of its other investigative Pulitzer winners. “Nobody wanted near it because they knew what was going to happen. Stories were gone through with a fine-tooth comb.”

That sort of media buzz, plus the paper’s obvious sales and circulation woes, has taken its toll on the employees. “Dozens of newsroom staff, editors and writers alike, say morale has never been so low,” wrote Dallas Observer media critic Eric Celeste, who covers the Morning News more closely than anyone. Says Reaves: “The troops are so beaten down. There isn’t a senior reporter worth his salt who isn’t cynical.” In a radio interview last May, Moroney conceded that the newspaper had not been doing its best work of late: “In the last seven or eight years, I am not confident that we in the Dallas Morning News have done as much as we could and should do to fulfill that important role that falls to us as a major metropolitan newspaper in Dallas,” he told KERA interviewer Marla Crockett. Later, at a November meeting with staff, he told staffers, “I feel like a failing student,” and said that he took full responsibility for the paper’s financial performance.

When I asked Moroney about this, he drew a sharp distinction between the newspaper’s mediocre sales and circulation record and the newspaper’s editorial quality. “We have not hit our financial targets for the last three years,” said Moroney, whose family owns 3 percent of Belo and controls 14 percent of Belo’s voting stock. “And I wanted to let everyone here at this newspaper know that I take responsibility for it. While I give myself a failing grade, I don’t give the newsroom and the stories we are doing a failing grade. We have been doing and will continue to do great journalism. But I think we can also do better. I think our culture needs to change. I don’t believe we have been doing enough around investigative journalism, and one of the places where we did not make any cuts was in our investigative unit.”

The Morning News clearly has its imperfections. It lacks tough-guy city columnists willing to take on Dallas’s entrenched interests and is guilty of a certain amount of uneven journalism. But it is also still a very good newspaper. With more than five hundred editorial staff members, it has an enormous news reach. Its editorial and op-ed pages, edited by recent hire Keven Anne Wiley, are smart and unpredictable. Sports columnist Gerry Fraley is first-rate, as are investigative reporters Lee Hancock, Pete Slover, and Brooks Egerton, and its political coverage is the best in the state. “Their ongoing series of stories about corruption and sexual abuse in the Catholic Church is clearly Pulitzer-worthy,” concedes Reaves. Their recent stories on the Wilmer-Hutchins school district and on Child Protective Services are examples of superb urban journalism. “The Morning News is still the best paper in the state and region,” says Robert Rivard, the editor of the San Antonio Express-News. “But the gap has closed considerably between Dallas and the other metro newspapers.”

Its sibling WFAA (Channel 8 in Dallas—Fort Worth) is also the target of withering criticism for failing to be what it once was—arguably the country’s best regional TV news operation. This too is largely a matter of taste and perception, since WFAA’s news division has won a number of the industry’s highest awards, including a 2005 DuPont-Columbia award (one of only two awarded to local stations), both a DuPont and a Peabody for 2002, and Edward R. Murrow awards for three years in a row. Still, critics say Belo management has turned the station into a shadow of what it was in the eighties and nineties. “They believed if they lowered their standards, they would make more money and still get good ratings,” says Robert Riggs, a former WFAA investigative reporter who won three DuPonts and a Peabody. “They were obviously wrong. WFAA lost its core values and lost track of what it was that made them great.”

Like the Morning News, Channel 8 has seen an exodus of most of its prize-winning warhorses in the past few years. This includes anchor Tracy Rowlett, who left after a bitter and quite public contract fight in 1999 to join KTVT (Channel 11). In the February 2004 sweeps, Rowlett’s Channel 11 got a 9.1 rating (200,200 homes), beating Channel 8, which got only an 8.9 (195,800 homes). Robert Philpot, the media reporter for the Fort Worth Star-Telegram, recently asked readers why they were tuning WFAA out. One of the most common complaints, he says, was “that Channel 8 has let a lot of good people go.”

Jack Sander, Belo’s president of media operations, dismisses such criticism and insists that WFAA is as good as ever. “It’s a completely different competitive environment,” he says. “The viewer is not the same. Before, there were only three newscasts on. Now you can get news on your Blackberry and cell phone. Is WFAA’s product the same as it was? Absolutely not. Is the commitment to quality journalism still there? I would submit that it is.”

BUT NO MATTER how well Belo manages the television stations and newspapers that it owns, it still faces the prospect of a declining, aging audience that advertisers are going to be more and more reluctant to underwrite. To succeed, it will not only have to make sure that its traditional lines of business are strong, but it will also have to experiment with the kinds of new-media ventures that have gotten it into trouble in the past. In 1999, for example, Belo made disastrous investments in CueCat, a laughably impractical digital newspaper scanner, that ended with a $37.5 million loss. And during the dot-com boom, it lost $20 million on various Internet companies.

“All those investments were made with some uncertainty as to whether they would make it in the marketplace,” says Decherd. “They were good bets to make. We and every legacy media company were making them and will continue to make them.” He says rather than pulling back, Belo will continue to push its “brand extensions”—like the three Spanish-language newspapers it now owns in Dallas—Fort Worth and Riverside, California; the Morning News’ Collin County edition; and Quick—all while avoiding the mistakes of the past few years.

No one thinks that is going to be easy. “Just being a midsized traditional media company puts them in a tough spot,” says Diane Mermigas, who writes an industry newsletter, Mermigas on Media, and a syndicated column. “They had to try these things. It’s the companies who don’t do it that are in trouble.” But, she adds, given Belo’s size, it can afford to try only so much, and to survive, it might one day need to find somebody to merge with.

Decherd disagrees. He insists that Dealeys are going to be running the company for many years to come. “I am fifty-three and more energetic about this job than I have ever been. And if I wasn’t, I certainly became so in the past few months, because I don’t like situations where our company’s reputation is at risk,” he says. “We are very committed to overcoming recent events.” And that, if he succeeds in pulling it off, will give Belo something it has been sorely lacking: a bit of truly good news.

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