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From AJR,   September 1998  issue

Continuation of Giant   

By Roy Reed
Roy Reed has been a foreign and national correspondent for the New York Times, and for 18 years he taught journalism at the University of Arkansas.     

The tipoff that Tuesday, January 27, was not to be a routine day for my extended visit at the Dallas Morning News was a box at the top of that morning's front page. A story about President Clinton and Monica Lewinsky had been pulled from the paper after one edition, the box said, because the source for the story had backed away from it. The flawed report had said that a witness had seen the President and the intern in a "compromising" situation. When the source backed off, about midnight Washington time, it was like throwing a bucket of water on a computer. The paper stopped in its tracks. Top editors were called at home. The news desk rebuilt the whole first section to accommodate all the gyrations.

Everybody was understandably grumpy the next day, and grumpiest of all was Ralph Langer. It was he who had written the box explaining what had happened. By mid-morning Tuesday, he had already held a series of meetings and long-distance phone conversations. His normal good humor was not much in evidence. Downstairs in the newsroom, reporters and editors stood in clusters, muttering and cursing. Emotions ranged from disbelief to bafflement to acrimony. Everybody wanted to know more.

In 45 years of journalism, I have never seen a greater display of anger and shame from editors and reporters who saw the integrity of their newspaper threatened by a mistake that should not have been made. That outpouring of concern told me more about the quality of the Morning News than any of the impressive statistics I had been given about circulation, advertising, profits and journalistic prizes.

Long before the Lewinsky story, the Morning News had strict rules aimed at fair play with sources. For example, in a page one investigative piece, the target of the story had to be given a chance to reply, and his denial or explanation had to appear on page one, even if the denial pushed more interesting material onto the jump. The News had definite rules on anonymous sources, too. First, on any story that might cause legal problems, the reporter had to "Mirandize" the source (an allusion to the Supreme Court's decision requiring police officers to tell suspects of their rights). That is, the source had to be informed that he or she would be protected from identification until it became clear that the newspaper was in legal peril and that its financial condition was in jeopardy as a result of publishing the information, at which time the source would be asked to come forward. Second, information from an anonymous source had to be vital to the story, impossible to obtain another way and confirmed by a second source.

It was this last rule that the News violated in reporting the Lewinsky story. As a result, on January 27, 1998, the lead article in the paper's first edition began, "Independent counsel Kenneth Starr's staff has spoken with a Secret Service agent who is prepared to testify that he saw President Clinton and Monica Lewinsky in a compromising situation, sources said Monday."

Shortly after midnight Eastern time, the Washington bureau called Dallas with a desperate plea to pull the story. The source--only one, as it turned out--had backed off and had notified the reporter that his information was inaccurate. Besides appearing in the early edition, the story had already been posted on the paper's Web site. It also had been broadcast on radio and television across the country and picked up from the wire services by other newspapers. The editors killed it minutes after the call from Washington. For later editions they substituted the page-one box explaining what had happened.

The top editors and reporters and sub-editors involved spent all the following day trying to establish what had gone wrong. Then on Wednesday, Langer stood before a meeting of more than 200 grim-faced newsroom employees and reported his findings. He answered tough questions for about an hour. He wrote an op-ed piece for that Sunday's paper explaining to the readers what he had already told the staff. The information had come from "a well-connected Washington lawyer who said he had inside knowledge of the story."

Then the problem: "Later Monday, a misunderstanding between the Washington bureau and the Dallas office led some editors to believe, wrongly, that the story had been confirmed by a second, independent source."

He concluded, "What happened last week should not have happened. Because of a misunderstanding at one point and a breach of our policy at another, we were left without the security of strong and independent confirming sources. Such a situation has never happened here before, and we will see that it doesn't happen again."

No heads rolled, but there were hard feelings toward those who had embarrassed the paper. Some in the newsroom predicted that the paper's entries for this year's Pulitzer Prizes would get less serious consideration because of the damage done to the paper's reputation. For whatever reason, no Morning News stories were among the finalists in any writing category--not even the stunning series on death row inmates by Swindle and Malone. The paper had a single finalist, Joseph V. Stefanchik, for photography.

There was a footnote that left the sensation of a stubbed toe for some in the newsroom. The anonymous source got back to the reporter a day after his backtracking and said, well, his information was not all wrong. What he had described as a "compromising" situation, he said, was actually just "ambiguous." Langer wrote, with a hint of anger, "It is unlikely that a story describing 'ambiguous' behavior would have received national attention, let alone ended up on the front page of the News."

Despite an occasional misstep, the Morning News has done many things right, and continues to do so. Its hiring policy, for example, emphasizes diversity. When Langer went to work for the News in 1981, the newsroom had about 220 employees; three were minorities. Langer and Osborne sent out word that every pool of candidates for an opening had to include a solid representation of minorities. Not only that, the hiring editors were told to start looking beyond Texas. The newsroom had only a handful of people from elsewhere, and Langer thought the paper would profit by some geographic broadening.

The policy has worked. The 420 regular reporters and editors today are from all over the map. Minorities, mostly African American and Hispanic, make up about 18 percent of the regular newsroom staff. Eight of the 20 interns are minorities. Of 106 supervisors, 16 percent are minorities. Gilbert Bailon, executive editor and vice president, is Hispanic. In racial and ethnic terms, the Dallas Morning News has one of the most diverse newsrooms in the United States.

Women are numerous in the newsroom, but less so in the top editing jobs. Half a dozen hold mid-level jobs ranging from deputy managing editor to city editor. Rena Pederson, the most visible woman on the paper, is editor of the editorial page and a vice president of the company. She has a national reputation among editorial writers and has won numerous awards. She is a member of the Pulitzer Prize Board.

Salaries are competitive. Reporters start at $30,000 to $35,000 a year. Top reporting hands and mid-level editors earn up to $70,000 and above. There's not much turnover. Walt Stallings, the 44-year-old A.M.E. for metro news, is typical. He has been at the paper since 1975. "It's definitely a destination paper, and it didn't used to be," he says. The management, in fact, is starting to fret over what Stallings calls "the graying of the newsroom."

Of course, such transitions are easier to accomplish when you've got a cash engine like the Morning News. Although Belo doesn't reveal the earnings of individual properties, Halbreich says the Dallas paper's operating profit margins run in the low-30s, a remarkable performance (and one more commonly achieved at papers of considerably less distinction). Editor & Publisher ranks it 12th in circulation among American dailies with 484,597 subscribers, based on Monday-Thursday figures. The News uses a six-day average of 521,162, which puts it ninth in the nation. Its Sunday circulation of 795,030 is eighth in the country.

The paper is hefty. A typical weekday edition has about 112 pages of news, 56 pages of classifieds (it still has the largest classified section of any American paper), and a color pullout of advertising. The daily weighs about a pound and a half. The Sunday paper needs a young burro to carry it.

Steady profits from all divisions put Belo in a position to expand. The first large opportunity opened up in the mid-'80s when Belo learned that Dun & Bradstreet wanted to sell its Corinthian television group of six stations. Decherd swallowed hard and laid out $606 million. Belo now had television stations from Virginia to California.

The company continued to grow. By February 1995 it had added television stations WWL in New Orleans and KIRO in Seattle, pushing Belo's reach to 8 percent of the national audience. This bite cost $272 million. Decherd swims for exercise and relaxation. He began to swim a lot in those days.

As Belo became a major player in broadcasting, Decherd and Osborne began to contemplate publishing ventures, too. The company had not bought another newspaper since acquiring a string of suburban papers around Dallas back in 1963. DFW Suburban Newspapers Inc., had been quietly profitable. (In addition, DFW now operates a printing company that produces the southwest edition of USA Today.) Belo demonstrated its growing financial confidence in February 1995 with a stock split and an increase in dividends.

In November 1995, to prepare for further expansion into publishing, Osborne was made president of Belo's publishing division. Two months later the company bought the Messenger-Inquirer in Owensboro, Kentucky, on the banks of the Ohio River. The paper had been in the hands of the Hager family for nearly 85 years. As the town had grown, the Messenger-Inquirer had built a daily and Sunday circulation of more than 33,000. Osborne had developed a friendship with the chief owner and publisher, John Hager, while working as AP's Louisville bureau chief during the '70s. When Hager prepared to retire and realized that ownership would pass from his family, he thought of Osborne. For his part, Osborne saw the Messenger-Inquirer as the kind of solid small daily that Belo would want.

The Owensboro acquisition also fit Belo's strategy. The company was not interested in buying papers at auction. Where possible, it would look for papers owned by people with whom Decherd or Osborne had some acquaintance and mutual respect. Then they would negotiate quietly. Before buying the Messenger-Inquirer, Belo announced that it was expanding in Texas. It bought the Eagle of Bryan-College Station from Worrell Enterprises. The two companies had no particular association before the purchase, but Belo executives saw the Eagle as a poor paper that had been allowed to run down. They have begun to reverse that.

On the heels of this development, the Morning News scrapped its twice-a-week edition for Arlington and converted it into a separate five-day-a-week paper with its own publisher and staff. Arlington, situated between Dallas and Fort Worth, has a population of about 300,000 and is home to the Texas Rangers baseball club. The Fort Worth Star-Telegram had had its own paper there for years. To underscore the editorial independence of the new Arlington Morning News, its editors took a decidedly different approach from its parent to Dallas' recent bond election to build a downtown arena. They wrote that the arena ought to be built in Arlington. (Dallas got it.) Publication was advanced to seven days a week three months after the paper was launched. Losses are steadily shrinking, Halbreich says, and he expects the paper to become profitable well before the end of the five- to 10-year commitment that management made in 1996.

Then in 1997 Belo became seriously acquisitive. In February it purchased the Providence Journal Co. in Rhode Island. In July it bought the Riverside paper in California (in which it already held a minority interest). Because of the huge broadcast holdings by the Providence Journal, there was a big difference in capital outlays for the two purchases. Belo paid about $170 million for the Press-Enterprise. The Providence company, owned by a combine of old New England families, cost Belo about $1.8 billion in cash and stock. Robert Decherd, 45 years old and showing a hint of gray, was swimming furiously.

There were nine television stations in the Providence deal, scattered from Seattle to Charlotte. Those additional stations made Belo the eighth largest television group in the nation, as measured by revenues, and the 10th largest by audience size. They also ensured a generous flow of cash to support the company's expansion. Belo would add a television station in San Antonio, acquire one in St. Louis in exchange for the new Seattle property to meet FCC ownership requirements, combine its print and broadcast facilities in Washington into one of the capital's biggest news bureaus, and pursue the formation of a statewide Texas cable news channel.

To round out its busy year, Belo returned to Kentucky to purchase the Gleaner in Henderson. Henderson is another Ohio River town, just 25 miles west of Owensboro. The Gleaner had a circulation 11,690 daily and 13,887 Sunday, and the sale included seven weeklies and several small print and radio subsidiaries. Walter M. Dear II, head of the family that owned the Gleaner, expressed a refrain that would become familiar. "In looking ahead," he said, "our No. 1 concern was how well our successors would treat our communities, our people and our readers and advertisers... Belo fits best in meeting this concern."

That's what Howard H "Tim" Hays said, too, when he parted with his Press-Enterprise, the Riverside paper his father bought into in 1928 and which Tim himself edited for more than 50 years. But when he had to face the fact that no one in his family, or in those of his two brothers, would succeed him, Hays quietly looked around for a buyer. His old friend Tom Winship, longtime editor of the Boston Globe, said good things about Belo. Marcia McQuern, Hays' publisher and his successor as editor, knew Burl Osborne and Bob Mong through the American Society of Newspaper Editors. She liked them. Belo was encouraged to buy a minority interest.

There were "two or three other possibilities" for buyers, Hays says, but he increasingly liked what he saw of Belo. McQuern and others are convinced that Hays could have got considerably more money from another big media company if he had put the paper up for bids. As she says, "The family left a lot of money on the table to sell to Belo."

McQuern stayed on as editor, publisher and president of the Press-Enterprise Co. She had handled almost every editorial and reporting job on the paper and had been state and political editor, then city editor, at the San Diego Union and assistant metro editor at the Sacramento Bee. She has been a Pulitzer Prize juror four times. Until April, she was a member of the board of ASNE. She is the first woman to be publisher of the Press-Enterprise. She is funny and, according to her new boss, Osborne, "very candid."

According to McQuern, the Riverside employees knew next to nothing about Belo and its methods before the Dallas company came on the scene. "We didn't even know how to pronounce it," she says. "We called it Bellow."

Early indications were encouraging. Newsroom people detected almost no changes in policy and learned that their benefits and pay were being increased somewhat. Still, a certain skepticism was in the air last February when Robert Decherd made his first visit since the ownership change. He met with a sizable group from the newsroom. The first question carried an undertone of hostility. People were upset over the handling of a certain complex aspect of their retirement plan. Decherd apparently was unaware of it. "I'll find out and tell you as soon as I can," he said. Minutes after the meeting, Dallas was being instructed to get an answer. The problem was defused before the end of the week.

The staff liked the rest of what he had to say, especially this: "We can't edit from a distance. You don't want corporate people here telling you what to do. We don't know what's going on in Riverside." He shrewdly did not over-promise anything. When a copy editor said the paper sure could use a new computer system, Decherd agreed and said the "prospects are good." Another chronic complaint is that the newsroom in the rambling old building has no windows. A new facility is planned sometime soon, but for now, Decherd said, he might arrange to send a window from the Dallas Morning News. The staff laughed. They liked this guy.

Things were less sunny for Belo in Providence, a continent away from California in every sense.

At one public forum a local patriot suggested that the Journal company was "selling out to the devil dogs from Texas," implying that pillage and rape would surely follow. Two members of the Metcalf family, whose ancestor bought a share of the paper more than a century ago, took out a full-page ad while the deal was being consummated. "We mourn the sale of the Providence Journal Company to A.H. Belo," it said. "The news of this transaction was a complete shock and greatly upset us; but more importantly, we are saddened by the loss of the independence of the newspaper and what that has meant for well over 100 years to the citizens of Providence and the state of Rhode Island."

Reaction in the Providence newsroom was hardly less muted. A famously outspoken reporter there, Brian Jones, had bought a few Journal shares against the day when he might want to rise in a stockholders' meeting and speak his mind. That occasion came in early 1997 when the stockholders were called together to discuss the offer from Belo.

"No matter how high-minded the rhetoric that has surrounded this sale," he told the gathering, "the truth is that what is happening here this afternoon is a tragedy, it is wrong. It is wrong because when the paper loses its local control and community roots, it will not have the same connection, the same intensity, the same willingness to take risks and to spend money, which are important ingredients in excellent local journalism. It is wrong because the Providence Journal is as much an institution in Rhode Island as Narragansett Bay, Brown University, crooked politicians, gangland slayings, frozen lemonade and the Independent Man... It is wrong because desires for personal wealth and gain have been elevated above public service."

Stephen Hamblett, the publisher and chairman, took criticism inside and outside the paper. Even the man who sold him cigars unloaded on him. He looked Hamblett in the eye and said, "You've sold this institution. It's our paper!"

Signs of skepticism and hurt pride remain in the city, which after all was 200 years old before Dallas was even a farming settlement. A businessman who deals regularly with the Journal says many business and professional people felt betrayed when it was sold. (The paper's management, ever aware of the citizenry's proprietary attitude toward it, had said it was not for sale.) The businessman says with some hesitation that he has not noticed much change--yet. "But the expectation is that the other shoe has not dropped yet. There's still fear that change is coming." The rumor mill had lumped Belo in with other media companies of less savory reputation. "The Journal was always committed to the community," he says. "What we heard was that Belo did not have the same kind of mentality, that it was more interested in the bottom line."

But at the paper, more than a year's experience under Belo seems to have reassured many of the skeptics.

When Decherd and Osborne first visited Providence, they left an understated message: Watch what we do. Wait five years and see whether we told the truth. What they've done so far has defused much of the suspicion. They installed Belo's retirement package, which turned out to be richer than the Journal's for older employees. They encouraged some aggressive new ideas for heading off a circulation slide. Most important to the newsroom, Belo made no attempt to alter the way the paper covered the news.

A year after his stockholders' speech, reporter Jones sounded like H.L. Mencken in the famous rehearsal of his remarks applying for admission at the Pearly Gates: "Gentlemen, I was mistaken." He says things have not turned out the way he feared, that he has seen few changes "except the Belo logo on our paychecks and time cards." He had gone to Dallas and had been favorably impressed by the Morning News. At home, the Journal still does serious reporting.

But Jones also is mindful of a warning from Ben Bagdikian, the media critic, who told him, "Watch their second year. They're all on their good manners the first year."

The lingering anxiety is easy to understand. The three or four years before the sale to Belo had been unsettling to the employees. The afternoon edition of the paper, the old Providence Bulletin, had been shut down after years of decline. (The morning paper was then renamed the Providence Journal-Bulletin, but this July the paper dropped the Bulletin from its title.) The Sunday magazine, the Rhode Islander, a source of pride for a long time, had been laid to rest for the same reason. That saved $750,000 a year. Then the Journal Co. went public and opened its shares for sale beyond the handful of old families who had owned them for generations, a boardroom-full of Metcalfs, Sharpes, Danforths and Wilmerdings. On the heels of that came a period of downsizing and cost-cutting. The number of full-time-equivalent employees dropped from 1,600 in 1986 to 1,140 a decade later. The news staff was demoralized by the departure of two or three of its ablest reporters. The cost-cutting led to speculation that the management wanted to make the company attractive to a buyer. When Belo came along, those suspicions seemed to be confirmed.

The managers and owners, however, had something else in mind until late in the game. They saw themselves as preparing the company to expand. The Providence Journal Co. had already positioned itself as a potential acquirer of more media properties, thanks to its profitable broadcast and cable holdings. By 1990, it had accumulated more than $500 million in cash to use for purchases, according to Forbes magazine. Hamblett was speaking openly of the company's ambitions.

Hamblett had known Burl Osborne for years through the same trade associations that had led the latter to Tim Hays and Marcia McQuern. Hamblett remembers getting a telephone call from Osborne one day in 1996.

"Do you want to sell your TV stations?"

Hamblett said he didn't. "Do you want to sell yours?"

There was a long pause, and Osborne finally said, "Well, I guess we understand each other." They laughed, but didn't quite forget the conversation. Later that year Hamblett saw Osborne and Decherd at a publishers' convention. They talked about "how we have this great commonality of interest," Hamblett recalls. He adds, a little wistfully, "And, you know, I would have liked to have acquired them. But that wasn't in the cards."

He told some of his board members about Belo's interest, and they said he had an obligation to hear them out.

Hamblett flew to Dallas that summer and laid down his conditions to Decherd: "That he would have to come up with some form of structure that guaranteed the autonomy of the Journal newspaper forever, and that he would have to come up with a price that would be, you know, a good, healthy selling price." Decherd met the conditions to the satisfaction of Hamblett and his board. The price was right, and the Journal kept its own board of directors to provide some measure of independence.

The vote of the shareholders was not in doubt; a control-ling majority, including the widow of the last Metcalf to head the company, was in favor of the merger. But ill feeling from a sizable minority could have poisoned the atmosphere for years to come. Credit for helping to prevent that was given to Henry D. Sharpe, a retired member of the board and a grandson of Lucian Sharpe, who bought an interest in the company in the 1870s. Sharpe told the assembled shareholders that his father in passing on his shares of Journal stock had written in his will, "Treat this stock not as a financial investment but as a public trust."

He said he had been impressed by Robert Decherd. "You may be unhappy," he said, "but this company, of all the companies you could get in bed with, will come closer to providing the people of Rhode Island as much independence as they could aspire to have." He warned that if Belo were rejected, other takeover bids would come, and they would be increasingly tempting until the shareholders' greed would finally impel them to sell, and perhaps not wisely. Some who attended said that speech turned the meeting from hostility to acceptance.

The day the merger was to be announced in 1997, rumors swept the newsroom. Some said the paper was being bought by the New York Times. Some said the new owner was Disney. The big fear, one reporter confides, was that the Journal was being sold to Gannett.

In a matter of weeks, that reporter had special reason to be grateful that the buyer was Belo. Gerald Carbone followed the police to a local nightclub one night the previous fall. There had been a report--erroneous, as it turned out--of shots being fired. Shortly after Carbone arrived, police ordered him to leave. He asked to speak to a supervisor. Instead, the officers arrested him, charged him with "obstruction of justice" and locked him up for half the night.

Burl Osborne happened to be in Providence the next day. When Executive Editor Joel Rawson told him what had happened, Osborne said, "You're going to sue the bastards, aren't you?"

As it happened, they didn't. Instead, Belo authorized the Journal to hire the best defense lawyer in Rhode Island. The paper spent $50,000 to fight the charge and, in case it became necessary, to persuade the court that the obstruction-of-justice statute was unconstitutional. The constitutional argument was not necessary. The judge dismissed the charge and sent the cops packing. The message to the newsroom in that $50,000 defense was probably as important as springing Carbone from the hoosegow.

Since pointedly leaving the Providence management team in place at the time of the buyout, Belo has taken another step to underscore the point that it prefers local control. Hamblett will retire next year. In February, he announced that his likely successor had been chosen "after a lot of conversation with Burl and Robert and with the board's enthusiastic support." Howard G. Sutton, president and general manager, was moved up to assistant publisher with the full expectation that he will move into Hamblett's office at the end of 1999. Sutton, a lifelong New Englander, has worked at the Journal since 1973.

Belo's performance as it absorbs its new acquisitions and looks for more will be watched closely, both by the media industry and by Wall Street. John Morton, a media analyst and AJR columnist, believes that Belo will probably succeed over the long haul in publishing good journalism and making money at it.

The company may run into problems in expanding, he says. He points out that few mid-sized to large papers come on the market these days; most have been bought. Morton thinks Belo probably will pick up more small papers. He also notes that Decherd's people have been reluctant to pay the high prices that some papers have commanded. Most of Belo's acquisitions have been bargains by today's standards. While that means Belo may lose some opportunities, shying away from extravagance keeps the company better able to afford the kind of improvements it likes to make when it buys a new property.

Overall, Belo's profits don't quite equal some of the more bottom line-oriented media companies, but the company is hardly complaining. Its operating margin has hovered at or just under 20 percent for the last 10 years. There were exceptions during the late '80s and early '90s when Texas was hit hard by an economic downturn. In 1997, it was 19.3 percent.

The broadcasting segment has accounted for most of the healthy margins, sometimes over 30 percent in years when the margin was poor in the newspaper publishing segment. In 1988, a tight year for the company generally, the operating margin for publishing was only 7.3 percent. That rose steadily after the economic downturn and in 1997 had reached 22.9 percent.

The company's revenues during the same 10 years rose from $382 million in 1987 to $1.25 billion last year. Significantly, its operating cash flow almost quadrupled during the decade, from $102 million to almost $376 million. Cash comes in handy for buying newspapers, even if you're borrowing money for most of the cost.

Whether Wall Street will continue to share the enthusiasm for Belo that old-fashioned newspaper people are demonstrating is not certain. One thing the professional investors like about the company so far is its big holdings in broadcasting, Morton says. That's one reason the stock price stayed high in spite of last year's decline in earnings (which resulted from its acquisition spree). "Wall Street is enamored of any kind of electronic transfer of information," Morton says. But if the company's earnings should go down or fail to stay high in the years ahead, he says, investors probably will cool on the stock.

Decherd is careful not to overstate his or his company's ambitions. The last time we talk, he emphasizes the importance of continuing to grow, not just for growth's sake, he says, but to maintain the company's strong competitive position.

I tell him it looks as if Belo is headed toward becoming a giant of the industry. I know better than to make it personal, but he's not about to bite anyway. He understands that gianting is high-risk work, whether you're competing for ready-built herds of rustled cattle on the Rio Grande, like Woodrow Call and Augustus McCrae, or writing checks for a billion dollars.

"Well," he says, receding into the wallpaper, "there's the giants and there's the big guys. Maybe we'll be a big guy someday. I don't think we're going to be a giant. Time Warner and Disney and those guys can have it. They're the giants."

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