CIRC WOES FIND THEIR WAY TO DALLAS — DAILY OFF BY 2.5% Morning News exec quits after audit; Belo stock plunges 8.5%

NewsInc, August 9, 2004

Yet another revelation of newspaper circulation inflation sent the stock of Belo Corp. spiraling downward on Friday, at a moment when many of the issues from earlier revelations are still up in the air.

Belo said on Thursday that its flagship paper, the Dallas Morning News, had misrepresented its circulation for the periods ending September 2003 and March 2004. The company said that the new circulation figures would be about 2.5 percent less for the daily and 3.5 percent for the Sunday paper.

When combined with previously reported reductions in state circulation, the company said the daily's circulation would be about five percent less when comparing September 2003 to September 2004. The Sunday paper's circulation, the company said, would be about 11.5 percent less when comparing the two six-month periods.

While all newspaper stocks were down on Friday -- as was the entire stock market -- Belo's loss was, in terms of percent, almost twice that of any of its peers.

Robert Decherd, Belo's chairman, president and chief executive, told the Wall Street Journal on Friday that the company is "doing everything possible" to reassure advertisers and that the paper expected to have a compensation plan for advertisers within six working days.

Belo's stock plunged 22 percent during trading on Friday, to a 52-week low of $18; it rebounded as the day went along, closing at $21.55, off $2, or 8.5 percent, over the previous day and off $1.83, or 7.8 percent, for the week.

The company said that while it had "no reason to believe" that anybody at the paper or at corporate acted illegally, it did say that the paper's top circulation executive had stepped down.

Barry Peckham, executive vice president for operations since 1998, resigned immediately after the revelation. Peckham is a life-long Morning News employee and previously was the paper's senior vice president for information technology.

"In June, I instructed the company's senior management to review the circulation practices at all of Belo's newspapers," Decherd said. "When certain questionable circulation practices at the Dallas Morning News were reported to me last week, I immediately ordered a stepped-up investigation led by the national law firm Seyfarth Shaw to uncover all the pertinent facts."

The restated daily circulation from "questionable practices" will represent about 10,000 copies, while the Sunday paper will lose about 25,000 papers. The company's circulation reported by the Audit Bureau of Circulations for March 31, 2004 was 519,104, while the Sunday paper's circulation was reported at 755,912.

Repercussions from last month's circulation inflation revelations at the Chicago Sun-Times and Long Island's Newsday and Hoy are still being felt.

The New York Daily News said last week that it was planning a new Long Island edition that will "debut shortly." The edition is said to have been on the drawing board for some time, but that the circulation flap helped to propel it to fruition.

The Daily News will remake its Queens edition, replacing some stories and ads with those from Long Island. The paper is hiring editorial and advertising staff to work in Nassau and Suffolk counties, where Newsday has its strength.

Also last week, the Daily News reported that two former Newsday executives have retained "high-powered defense attorneys."

Judd Burstein, called an "appeals whiz," has been retained by Louis Sito, the former publisher of Hoy, the Spanish-language offshoot of Newsday, who earlier in his career was Newsday's circulation chief.

Edward McDonald, a former head of the Organized Crime Strike Force in the Brooklyn office of the U.S. Attorney, has been retained by Robert Brennan, the Newsday circulation chief who was fired in July.

Though no criminal charges have been filed against Sito or Brennan, both are defendants in a civil suit brought by advertisers in February and both are under investigation by the Nassau County District Attorney.

Earlier in the week, the federal judge hearing the Newsday and Hoy circulation civil case ruled that the papers could move forward in offering rebates to advertisers. The plaintiffs had argued the rebates undermined their efforts to get more advertisers to join their suit. The plaintiffs said they would appeal the ruling.

Can this get any worse? I guess I shouldn't pose questions like that, as the situation has proven to become worse and worse. While I'd like to say that this is the end of the circulation scandals, it should be assumed that virtually all newspapers that have significant single-copy sales will be auditing their circulation numbers and there is a possibility more improprieties will be encountered.