Belo to Unveil Advertiser Compensation Plan Within a Week

By: Carl Sullivan The circulation overstatement at The Dallas Morning News is "a profound personal and professional disappointment," said Belo Corp. Chairman, President and CEO Robert W. Decherd in a conference call Friday morning with investors and analysts. But he said the company's response to the scandal also offered a chance to demonstrate its trustworthiness.

Late Thursday, Belo announced that the Morning News (Click for QuikCap) will report that it overstated its circulation by 1.5% daily and 5% Sunday. Combined with other circulation declines, the overstatement will result in the newspaper reporting an overall decline of 5% daily and 11.5% Sundays for the six-month period ending Sept. 30, compared to a year earlier.

Barry Peckham, the Morning News executive vice president/operations, who was in charge of circulation, has resigned. "It's important to reiterate that we have no reason to believe that Barry or anyone at Belo took illegal actions," Decherd said Friday morning. Peckham is a 21-year veteran of Belo.

At the invitation of Belo, the Seyfarth Shaw law firm is continuing its investigation into the problem, with the audit committee of the Belo board of directors leading the review. That committee is composed out outside directors. Decherd hopes the investigation can be completed by early September.

Decherd expressed complete confidence in the Morning News executive team, including Publisher James M. Moroney III and Senior Vice President/Circulation John G. Walsh. When asked by Credit Suisse Boston analyst if further management changes were necessary, Decherd said the question was "ridiculous."

"The key step now is to finalize a voluntary program to compensate our advertisers," said Decherd, announcing that a plan would be unveiled within seven business days. The company will announce the expected impact on third quarter earnings when it announces its compensation program for advertisers. Decherd said there should be no impact on second quarter earnings or any earlier reporting period.

On Thursday, 250 sales managers and account executives were briefed on the situation and provided with messages to convey to Morning News advertisers, Decherd said. "Each sales rep was assigned a prioritized list of their advertisers to call."

Of the 350-plus advertisers that Morning News reps were able to reach Thursday, the vast majority were neutral or supportive, the company said.

Decherd said he doesn't foresee the need to put aside funds for potential litigation from advertisers over the bad circ numbers, expressing confidence that the voluntary compensation program would be successful. "There's no evidence of illegality," he added.

"What we have at risk is our credibility," Decherd said. "That is hard earned and it is something you have to protect at every turn. We flunked on that and we will have [to rebuild that trust with advertisers]." He pointed out that newspaper circulation, with all its independent contractors, is very challenging to audit. "Our mid-level management failed," he said.

To ensure fair editorial coverage of the situation, Decherd said The Providence (R.I.) Journal's business editor and a reporter with Belo's TV station in Houston were flown into Dallas to write the stories about the circ scandal for print and broadcast. The Morning News carried this piece above the fold on its business front today. Those same reporters remain in Dallas today to follow-up on the story.