By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
By Eric Nicholson
Buzz is once again not happy, this time at The Dallas Morning News. You may have heard--news reports, that big sucking sound coming from Wall Street--that the Dallas daily's stock fell 7 percent last Friday after the paper revealed it had been overstating its circulation. Following the announcement, Robert Decherd, CEO of the DMN's parent Belo Corp., told Wall Street analysts that the problem was isolated (caused primarily by a 5-year-old bonus program in single-copy sales that rewarded deliverers who fudged numbers). He also told them that no one did anything illegal, they would pay back advertisers whose rates were based on the phony figures and the resignation of the executive over the circulation department pretty much took care of the problem.
Then he said he'd hired a Chicago-based law firm to investigate the circulation practices of the paper, but it appeared the ethical fire had been contained.
This hiring of an outside firm upsets Buzz, because we could have done the investigation for a lot less money. In fact, we did.
Here are our findings, based on conversations with three former circulation executives at the DMN, two of whom had nearly two decades of experience at the paper, two of whom were supervisors in circulation for most of the past five years. They describe what was widely referred to within circulation as "a house of cards" built on the following foundation:
The circulation fraud goes beyond sales of single copies that have been reported. The independent contractors who deliver the paper for both rack sales and home delivery were expected to distribute a certain number of papers regardless of demand. This means that papers were thrown to customers who wanted subscriptions canceled or who never subscribed, or they were dumped.
Although contests in circulation ran continuously, they were only a small reason behind the charade. The reason the independent contractors purchased more papers wholesale than they could sell or deliver was because it was made clear to them by managers that if they did not do so, they would be replaced.
The pressure to hit circulation goals came from the publisher, James Moroney, who has spoken openly about the paper's desire to increase circulation, and Vice President of Operations Barry Peckham (the man who resigned). While management continually spoke of doing things "the right way," circulation VPs, assistant VPs, general managers and zone managers were also told they must find a way to make the numbers, and that those who didn't would most likely be given what Moroney has called "a hunting license"--i.e., 90 days to hunt for another job.
Circulation numbers for the paper's Quick and Al Dia publications are not only inflated in the same manner, but the circulation department believes these products are hurting circulation for the daily paper, despite management insisting otherwise.
Quickly, a lesson in how the game used to be played. The DMN would hire independent contractors to distribute papers to racks and boxes (single-copy sales) and homes (subscription). The contractors would buy papers wholesale, and whatever they didn't move, they would bring back and receive credits. Home-delivery people would buy as many as they needed for their route and be paid retail by the home customer. This changed in 1999, when the DMN started charging the contractors less money for the papers. Sweet deal! The catch: They had to take extra papers.
"Our bosses would come to us and say, 'We're gonna need to get the circulation numbers up, so you're going to have to take an extra hundred papers,'" says Craig Hygril, who was one of five general managers in the circulation department before he was let go in April after four years. He says that when he accurately reported the huge increase in returned papers, he was chastised. "I told them, well, they're buying papers, but there's no placefor them to go." He was told by the circulation director that contractors needed to "find a place."
"What I found out real quick about the Morning News," says Hygril, the only one of the former executives who would allow his name to be used, "was that these were Band-Aid fixes to keep the circulation inflated. The contractors were fabricating numbers because we wanted them to."
"Management was very careful to talk out of both sides of their mouths," says a former longtime circulation employee who left this year. "They would tell us to report accurate numbers but then turn around and say, 'These are our goals, and you'd better hit them.' The contractors knew if they didn't make them, they'd be gone, and we knew if they didn't make them, there'd be hell to pay.
"If they really get to the bottom of it," he says, "their circulation numbers are going to be so far under where they had been that they'll never even consider trying to get back there again."
How much Moroney knew is questionable (he declined comment). He often attended weekly manager's meetings led by Peckham, but most of those Buzz spoke with said he wasn't involved enough to understand the extent of the fraud. "But," says a source, "Moroney used to talk about how he...adopted the totem pole system, best at the top, poorest performer at the bottom. And the expectation was that you keep knocking out the poorest performer." That led to the "make the numbers, or you're gone" environment.
One Wall Street analyst suggested to Decherd that, since the publisher still has a job, "senior management won't be held accountable." "That's a ridiculous statement," a testy Decherd countered. Not so, says the third former exec. "It's clear that's true. Moroney is family, and it's time to circle the wagons around the family."