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Deep in the Heart of Texas, Local Roots Rule

Call it the Decherd Doctrine.

That's the belief that a major media company can do well by doing good journalism, by keeping its focus local, rather than national, and by tapping into shared resources.

It's the way business is done at Belo Corp., the Dallas-based
1000 newspaper and television company headed since the mid 1980s by CEO Robert Decherd.

Belo has approximately 7,900 employees and $1.4 billion in annual revenue, about half of which comes from the Belo Television Group, ranked ninth in BROADCASTING & CABLE's list of the Top 25 Station Groups, right between Sinclair Broadcast Group and Cox Television.
Belo entered the TV business in 1950 when it acquired WFAA in Dallas, where it also owns the only surviving daily in town, The Dallas Morning News. Today, it owns 19 stations (including six in four of the top 15 markets) and owns or operates 10 local and regional cable news channels that are information powerhouses in Texas and the Northwest. In Texas, particularly, Belo seems to be everywhere.

The media company traces its roots in the Lone Star state all the way back to 1842, when the company that would evolve into Belo began publishing The Daily News
in Galveston (though Alfred Horatio Belo didn't join the company that would eventually bear his name until 1865). The company bills itself as the oldest continually operating business in Texas.

And it uses those roots to its advantage. In the nation's very biggest cities, viewers have lots of diversions. But Belo knows that, in most of America, including the markets it serves, viewers form tight bonds with local stations and personalities.

"We just are a bigger player," says Belo President, Media Operations, Jack Sander. "The news anchors in markets that we're in are some of the highest-, if not the highest-profile people in the community." That, he adds, is "not the case in New York."

Says Decherd,
"We have really focused on building these local and regional businesses, particularly where we have a concentration of assets."

Its stations reach 13.8% of U.S. TV households. Its biggest market is Dallas (the No. 7 TV market, according to Nielsen); its smallest is Boise, Idaho (No. 123). The company has duopolies in Seattle and Spokane, Wash., and Phoenix and Tucson, Ariz., and a local marketing agreement in San Antonio.

Belo spreads its affiliations around: It has five CBS affiliates, four NBC, four ABC, two WB, one UPN, and one Fox. It also owns two independent stations.

The company's geographical and network-affiliation diversity protects it to some extent from cyclical ratings downturns at any one network and from economic downturns in any one region.

For example, the Television Group currently derives 30% of its revenues from its CBS affiliates, 28% from its ABC affiliates, and 23% from its NBC affiliates, according to company data. Belo's independents bring in 12% of the group's revenues, while its WB, UPN, and Fox stations together account for 7%, according to the company.

In last November's sweeps, 13 of its stations ranked No. 1 or No. 2 from sign-on to sign-off. In large part, they do it by having dominant newscasts.

Local TV stations "have a lot of head winds they must address," says analyst Marc Nabi, managing director and head of the global securities, research, and economics department at Merrill Lynch. "Right now, the way they can address it is by having one of the No. 1 news stations in a market."

Even as the media world becomes more fragmented and PVRs become a bigger factor, viewers will continue to watch their local news live, instead of time-shifting it. So strong local- news brands become even more of a "premium-value" proposition for advertisers, says Jonathan Jacoby, vice president and senior radio/TV broadcasting analyst, Banc of America Securities.

Belo stations are the "rock stars of local news," he says. "Over time, in a fragmented world, they'll be rewarded for their strong local news."

Stay Home, Make Money

Belo Television Group revenues were up almost 15% in February, with an 18% increase in local revenues and a 6% increase in national revenues, versus the year-ago period, says Belo CFO Dennis Williamson. He provided first-quarter and full-year guidance to Wall Street analysts at the Bear Stearns Media, Entertainment & Information Conference in Palm Beach, Fla., earlier this month.

Belo's biggest-market stations are formidable revenue-producing machines. Its flagship station, ABC affiliate WFAA, remains a Dallas-Ft. Worth powerhouse, despite the fact that ABC is in a weakened state. That means the station lately has had to contend with weak prime time lead-ins to its lucrative late news.

Sader predicts WFAA will remains atop the Dallas market when market-research firm BIA Financial Network makes its 2003 revenue data available next month. WFAA led the market in 2002, according to BIA, which pegged its 2002 take at $138.4 million. In Big D, all WFAA's toughest competitors are major-network O&Os: NBC's KXAS is No. 2 with $135.8 million, followed by Fox-owned KDFW with $121.6 million and CBS's KTVT, with $82.4 million.

In Houston, the No. 11 market and Belo's second-largest, Belo's KHOU tied ABC-owned KTRK in 2002 revenues, with $78.2 million for each station, according to BIA data. In Seattle-Tacoma, the No. 12 market and Belo's third-largest, its KING, an NBC affiliate, was the 2002 revenue king of the Northwest, adding $93 million to company coffers, far ahead of second-place KOMO, the locally owned ABC affiliate, which amassed $69 million.

In the Pacific Northwest, KING, an NBC affiliate owned by Belo since 1997, "dominates its market to a degree unrivaled by any other station in the country," according a sweeps summary in The Seattle Times, KING's hometown newspaper.

The stations are strikingly independent of their networks when it comes to revenue-generation. Sander says more than 40% of station-group revenue derives from the stations' own newscasts and another 30% of the revenue comes from advertising in syndicated fare.

Last year, Belo's TV stations maintained an average audience share of 15.1%, while their share of market revenue was 24%, according to the company's 2003 earnings report.

The Bottom Line

By comparison with 2002, an election and Olympics year, last year was tough for Belo, as it was for many other broadcast groups. Television Group revenues decreased 7.8% in the fourth quarter, with an 8.5% decrease in spot. Local revenues were stronger than national, increasing 10.6% while national revenues fell 3.2%.

In full year 2003, Belo's revenue was flat at $1.4 billion; total income likewise, at $129 million. The Television Group's $647 million in revenue was down from $658 million and $225.3 million in operating earnings were off from $234.4 million a year earlier.

One of the main reasons for the 2003 decreases was the absence of political advertising in the political off-year. Political revenues at the Television Group were just $10.3 million, compared with $48.7 million in 2002.

Expectations are that 2004, with its presidential-election and Summer Olympics-related advertising windfalls, will be a good year for Belo's Television Group.

But there is a problem: George W. Bush is from Texas.

"The races that would logically produce really significant political revenues for our
stations aren't being run this year," Decherd says "The presidential race [in] Texas will not generate the kind of dollars it would have if the president were not from Texas and didn't have the kind of following he has here." And, he adds, "there are no major statewide races in Texas."

In the company's other key markets, the expectation is that "we will have good political experience," he says, "but it's not as broad or widespread or consistent across the entire company as was the case four years ago and two years ago even."

Betting on Duopolies

Belo wants to increase its duopolies in its largest markets, and its local-news focus is one reason the duopolies are attractive. The second station not only adds a demographically distinct news audience to the aggregate local-news numbers but also lets Belo to spread newsgathering costs.

However, Belo executives are "disciplined" enough that they will walk away from a duopoly opportunity if the price isn't right, says analyst Nabi. "There's supposedly a Houston station that's for sale, but Jack [Sander] and Robert [Decherd] will not pay up for that opportunity because it doesn't make sense. They're asking for a very high price."

What makes Belo unique, says analyst Jacoby, is that it prefers one component of its duopolies be an independent station. "That is different than everybody I cover," he says. Belo likes independents because they can program them and get much more of the revenue than they would with a network affiliate.

Beyond adding duopolies in its largest markets, Belo's senior executives say the company is looking neither to take over nor be taken over by another group owner. It is an attractive target, and some analysts say Gannett in particular would be interested in Belo if the price was right. So would Hearst-Argyle, which largely mimics Belo's news-first strategy.

While Decherd owns only about 15% of the stock, he does control more than 70% of the voting shares, Jacoby notes. Belo has no interest in being some bigger media company's latest conquest. "Belo's not up for sale and never will be, not in the near term," he says. "That's held the stock back. But," he adds, "Decherd's a young guy, and he likes being a media player."