MEDIA BATTLING MA BELL

AFTER 35 YEARS in the family mortuary business, Highland Park’s Ken Merritt was looking for some fun and profit. The man whom friends call “Chubbs” (the kind of name that suggests the mortuary business was not his niche) finally found what he wanted to do-learn to invest. Now Chubbs Merritt spends his days figuring deals, buying and selling, and having a wonderful time. He can smile at last.

Some of that satisfaction comes from the manner in which he does it. Like most investors, Merritt reaches for The Wall Street Journal first thing in the morning. He also scans Barron’s, glances at the headlines of The Dallas Morning News, and, depending on his plans, checks airline schedules, weather, and the like.

But unlike most investors (right now, anyway), Merritt does all this reading on his home computer, which is linked to one of the country’s foremost home information services, the Dow Jones News Retrieval system. Merritt retrieves the desired information by punching in a few codes with his now-nimble fingers. He points out a slock he has been following. He can get the current quote, earnings, dividends, price-earnings ratio, and the history of the stock performance in a minute or two. If he had the time and inclination, he could get similar information on some 3200 stocks, and he could follow domestic and foreign financial news. But he would probably never finish reading because the information is updated so quickly. As one proponent of the system put it, subscribing to the computerized newspaper is like having an updated Encyclopedia Britan-nica on your doorstep every morning.

A few blocks away, 23-year-old Randy Whitten is keeping track of his and his family’s financial affairs on his home computer, which is also linked to the Dow. Whitten, who bought his first stock at age 12, considers himself a professional investor. He says the computer and the information it gives him access to are partially responsible for his success.

Merritt and Whitten are among what is still a handful of subscribers to the Dow system in an arrangement with Sammons Communications. Sammons calls these 50-odd customers the “pioneers who will step into the future” on its promotional material. Less romantically, they could also be called the cavemen of the electronic age, the time in the future when writers such as Alvin Toffler say that we’ll all have home computers on which we’ll do all our banking, shopping, letter writing, and school work and on which we’ll get information that we once received from newspapers and television. One such estimate has us spending $16 billion a year in the country just for these kinds of informational services, excluding the cost of the computers.

With profits billowing on the horizon like an Indian smoke signal, the emergence of the electronic information field may then be the Oklahoma land rush of the Eighties. Jostling for a piece of the electronic turf are companies like Times Mirror, Time Inc., and Dow Jones. Oh, yes. Another company wants in, a corporation with some special advantages, the Incredible Hulk of the jostling game. AT&T, the world’s largest company, is also looking to stake a claim.

Somewhere in all of this is Belo Information Systems, the folks who bring you The Dallas Morning News. Belo has just begun offering a modest version of its newspaper via electronics.

Some of the providers of financial information have an incontestable head-start. Dow Jones, for example, can not only draw upon the resources of its publication, The Wall Street Journal, but already has an enormous data bank from years of providing computerized information to stockbrokers. In Dallas, Sammons Communications has helped put the cost of the Dow service within most folks’ reach. Formerly, you could hook up to the Dow computer in Princeton, New Jersey, by making a long-distance call, which cost $60 an hour. On the Park Cities cable you can have unlimited use of the service for $12 a month. Now Sammons has announced that it can provide hookups to non-cable customers. And even if you aren’t on the cable, you can use the Dow system simply by placing a call to the Sammons computers. That costs $40 a month, again for unlimited usage.

Still, financial services, most people agree, are just the tip of the informational services iceberg that computer owners will seek. But there are still those folks who get most of their general information from something as archaic as the printed page. As Marie Antoinette might have said, “Let them get it from computers.” Let them get something else too: advertising. Advertising-selling goods and services to all those computer owners -is the shimmering gold in the hills of the computer age. It’s the newspaper philosophy applied to computer technology. Get the subscribers to get the advertisers.

This is the strategy AT&T opted for too, and in Austin this summer, AT&T tried to put its plan into action. By summer’s end the battlefield around Austin was soaked, if not with AT&T’s blood, then with the $6 to $7 million the corporation spent in preparing for a major test that Texas newspaper publishers managed to stall. The scene was rather like the end of the first act of an opera, the kind Larry Hagman talks about in his promotion for the Dallas Opera; the ones filled with “lust, power, and tyranny.”

Gean Holden, a Texas Tech graduate and Abilene native, has been given the task of catching the wave of the future for Belo. From his office across from the city room in The Morning News building, Holden heads a staff of 19 people assembled by Belo to deliver the videotext version of The News.

He was, as they say in the corporate world, “brought on board” when Belo decided to get into the electronic newspapers field about a year and a half ago. Holden, who came from the Times Mirror Company, had been on the technical side of the newspaper business for 20 years-that makes him something of a forerunner in the newspaper business considering that 20 years ago there wasn’t much of a technical side in the modern sense.

Twenty years ago, newspapers were still rooted in the 19th century. Journalism schools, such as the one at the University of Missouri, continued to teach typography by having students set type by hand a la Benjamin Franklin. Most dailies considered offset printing techniques the province of the throwaway shopper. Classifieds were laboriously written by hand in triplicate, and reporters still yanked yellow copy paper from screeching platens on Smith-Coronas that were certainly battered and proud of it. In the backshop, Linotype operators spent the day at small metal chairs in front of machines invented 100 years ago.

As anyone who watches Lou Grant knows, most reporters now write their stories on computers, and most editors edit them on computers; the process of separate typesetting has been all but bypassed. Craftsmen who labored at the small metal chairs in front of the great machines have learned new skills or gone away. Business aspects of the newspaper industry have been modernized. Classified advertising is now on computer. And because of men like Holden, the business is advanced enough that it now has the ability to move into the electronic computer age.

Presently, the Belo system has 100 participants. Fifty of them are actual subscribers at $50 a month. Belo does not provide or lease the computer equipment. Holden says Belo isn’t interested in getting into the equipment supply business. If such a plan existed, it would certainly raise the image of the company that can’t always get your paper on the front porch but would send out a crew to tinker with your $3000 Apple computer.

Holden agrees the system is limited in what it can provide. There are a few stories from The News, but they don’t appear until the paper has been printed. “We don’t want to scoop ourselves,” Holden says. By contrast, subscribers to the Dow read summaries of Wall Street Journal stories before the paper is on the streets. Holden sees the information base rapidly expanding by the end of the year, when a new computer at “substantial” cost will be installed to replace the smaller unit at LBJ and Preston. One of the first things that will be added will be classified advertising; in the future a reader will be able to simply punch up what he is looking for. It’s an aspect of the electronic newspaper that’s expected to be a major money-maker.

Belo is also seeking other kinds of advertising (it now sells advertising at $20 a computer “page”). Exactly what form the advertising will take is not clear. Holden says it must be unobtrusive.

“Advertising is the real challenge,” he says. There will be, however, a “shoppers’ guide” (page after page of advertising grouped according to service). Another money-maker.

The Belo timetable calls for 150 subscribers by the end of the year and eventually “tens of thousands.” Many of the present subscribers, however, get the system because they subscribe to the Dow system on Park Cities’ cable. Like Dow, Belo offers its services to computer owners who are not on the cable by hooking them up through telephone lines. Videotext and other informational services are not tied to the cable, but to the telephone, which is what Belo hopes will attract those tens of thousands of subscribers.

But telephones as transmission lines may turn out to be a double-edged sword. Presently, the telephone is ubiquitous and cheap on local calls. But in our Texas passion play, the telephone also serves as the entrance line for Darth Vader -AT&T – striding downstage and planting himself just about where you’d find Austin.

Even before Belo and other Texas publishers got wind of the proposed AT&T experiment in Austin, Holden and others were worried about the phone company. Southwestern Bell had been turned down by the Public Utilities Commission (PUC) in its request for “measured service billing” – that is, charging local calls based on the amount of time the phone is used, similar to the way long-distance calls are charged. Obviously, measured service billing would increase the costs for the information user. And, even though the request had been denied, there was no guarantee that Southwestern Bell wouldn’t bring back the request again and again.

The plans for the Austin experiment gave Texas publishers even more cause for concern. As Belo was moving forward in its videotext plans, the company was alerted to AT&T’s preparations for an extensive test scheduled to begin June 1981. Under the plan, AT&T would hook up 600 to 700 homes with its Teledon system. Like the Belo system, it was to be “interactive” -subscribers could call up the information they wanted rather than having to wait for the information to pass through as in some systems. And this system would also provide graphics, which Belo did not offer.

The experiment was not the first time AT&T had experimented with videotext systems, but it was the first time AT&T planned to provide the information.

“What they attempted to do was to get the whole pie,” says Holden. “They wanted the increased revenues from the use of telephones. They want to own the computer, and they want to provide the informational base.”

According to Dale Johnson, a public relations officer for Southwestern Bell, the informational base would have included the white pages and its current updates, the Yellow Pages, and some “consumer information.” He defined consumer information as “general information as opposed to hard news.” (For example, he said, “we might have health information on how to fix a cut finger.”)

Nonetheless, the words “consumer information” spelled danger to some newspaper people; they could foresee the ghost of Ma Bell donning an electronic eyeshade and settling down to prepare our news digest.

But Johnson, a man who was a West Texas newspaper editor himself before he joined the telephone company 16 years ago, disagrees. “We had never gone into the test with the inclination of doing any hard news reporting.”

Johnson also dismisses the idea that the opposition was based on the idea of AT&T getting into the news business. “It was no First Amendment issue.” The issue, he says, was the loss of advertising revenues.

“I have never seen newspaper publishers become so effective as a lobbying group as when they are faced with an economic challenge.”

At any rate, by the time the newspaper publishers discovered plans for the experiment in the early part of 1980, AT&T had already spent a good portion of its $6 to $7 million. The estimate, it should be noted, is AT&T’s. (AT&T is one of the few companies in the world that can afford to round off dollars to the nearest million.)

The Texas Daily Newspapers Association (TDNA) hastily formed a telecommunications task force with the single purpose of beating the AT&T challenge. By this time, though, the PUC had already given AT&T permission to conduct the test. The newspapers challenged that permission, though, and requested a public hearing. In February of this year the PUC not only agreed with the TDNA position and set a date for a public hearing, but also ordered AT&T to cease and desist from further planning. Less than pleased, AT&T appealed.

The loss of potential advertising, however, was not the official reason for the challenge. According to Phil Meek, president and editorial chairman of the Fort Worth Star-Telegram and chairman of TDNA, the issue was unfair competition.

“AT&T has an unfair advantage over other companies because ratepayers end up paying for research and development, which makes the system possible because those costs get put into expenses Southwestern uses to request rates.”

Southwestern’s Dale Johnson vehemently denies that. At the start of the experiment, AT&T and Southwestern signed an agreement that Southwestern Bell would be compensated for every penny spent, Johnson says. There was to be no cost to the Texas ratepayers.

But cynicism persisted amongst many newspaper publishers based on the history of Southwestern Bell in Texas. Until five years ago, there was no state regulation of telephone rates; rates were decided upon by city councilmen on a city-by-city basis. Bell had acquired a reputation for heavily lobbying the officials who were known to vote on rate increases; thus few requests for increases were denied. Southwestern Bell profited in Texas; consequently, critics charged that Texas ratepayers were subsidizing states with more stringent regulators.

One of the critics was T.O. Gravitt, head of the Texas operation for Southwestern Bell, who committed suicide in 1974. His family filed a suit against Southwestern and AT&T alleging that Southwestern had driven him to his death. When the suit came to trial in 1977, a string of testimony surfaced connecting Southwestern Bell to a variety of unattractive business practices. Gravitt’s family and the other plaintiff in the case, another manager for Bell, were originally awarded $3 million. Bell appealed and won. No award was made.

During the time the case came to trial, the Texas Legislature ruled that rates should be decided by a state commission.

Texas newspapers now say they have some direct knowledge of unfair competition. Belo, for example, says its company was refused permission to purchase the white page listings with current updates. (Its system could, of course, key in the listings by copying the phone directory, errors and all.) Also, insinuations were made that Southwestern Bell was renting AT&T computer space in downtown Dallas at one-third its market value.

Johnson says he knows nothing of such a computer arrangement and that the telephone company has a policy to never sell its white page listings. He says that even though the telephone company is a monopoly and is regulated by the government, it is still a private enterprise.

The legal fight could have gone on for months, but in July (before the issue got to the public hearing) AT&T wrote off its $6- to $7-million investment and agreed to drop the Austin experiment and experiments like it throughout Texas, now and in the future.

Johnson says the company dropped it “primarily because of the prospect of continued litigation before the commission. Even if we had gotten a favorable ruling out of the commission, 1 think it was a foregone conclusion that TDNA would take the issue to the courts. Consequently, we felt that there was no way the test could go on unimpeded.

“The money was not lost. We did a great deal of market survey. We got a great deal of advertising contact and did some additional developmental work on terminals and this kind of thing. All the background information that has been gathered can be utilized.”

The chairman of the newspaper task force believes the company dropped the project because the newspapers’ attorneys, in preparing for the case, uncovered information Bell did not want disclosed.

“In our view, the information that we were discovering revealed much more of AT&T’s hand than they wanted to have revealed, particularly since they were trying at the same time to convince the Congress-specifically the Senate-that they ought to be permitted by legislation to be a total information provider as a matter of national policy.

“They were talking in Washington about just doing the Yellow Pages electronically whereas in Austin they had all kinds of plans to go so far beyond anything like the Yellow Pages that it was night and day. They didn’t want their real purposes exposed, particularly given the current consideration in Washington.”

What is the consideration in Washington? Mainly, it’s the rewriting of the Federal Communications Act of 1934- still the law of the land but, few dispute, now out of date.

In one proposed amendment to the new telecommunications bill, AT&T would have been prohibited from getting into the informational field at all. In another proposed amendment to the Senate version, AT&T would be allowed to provide video informational services in areas where it does not own transmission lines. AT&T owns transmission in most places – 80 per cent of the country is linked by AT&T. But AT&T could offer video services in the other 20 per cent if the Senate version of the bill were to become law. In Texas that would mean a city like San Angelo, which is serviced by General Telephone, could get its video informational services from AT&T.

However, there are some other loose ends; in a 1956 agreement between the federal government and AT&T, AT&T pledged not to be a provider of video information. And in a major antitrust suit against AT&T-the biggest one on record -the Justice Department proposed that Western Electric be separated from AT&T and that the company dispose of other parts of its monopoly.

But AT&T apparently can rest easy about pending legislation. Already the Reagan Administration has indicated that pursuing the antitrust suit is not one of its top priorities.

AT&T, after all, has had a long and healthy corporate life. And it has affected our daily lives perhaps more than any other company. It was AT&T that turned Americans into a nation of finger-walking phone callers, as most everyone knows. Less well known is AT&T’s key role in the overall development of commercial broadcasting, which began back some 50 years ago.

It was AT&T that made advertising an integral part of broadcasting in this country; no one could think of a purpose for radio until AT&T decided to sell time on its New York station the way it sold time on its long lines. It was called “toll broadcasting”-a company bought a chunk of time and did what he wanted with it, eventually offering entertainment so people would listen to the advertising message. Toll broadcasting turned radio from a money-loser into a profitable venture. Before long AT&T owned the first profitable string of radio stations in the country. Later, in the Twenties, AT&T decided to get out of the broadcasting end of the business and sold its network to RCA. Those radio stations -nurtured on AT&T’s toll broadcasting philosophy – became the backbone of NBC.

So AT&T tends to take the long view.

But Belo’s Gean Holden has his doubtsabout the AT&T of today. “We don’tknow how AT&T will abide by legislation.We have high hopes they will honor newlegislation.”