Warren Buffett buys 63 newspapers, we scratch our heads
About two weeks ago, Berkshire Hathaway CEO Warren Buffett bought 63 newspapers from Media General, a news company that operates throughout the US Southeast. The purchase has gotten a lot of criticism, as you can imagine, and some praise too. Let’s dissect the argument.
The papers themselves are small locals, and Buffett has said he wants to focus on local reporting. Fair enough.
Our future depends on remaining the primary source of information in certain subjects of great importance to our readers. Technological change has caused us to lose primacy in various key areas, including national news, national sports, stock quotations and employment opportunities. So be it. Our job is to reign supreme in matters of local importance.
Buffett knows that much of what traditionally made a newspaper a newspaper – the classifieds, funnies, world news – is now free and online. So he’s wants to lean on local issues that only a local paper will cover. There’s got to be a market for that, right?
And he wants to charge for online content, probably:
We must rethink the industry’s initial response to the Internet. The original instinct of newspapers then was to offer free in digital form what they were charging for in print. This is an unsustainable model and certain of our papers are already making progress in moving to something that makes more sense.
But he’s missing something, according to the critics. Namely, that you can’t expect subscriptions or paywalls to finance a paper.
He makes much of drops in print readership, but circulation has not been strongly correlated with revenue for two decades now.
Buffett expects that quality reporting will boost readership, boost sales, and then boost business. But it’s not that simple.
Shirky goes on:
Reading the letter, you’d never know that papers make most of their money from companies, not citizens, and have done for the better part of two centuries. It is disruptive competition for ad dollars, not changing reader engagement, that has sent the industry into a tailspin.
FJP: The jury’s still out on paywalls, but if they only sort-of work for the New York Times, then their adoption by a paper in a town of 10,000 doesn’t incite our confidence.
Matthew Ingram of GigaOm puts it well: newspapers have changed. The internet has most of what a paper has always had, and makes it easier to find. And the ad money, which has always financed the news, has followed our collective attention away from print.
Yet it’s also important to look at the price Berkshire is paying for the Media General papers. As recently as six years ago, newspaper companies sold for more than 9 times Ebitda (earnings before interest, taxes, depreciation, and amortization). Bank of America Merrill Lynch’s Stephen Weiss writes today that Buffett’s company paid around 4 times Ebitda for the Media General assets.
At that low price, Berkshire Hathaway could make a nice return on its money. As the Wall Street Journalreported earlier this month, it has done surprisingly well since purchasing the debt last November of Lee Enterprises, another troubled newspaper publisher, from Goldman Sachs.