There's an astounding lack of critical analysis of Jeff Bezos' planned $250m purchase of the Washington Post newspaper.
It is not a viable business, it loses $50m a year and has large pension liabilities. Its purchase only makes sense as a vehicle of influence, and not as a rescue of the newspaper industry.
Let me state some facts:
- Amazon has been dramatically increasing its spending on lobbying and is set to reach record levels this year. Lobbying Spending Database - Amazon.com, 2013 | OpenSecrets
- The Washington Post will find it hard to be seen as objective about a wide number of important stories, ranging from corporate taxes, Internet sales tax, to the business of e-books, and a whole range of gizmos and gadgets as Amazon moves to compete in new markets, including smartphones. There will be few beats where the the newspaper can claim a truly independent voice with no conflicts of interest.
- The association with Bezos will remove the newspaper's credibility on a huge number of topics — even if he stays away as promised. The name association will cause readers to constantly scan for possible conflicts of interest and a perceived bias in reporting. This potentially harms the newspaper's voice on important social issues.
- It only took a quick call to Bezos from the US administration to kick Wikileaks off of the Amazon cloud platform. What will happen if Bezos gets a call about the Washington Post's coverage or planned coverage?
- Amazon recently landed a $600m contract to build a data center for the CIA and is hiring 500 people in Virginia, just outside Washington. There is more government work ahead if Amazon plays its cards right.
- Bezos is not interested in the Washington Post as a business. He outbid all others, he clearly wanted it at any cost. That's not what a business owner does, they try to get the best possible price because they have to make the business profitable as soon as possible.
- It was secretly purchased. It's strange to sell it this way. I understand the owners weren't keen to publicize the sale but it could have brought attention from other suitors and maybe resulted in a better deal for shareholders.
- The Graham family asked Warren Buffett about Bezos. He said he is the best CEO in the US. Warren Buffett owns 28% of the Washington Post. The news of the purchase boosted the value of his stake to more than $1 billion.
- Bezos rushed to get it. He admitted he has no special plan for the newspaper and that he does't know the business. He also told Washington Post employees that he will be working in Washington state and not D.C. Strangely, he doesn't plan to spend time getting to know his new business, or the newspaper business. How will he make it a viable business? Again, another sign that he doesn't seem to be interested in the Washington Post as a business.
- It is not a philanthropic gesture. If he wanted to do that he would have structured the deal differently, say through establishing a non-profit foundation to show his hands will truly be off the news desk.
- Politicians will treat Mr. Bezos with far more attention than before. They are older, and they understand the power of the press very well. They understand that the metric of influence is measured by the ink barrel — both digitally and literally.
- Bezos didn't manage to do a "Gordon Gekko" with Post's 604m pension plan surplus. The Washington Post has a pension plan that's overfunded by $604m. Financial Times media editor Andrew Edgecliffe-Johnson reports that it is "unheard of in an industry where declining head counts in newsrooms and printing plants have strained retirement plans." However, the Graham family will give Mr. Bezos $50m to meet the first year pension obligation — a nice gesture for their staff.
-Bezos had to use his own money. The newspaper group, with its $50m in annual losses, and large pension liabilities, would have dragged down $AMZN's finely balanced, barely-profitable financials. His stoic shareholders have supported his long term strategy to an extraordinary degree of loyalty unmatched anywhere, including Apple [$AAPL] But that long term strategy is understandable and scalable.
There's no strategy at the moment for the Washington Post — which is why it couldn't be an $AMZN acquisition. There's no need to startle the shareholders.However, the venture will be a huge benefit to $AMZN, there's a tremendous value from the association with the Washington Post.
The genius of Mr. Bezos' strategy is that Amazon gets all the benefit and carries none of the costs on its books. That protects the company's share price, and also, Mr. Bezos' $25 billion share of the business.
For just 1% of his fortune, Mr. Bezos bought some very cheap and effective insurance for himself, and for his fellow $AMZN shareholders.
- Owners of newspapers always use their businesses for influence. That's been true for more than a century, from Hearst to Murdoch. Australian mining billionaire Gina Rinehart, has been trying to acquire some of Australia's largest newspapers, and holds more than 18% share in Fairfax Media. She wants to fight anti-mining sentiment in Australia.
When people won't pay for the independent media they should be reading — special interest groups will gladly pay for the media they want them to read.
- Bezos is the new Steve Jobs, a more humanitarian version, with a style imuch better suited to our times. He's a very impressive chief executive, a serial innovator with a strong sense of the future and the discipline to do what's needed to get there.
Predicting the future of technology is easy, it's much harder to figure out how to be a business in that future.
So far so good for Mr. Bezos, his successes didn't come easily and he deserves the recognition for a hard job done well. Reinventing the newspaper business might be a stride too far but it's worth a try and I hope he'll give it a try and use his money experimenting with business models.
Hopefully, he'll come up with a business model that other newspapers can also use, and maybe even thrive.
I've spent the last ten years plunged deep into the new media and reporting on the extraordinary innovation from the two-way media technologies coming out of Silicon Valley. It's provided me with a rich source of insights into the media business and its continued destruction.
One of these insights is that it's not possible to make money simply from selling media, a media business needs many forms of revenue.
Media is a loss leader — you have to have something else to sell. The Washington Post could do well because $AMZN has a lot to sell.
Maybe the new media business model is that every newspaper becomes an Amazon affiliate. And maybe an affiliate for local businesses, too.
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