Warren Buffett bullish on newspapers: what does he see?

Paywalls for local newspaper sites? 'Whatever works best -- and the answer is not yet clear -- will be copied widely,' says Buffett.
Written by Joe McKendrick, Contributing Writer

Warren Buffett, who has amassed a personal fortune of $54 billion investing in rock-solid, sure things, continues to pump money into the newspaper business.  What does he see that nobody else is seeing in a supposedly dying business model?

That's the question raised by The New York Times' Peter Lattman and Christine Haughney, who report that Buffett's investment company, Berkshire Hathaway, has invested $344 million in newspaper chains over the past 15 months. The company has bought 28 dailies during this time, including The Omaha World-Herald Company and the Media General chain of newspapers. Buffett has also hinted that he is interested in purchasing The Morning Call of Allentown, Pa.

For a number of years, Buffett has also been owner of The Buffalo News and a stakeholder in The Washington Post Company, Lattman and Haughney report.

The newspaper business model has been going through a painful transition as news is increasingly delivered over the Internet. Newspapers' cash cow -- advertising -- has been also disrupted and usurped by online venues ranging from Monster.com to CraigsList. So why would newspapers suddenly be a sure bet for revenue growth?

It's all about community. Buffett explains his reasoning in his annual letter to shareholders:

"Newspapers continue to reign supreme... in the delivery of local news. If you want to know what’s going on in your town – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents."

Buffett acknowledges that local newspapers need to find the right mix of revenues and adapt to the Internet age. Even Buffett's newspapers "have offered their paper free on the Internet while charging meaningful sums for the physical specimen. How could this lead to anything other than a sharp and steady drop in sales of the printed product? Falling circulation, moreover, makes a paper less essential to advertisers. Under these conditions, the 'virtuous circle' of the past reverses."

A "paywall" online subscription strategy is the best model for community newspapers, Buffett writes:

"The Wall Street Journal went to a pay model early. But the main exemplar for local newspapers is the Arkansas Democrat-Gazette, [which] also adopted a pay format early, and over the past decade [and] has retained its circulation far better than any other large paper in the country.  Despite [this] powerful example, it’s only been in the last year or so that other papers, including Berkshire’s, have explored pay arrangements. Whatever works best – and the answer is not yet clear – will be copied widely. I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time."

Buffett also believes that ramping up content and coverage -- not downsizing, as many newspapers have done -- is the key to success in tomorrow's newspaper business:

"We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet."

(Photo: Joe McKendrick.)

This post was originally published on Smartplanet.com

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