Posting in Cities
The world's most savvy and pragmatic investor has recently bought up $350 million in newspaper holdings, touting their 'strong sense of community.'
There has been no shortage of proclamations of the death of newspapers, and the latest grim prognosis has been issued by Reuters' Jack Shafer, who observes that print advertising -- which actually hit record levels in the early 2000s -- has been plunging since the recession of 2008-2009, with no end in sight. He compares the newspaper industry to a "sinking ship." If you plotted newspaper revenues on a chart, they look like they fell off a cliff -- starting at $20 billion in 1950, rising steadily to $63.5 billion in 2000, and plummeting back to $20 billion by 2011.
Yet, it is reported that one of the world's richest and a long-term-focused investor, Warren Buffett, has been actually ramping up his investments in newspapers. AFP's Rob Lever reports that over the past year, Buffett has invested up to $350 million in the newspaper industry. Investments include $200 million in the Omaha World-Herald (seen by some analysts as a sentimental investment), $142 million into the Media General chain of 63 newspapers, and another $2 million into Lee Enterprises, owner of the St. Louis Post Dispatch and Arizona Daily Sun. Buffett's Berkshire-Hathaway Company also holds investments in The Buffalo News and The Washington Post Co.
So, what does Warren -- an extremely pragmatic investor -- know that no one else seems to be aware of?
Buffett appears to be doing what he has done in the past with great success -- being a contrarian, buying into distressed industries -- at bargain-basement prices -- that others are running away from. (He, in turn, runs away from the clamor -- he famously ignored the tech bubble of the late 1990s.)
Buffett says newspapers have deep roots and strong brands within their communities, as well as valuable real estate and broadcast properties. And, while the internet has been eating much of their lunch, nevertheless, they have established strong Website properties. Reuters' Shafer cites a memo to newspaper employees, in which Buffett said as much: "I believe newspapers that intensively cover their communities will have a good future..." Berkshire "will probably purchase more papers in the next few years" and that he will "favor towns and cities with a strong sense of community."
Perhaps trust is a big part of that equation as well. While the internet is the now the most popular source of news, trust in its reliability has been on the decline. A recent study of the news industry by the Annenberg Center for the Digital Future at the Southern California finds most internet users have limited trust in the information they find online and the sources that provide that information. "Only 40% of users said that most or all of the information on the Internet is reliable – a decline from 55% in 2000."
Buffett also acknowledges that the internet presents both a challenge and opportunity for the newspaper industry. Either way, it is the future of newspapers. While the USC Annenberg study says printed newspapers will only last another five years or so, it's likely much of their readership will move to their online offerings. "The 2011 study found that Internet users give high marks to newspapers for many characteristics, among them the quality of news content, local and national coverage, and providing trustworthy information. And 63% of Internet users report they would miss the print edition of their newspaper if it was no longer available – up from 56% in 2007.
And there has been a great deal of activity on the digital side of newspapering. As recently pointed out by The Poynter Institute's Andrew Beaujon, digital circulation now accounts for 14% of newspapers’ total circulation mix, up from 9% in March 2011. (Digital circulation may be tablet or smartphone apps, PDF replicas, metered or restricted-access websites, or e-reader editions.)
The New York Times reported a 73% gain in circulation fueled in large part by digital gains. In fact, the Times’ daily digital subscribers exceed its daily print subscribers, Beaujon relates. The Orange County Register posted a 53% percent rise in daily circulation, the highest after The New York Times. The New York Daily News reports a 9% increase in circulation, with about 20% digitized. About 25% of the Wall Street Journal's base is digital.
Also, in many ways, newspapers are becoming part of the new media scene, in some ways indistinguishable from television news networks. With such converged media, if you go to a newspaper site such as USA Today and Wall Street Journal, and watch videos of breaking news, interviews, or special interest stories. Is USA Today or Wall Street Journal now a broadcast network? Similarly, if you go to CBS News, or CNN, you can read text stories. Is CBS News or CNN now a newspaper? Does the difference even matter anymore? The distinctions between newspapers and broadcast networks are no longer so clear.
(Photo by Joe McKendrick.)
Jun 19, 2012
Why would anyone take a gamble and invest into an industry which ... 1. Has reasonable revenues (though declining in some quarters) combined with strong community brands, valuable real estate and potential to build stronger online offerings. 2. Has many who are prognosticating the death of the industry and the market generally treats this space as being distressed (i.e. cheap). 3. The companies invested into, as far as I know - Media General, Lee Enterprises, Omaha World-Herald - all own significant printing assets and experience. 4. Has the potential to exploit the printed electronics field (see http://en.wikipedia.org/wiki/Printed_electronics) which is rapidly developing and is close to hitting the prime time. The growth of printing electronics can be expected to create new revenue streams for companies with significant printing assets and experience who both need to and are willing to adapt their business models. ... I can't see a great deal of downsides compared to the potential upsides.
For decades, the key to Buffett's success was that he only invested in businesses he thoroughly understood. But in the last several years as he gets closer and closer to retirement, he's clearly diverged from that path as he's been investing in very complex and often convoluted industries (banking and insurance) that are diametrically opposed to the kinds of businesses he made is billions from. He's become a media darling, especially since espousing what has come to be known as "The Buffett Rule", where people like him (except actually himself) should be made to pay much higher taxes than they currently do. He's on TV constantly now, and I'm afraid he's actually starting to believe the hype. So I really don't write too much into this.
It's widely known that Warren Buffet is close friends and regular bridge partners with Katharine Graham, publisher of the Washington Post. Perhaps that investment is also sentimental.
However, he may be smart enough to have figured out that if the news (who, what, where, when, how and perhaps why) was reported without a slant (just the facts Ma'am), they could make a comeback and have some semblance of believeability!
...but then he wouldn't be the media darling he currently is at the moment. They're all pretty comfortable with the current slant.