The Washington Post Co., in which Warren Buffett’s company Berkshire Hathaway has been a large shareholder for decades, is selling its flagship asset, The Washington Post, to Jeff Bezos. Buffett was not interested in bidding for the paper, despite the price Bezos is paying of $250 million, a sharp discount from historical valuations. The Boston Globe, which The New York Times bought two decades ago for $1.1 billion, has just sold to John Henry for a mere $70 million. Buffett was not interested in that franchise either. Nor is he interested in buying other papers recently up for sale, such as the Chicago Tribune, the Los Angeles Times or the Philadelphia Inquirer. I’d be surprised if he cared to bid on The Wall Street Journal or New York Times when they go on the block.
These might be good newspapers, but they are not good businesses. Buffett’s Berkshire Hathaway has bought numerous small newspapers this year and last. They are very different animals. They are known less for outstanding national journalism than for local beats and especially local information and advertising.
Despite these realities, journalists just five months ago (and one at the New York Times this morning, Andrew Ross Sorkin!) congratulated themselves and their industry after they thought they read Buffett saying good things about them. As I wrote then (March 19, 2013), the journalists read things Buffett didn’t write. He is not bullish on newspapers; but quite bearish. In light of recent events, herewith that post updated.
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In case you missed it, journalists have been saying that Warren Buffett is bullish on newspapers, with the New York Times running a headline reading “In His Annual Letter, Buffett Plays Up Newspapers.” They cite the fact that he devoted 1800 words of his March 2013 missive to Berkshire Hathaway shareholders to the topic of newspapers. They stressed how Berkshire invested $344 million in the industry in the past 15 months. The Oracle of Omaha was putting his mouth where his money was, newspaper insiders reported.
The trouble with this narrative is that it’s not exactly what Buffett’s letter said, suggesting a dose of wishful thinking among practitioners of the trade. True, Berkshire has made the indicated investment and Buffett expresses his belief that newspapers, especially local newspapers with local niches, have a vital role which should translate into profitability. That was followed by a huge qualification: IF they can find an appropriate business model that marries traditional print and advertising with on-line distribution and revenue. But none has done so yet, Buffett’s letter reminds everyone.
Buffett’s allocation of three pages of his letter to newspaper investments seemed more an explanation of why Berkshire would invest such small sums, for its size, in anything, whether newspapers or some other industry. The letter stressed the continuing decline in circulation, profitability and cash flows of the newspaper business, though mentioning that Berkshire’s own newspapers have done better than most. The letter also made clear that, should the economics of the newspaper businesses Berkshire owns continue to deteriorate substantially, they will be candidates for sale.
The newspaper business, in short, remains in serious trouble. In fact, the real information content of this year’s Berkshire letter may be another point that Buffett emphasized: the only way buying a newspaper business makes sense today is if it can be bought for an extremely low price compared to earnings. Berkshire’s acquisitions met the stringent test.
That mindset reflects the market’s sense about the value of the newspaper business as well, suggested by such examples as the lack of buyers a few years ago for the Seattle Post-Intelligencier and Rocky Mountain News (Denver) and what has become notoriously clear were wildly excessive valuations of Rubert Murdoch when be acquired the Wall Street Journal in 2007 and of the New York Times when it acquired the Boston Globe two decades ago.
Civic mindedness, noblesse oblige, or a desire to be relevant and in the mix may stoke the appetites for some potential buyers of newspapers, such as Murdoch, the group of businessmen who bought the Philadelphia Inquirer last year, Mort Zuckerman, or even the Hearsts, Sulzbergers and Zells of the world. Today: add Jeff Bezos and John Henry. But despite Buffett’s obvious personal fondness for newspapers, that isn’t his style. Journalists who thought Buffett was saying he’d play that role should likewise think again. As I read the letter, the real message is that the newspaper business, like many others being throttled by rapid disruptive change, faces profound challenges.