Media magnate Warren Buffett Says Free News Unsustainable, buys 63 More Papers

May 25, 2012 by  
Filed under Media

Buffett is quickly cornering the news industry

 

Bloomberg

Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) struck a deal this month to acquire 63 newspapers, said he may buy more publications as the industry rethinks whether to offer free content on the Internet.

“This is an unsustainable model and certain of our papers are already making progress in moving to something that makes more sense,” Buffett wrote in a letter to editors and publishers of Berkshire’s daily newspapers. “We want your best thinking as we work out the blend of digital and print that will attract both the audience and the revenue we need.”

Warren Buffett, Chairman and CEO of Berkshire Hathaway, in Omaha, Neb., on Nov. 14, 2011. Photographer: Nati Harnik/AP Photo

Buffett is adding to Berkshire’s newspaper holdings with the $142 million deal announced May 17 for Media General Inc. (MEG) publications including the Richmond Times-Dispatch of Virginia. The billionaire, who bought the Buffalo News in 1977 and said in 2009 that newspapers have the potential for unending losses, is now betting that papers with a community focus can profit as they change their models.

While circulation may slip, papers only fail when there are dailies competing in the same town, a publication forfeits its position as the primary source of locally important information or the market doesn’t have a sense of identity, he said.

“We don’t face those problems,” Buffett, 81, wrote in the letter dated yesterday and posted on the website of Berkshire’s Omaha World-Herald, which is in the Nebraska town where Buffett’s company is based. “Berkshire will probably purchase more papers in the next few years. We will favor towns and cities with a strong sense of community.”

Media General

Berkshire is the largest shareholder of Washington Post Co. (WPO) and purchased the World-Herald last year. Buffett said the company’s newspapers won’t “move the needle in terms of Berkshire’s economic value” in yesterday’s letter.

In the Media General deal, Berkshire also gave the Richmond-based company a $400 million term loan with an interest rate of 10.5 percent and received warrants for about 4.6 million Class A shares. Media General retained its television stations and said it’s selling the Tampa, Florida, group separately.

Media General has declined more than 90 percent since the end of 2003. The company fell 3.8 percent to $3.51 at 4:04 p.m. in New York. Berkshire slipped 0.2 percent.

The newspaper industry, suffering drops in print advertising, has recently embraced digital subscription plans. The New York Times (NYT) Media Group began charging readers to access its news stories online last year, attracting about 454,000 paying subscribers as of March. The so-called paywall is estimated to bring in $125 million next year for Times Co., according to Douglas Arthur, an analyst at Evercore Partners Inc. (EVR)

Newspaper Paywalls

Gannett Co. (GCI), owner of 82 daily newspapers, said this year it would begin charging readers to access news content online, except for flagship USA Today.

Press+, a startup that sells online subscription technology, is used by more than 300 publications, including some owned by MediaNews Group Inc., Tribune Co., GateHouse Media Inc. (GHSE), McClatchy Co. (MNI) and Lee Enterprises Inc. Press+, based in New York, was founded by former Wall Street Journal publisher L. Gordon Crovitz, along with Steven Brill and Leo Hindery in 2010.

The World-Herald and 17 of the Media General papers Berkshire is buying also use Press+, Crovitz said in an e-mail.

Buffett, a supporter of President Barack Obama and an advocate of higher taxes on the wealthy, said the newspapers would remain independent in their coverage of public policy.

‘Strong Political Views’

“I have some strong political views, but Berkshire owns the paper — I don’t,” Buffett wrote in the letter. “And Berkshire will always be non-political.”

The billionaire investor said that editors should focus on making the papers “indispensable” to local communities.

“Our future depends on remaining the primary source of information in certain subjects of great importance to our readers,” Buffett wrote. “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.”

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