Warren Buffett on the Future of Newspapers:
In addition to The Buffalo News, Berkshire Hathaway--the holding company that Warren Buffet controls—owns a significant chunk of The Washington Post Company and is one of the largest shareholders in Gannett. Buffet has said to friends that if he had not been an investor, he might have chosen journalism.
That’s why I found this exchange between Buffett and his Vice-Chairman Charlie Munger at the recent Berkshire Hathaway Annual Meeting particularly interesting:
Question: If you were looking at newspaper publishers as possible investments, what would you use as a margin of safety?
Warren Buffett: What multiple should you for a company that earns $100 million per year whose earnings are falling by 5% per year rather than rising by 5% per year? Newspapers face the prospect of seeing their earnings erode indefinitely. It’s unlikely that at most papers, circulation or ad pages will be larger in five years than they are now. That’s even true in cities that are growing.
But most owners don’t yet see this protracted decline for what it is. The multiples on newspaper stocks are unattractively high. They are not cheap enough to compensate for the companies’ earnings power. Sometimes there’s a perception lag between the actual erosion of a business and how that erosion is seen by investors. Certain newspaper executives are going out and investing on other newspapers. I don’t see it. It’s hard to make money buying a business that’s in permanent decline. If anything, the decline is accelerating. Newspaper readers are heading into the cemetery, while newspaper non-readers are just getting out of college. The old virtuous circle, where big readership draws a lot of ads, which in turn draw more readers, has broken down.
Charlie and I think newspapers are indispensable. I read four a day. He reads five. We couldn’t live without them. But a lot of people can now. This used to be the ultimate bulletproof franchise. It’s not anymore.
Charlie Munger: I used to think that GM was a bulletproof franchise. Now I’d put GM and newspapers in the “Too Hard” pile. If something is too hard to do, we look for something that isn’t too hard. What could be more obvious?
Warren Buffett: It may be that no one has followed the newspaper business as closely as we have for as long as we have—50 years or more. It’s been interesting to watch newspaper owners and investors resist seeing what’s going on right in front of them. It used to be you couldn’t make a mistake managing a newspaper. It took no management skill—like TV stations. Your nephew could run one.
HT to BH
I question Warren Buffet’s statement that newspaper readership is down because younger society does not read; rather, his “next generation” of newspaper readers have found alternate forms for reading such as, case in point, Buffalo Rising.
The thought of being able to sit down after returning home from work and an hour at the gym and being able to read a good, informative and to the point newspaper, with objective views would be a welcome change; but no such newspaper exists in the Western New York area.
The Buffalo News is the most boring, parochial editorial rag I have ever read in my entire life. Reading feature articles is like reading about wall paper peeling from the walls – boring.
If Rupert Murdoch was permitted to purchase the Courier Express and turn it into a tabloid as like the Washington Post or New York City Post; the Buffalo Snooze would be a memory and not the Courier Express.
Ironic that a newspaper that totally monopolies’ an entire region can decline five percent every year and the dinosaurs’ who operate the rag blame the readership. Perhaps an injection of a more youthful staff or perhaps a staff that actually cares about the City of Buffalo would help.
No autopsy will be required because we will all know that the Buffalo News died of its own boredom.
I think that Artvoice has become such a great paper in the last 5 years precisely because it has assumed the place of the "other" paper in town. I think a paper with real reporters, real stories, and a little competition can increase readership... especially in the 25-50 age group.
I don't think he is saying that young people don't reqad. He is saying they don't read news papers.
I really enjoy Artvoice as well, minus Jamie Moses' 8 page articles of the same paragraph over and over again... ok, maybe not that bad, just a little long winded... :-D
NewsC
Nowadays, print editions of local newspapers are scooped by live cable news, RSS feeds, and the blogosphere...this has lead to steadily declining circulation rates for most major urban dailies. As circulation rates decline, advertising revenue declines as well. Once revenue begins to decline, the news daily is forced into cost cutting measures resulting in a lower quality paper. These problems are currently affecting The Buffalo News as they struggle with the economic realities of the omnipotence of new media.
With that said, what is the venerable news daily to do? Well, most news organizations have decided to adopt new media into their web editions. The NYU School of Journalism recently conducted some research to determine the top blogging newspapers in America. They sampled the Top 100 newspapers (based on daily circulation rates) to determine which newspapers "knew what they were doing" when it came to blogs and new media. The Buffalo News (52nd largest paper in America) was included in the sample, however, they are one of only fourteen major dailies that do not utilize blogs in their web editions. That's right, 86% of the top 100 major American news dailies feature a blog section on their website.
Increasing the presence of a newspaper on the web through blogs and community commentary drives ad revenue on the web and increases the relevance and timeliness of the news coverage. The Buffalo News website is a testament to poor design. It seemingly exists in an Internet vacumn as links to external sites or community groups are verboten and is simply a copy of what is available in the print edition. If there is no content on the site that cannot be found in the print edition, why even have a website?
The Buffalo News should emerge from their technical coma, hire a few bloggers, promote community commentary, and empower the local community to fight for change. It would return the paper to relevance in this town and be the bridge between "Old Buffalo" and "New Buffalo"...we would then all be on the same page as we fight to revitalize this city.
Would the News not be an agent for change in the Buffalo market if they could host a real-time blog during Legislature and Common Council proceedings? Should they not provide full insight into the machinations of local government rather than simply reporting on them the next day while constrained by the AP Stylebook?
Would the News not be able to provide a voice for New Buffalo and the demands for reform and change via commentary on their blogs? Would this not be a common place for New Buffalo and Old Buffalo to join forces and work toward revitalization of our area? If we could only find a way to merge the divergent constituents of the city into the marketplace of ideas, we might just find ourselves working towards a common goal.
Is that not what will finally drive change?
BuffaloGeek, I agree with you for the most part. Sure, old dogs can learn new tricks. The problem for most newspapers is that it probably doesn’t matter.
Blogs and other collaborative/participatory platforms are usurping relevance from traditional media for the same reason reality programming is so popular. Sure, reality programs, like blogs, are cheaper to produce, and a significant majority of television viewers dig them because they can feel a part of them and can often affect, at least in part, their outcome. But for those who just passively consume--read or watch, who rarely text-message vote or contribute comments or blog themselves and swap links, trackbacks and pings, it's about the content. New generation media seems and very often is being generated by folks who could be our more charismatic, and sometimes more knowledgeable, peers instead of by larger, much more remote corporations/brands.
Sure news is becoming less of a lecture and more of a conversation. And, yeah, blogs ship with tools out of the box that better facilitate that conversation: comments, trackbacks, RSS feeds, etc. But it’s not about the ability to conduct the conversation. That’s cost-of-entry. The question is who do users want to have that conversation with?
What if it’s not with newspapers?
BTW: Congratulations on BabyGeek. That's very cool.
A newspaper that can't update its website until 9:00 a.m. except for AP feeds; then has little of interest either in print or on the net, displays frequently jejeune in-house writing, and depends so heavily on nationally-syndicated opinion columnists, is decidedly third-rate.
The Buffalo News isn't alone. Many dailies simply aren't worth the money.
"The question is who do users want to have that conversation with?"
I would argue that in this town, people would love to have a manner in which to feedback to the newspaper and comment on local stories. Look how popular the Taxpayer Weblog on Channel 2 became. It was poorly formatted and loosely moderated yet, they were getting tens of thoussands of hits per day on their site. People are thirsting for a way to communicate with the mainstream media and share their feelings and opinions. As much as we think that people are tied into New Buffalo, I argue that the vast majority of Erie County residents have no idea that this site exists. However, they all read the Buffalo News print edition and they occassionally check out the buffalo.com or buffalonews.com websites. The News then serves as a conduit to introduce these people to all the different resources and mediums for communication in the city.
A commonality amongst Buffalo expatriates is that they all regularly check out the Buffalo News website. They may not be aware of BuffaloRising or the blogs on WNYMedia. All they have visibility into is the standard negativity the News dishes up everyday. If the readers were able to comment on articles or read regularly updated city blogs, it would give a fuller picture of the renaissance that is happening in Buffalo.
As you know, new media is empowering, expands the conversation, and allows for a depth of reporting that the paper cannot provide in their current print revenue paradigm.
Thus, the benefit for Stan Lipsey and the Berkshire Hathaway crowd is a diversification of revenue. Currentlyl, they are stymied by lack of ad revenue in the print edition and dwindling circulation rates. At this point, the only way to float the ship is to open up to new media.
The Buffalo News should not just be a part of Buffalo's revitalization, rather, they should be one of the engines. Incorporating as many readers over as many streams as possible will only serve to drive positive top line and bottom line growth.
BTW, thanks! We couldn't be more excited about our upcoming addition! The pitter patter of little geeks...
But BuffaloGeek, as stubborn as Stan Lipsey reportedly is about going online, from a financial standpoint, he's kinda right.
The News is still a remarkably profitable newspaper. Its earnings are pretty impressive. The crisis at the News and similar papers is one of relevance, not earnings (and I use this term purposely and distinct from “revenue”). As long as the marketing dollars keep flowing and the folks in circulation keep calling (When the phone stops, circulation REALLY drops) the News can keep churning through enough new readers every trial period to keep making a profit offline--though they may have to cut some staff and enlarge their ad hole and keep doing some pretty creative things with how they realize circulation in order to do it.
If the offline newspaper were better, if it tried to repair the faith it's broken with the community it serves, if it bothered (not individually but organizationally) to make a product that served as the community's "connective tissue" as Phil Bronstein calls it, that helped build marketplaces, then they'd be just fine and being competitive online would present no financial risk.
BUT, the News can't afford to really compete for attention online until it fixes its offline circulation and relevance problem precisely because of the box they’ve painted themselves into. The value of an offline customer to The News is HUGE. If they can't hold on to that customer or can only convert them into online consumers whose value is increasingly significant but not nearly enough to sustain the infrastructure at 1 News Plaza--game over.
I've written the Buffalo News and their response is automated and formulaic and resoundlingly unconcerned with the feedback (hardly the impression you want to send to a customer)
The Buffalo News is written at a 3rd grade level....its incredibly boring to read and there is very little investigative journalism.
The Buffalo News is also a very very very poor local institution. Considering its power and influence and the role it plays in our local and regional society....the Buffalo News is incredibly ignorant and blind!
It would be so easy for them to have a blog to improve the content of their newspaper articles or to tap into stories that a major local issues.
Lastly and mosts importantly, as a local institution they dont promote local issues nor do they use their investigative power to promote civic leadership or to hold local residents, businesses or government accountable for their decisions.
They are a slumbering giant....taking local money but giving very little back to the local community. Just look at what BuffaloRising does for local businesses and residential communities and local issues with a fraction of the money and readership which says ALOT about why the Buffalo News is such an utter failure and deserves its declining readership!
You're saying that the problem the News faces is relevance and I fully agree. I'm also looking at the unlikely long term sustainability of the business model and saying that both issues can be addressed with an expansion into new media.
Sure, they can stay afloat in the short term with trial offers and subscription pricing games. However, in terms of long term sustainability, that is no model upon which to grow.
The News is fully aware that the profitability they experience today is not something they can count on in the long term. They need to strategically plan for future decreases in ad revenue. I'm certain there is no one at Berkshire Hathaway who feels they can be one of the few news dailies that can sustain growth without diversifying revenue streams.
There is financial risk in building out that secondary revenue stream and there will be a short term loss in print revenue when they decide to expand their web presence. However, every business reaches a tipping point in which the advantages of short term profits are outweighed by the possibilities of long term sustainability and relevance. Changing the core business model of any corporation is incredibly difficult and the landscape is dotted with companies who were unable to weather the storm.
I currently work for a company that is in the midst of one of those sea changes and it's not easy. As an organization, we must be fully committed to accomplishing the change while hoping that we can sell others on our vision. Does the news have the institutional commitment to make it happen? Doubtfu, but I think the pressure will begin to mount from the Berkshire mothership when revenues decline.
The Buffalo News has become irrelevant to a sizable part of their community because they lack a web presence that makes a difference. For other parts of the community, they see the News as a media outlet with an agenda. Expanding into new media takes care of both of those problems.
They demonstrate that they are theThe "New" Buffalo News by adding live content, feedback mechanisms, commentary, blogs, etc. This brings back former customers who sold them off as stodgy and irrelevant. It exposes current customers to fresh content and allows for a plethora of opinion to penetrate the coverage. If the News were to take the feedback and use it to better their coverage, people would again see them as a legitimate news outlet.
One thing I think you guys may be missing here is the ways they ARE diversifying. That newspaper, as well as many other newspaper, is no longer merely a dispersal-of-information company; it's a direct mail company. Every address in the region gets a Buffalo News-produced package of ads-on-paper. If it comes with a newspaper, hey that's handy. And if your household doesn't read a newspaper, the News knows it, and direct mails a packet to you. Wonder why you get so much junk mail nowadays? Much of it is from your newspaper company. They are the pre-eminant ads-on-paper company, and if nobody reads news, they don't actually care if they can get you to read ads.
The other issue at the News is that there's an internal issue with the union. Ad people and editorial people DO NOT MIX. And that's as it should be. But the union has a lot to do with who remains and who goes in editorial, far more than does market demand. Like with the schools, when you are in, you are in, and while the ad people would love it if the editorial people produced "must read" content, they can't really do anything about it. Nor would we want them dictating content but it means they are putting their money-making effort into anything but traditional newspaper efforts. There aren't very many ROP ads (display ads) in the paper, and even fewer local ads any more apart from house ads, animal cemetery and disc herniation. Everything is about inserts. And I don't know about you guys, but the first thing I do with every day's newspaper is toss the inserts.
Bottom line, until and unless content is seen as the thing that drives distribution, which drives ad revenue, content will be irrelevant. What drives revenue is merely access. The ads show up in people's foyers, mailboxes and on doorsteps and that's all they are looking for.
This boils down to a cultural change. What brings in revenue is the masses consumerism, not their curiosity, and since the one is far more powerful than the other, that's what ad companies like the News follow.
The Buffalo News IS a rag and Buffet laughs all the way to the bank. Outside of the consistently weak content---look how many years it took them to update the fonts, layout, graphics. ARTVOICE-- minus Michael Niman's paranoid political babblings--is nice alternative paper. The paper's forte has been on the local/regional political front--in addition to the art-food-local biz-entertainment stuff.
Doesn't Buffet hold a bunch of M&T stock?
Berkshire Hathaway owns about 6% of M&T.
The Buffalo News should emerge from their technical coma, hire a few bloggers, promote community commentary, and empower the local community to fight for change. It would return the paper to relevance in this town and be the bridge between "Old Buffalo" and "New Buffalo"...we would then all be on the same page as we fight to revitalize this city.
Dear Sir/Madam
I have long been fasincated with Warren Buffet. (As of course have so many others before me). But I was so fascinated by his 'secrets' that I got into the stock market too. And as a result have become successful. So I have written my own book. I'm interested in your views and opinions on it. Please have a look at it at www.crwmc.com/ebook. There really is no book like it. It is for absolute beginners, and I mean REAL beginners. Many people have already read it and have become driven to get into investing. Anyway I hope you take the opportunity to check it out. Looking forward to your reply.
There aren't very many ROP ads (display ads) in the paper, and even fewer local ads any more apart from house ads, animal cemetery and disc herniation. Everything is about inserts. And I don't know about you guys, but the first thing I do with every day's newspaper is toss the inserts.