John Maynard Keynes once wrote that he changed his mind when the facts changed. Warren Buffett is obviously a fellow believer, because he has certainly changed his tune on the future of newspapers in the space of a couple of years. He’s gone to permafrost bear in 2009 to an almost raging bull in 2013. But don’t expect his admirers in the media and among analysts to highlight the change of heart.
Back in 2007 he started saying newspapers were dying, and again in 2008, while at Berkshire’s 2009 AGM, Buffett said newspapers were all but terminal:
“For most newspapers in the United States, we would not buy them at any price. They have the possibility of nearly unending losses … I do not see anything on the horizon that sees that erosion coming to an end. Twenty, 30 years ago, they were a product that had pricing power that was essential. They have lost that essential nature.”
But Buffett has changed his mind, judging by the stepped-up pace of newspaper purchases in the past year or so, with Berkshire Hathaway spending close to $US400 million buying papers across the US. That’s despite more newspaper closures, falling ad revenues and sales and general doom and gloom from the industry and advertisers.
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Buffett’s reversal of opinion has echoes of other certainties about how some things were inevitable (such as the death of music by download, the collapse of movies caused by TV and the death of radio caused by long-playing records, TV and the digital age). But music generally will still be around in one form to another. Newspapers and TV (free to air and subscription) are also on the endangered species list for analysts, journalists who should know better and many investors.
“Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable.”
The mixed outlook for analogue newspapers doesn’t mean they will disappear sooner or later. In one way or another capable owners and managers will emerge to give hope and ideas for their continuation. And that’s where Buffett comes in. Judging by his latest comments, he’s probably now the world’s leading “bull” on newspapers.
In the past 15 months, his Berkshire Hathaway investment group acquired 63 papers, including 28 daily newspapers for $US344 million to add to the long-time holdings in papers such as The Washington Post and The Buffalo News, among others. The bulk of the buys were from Media General. But one of those papers, The News and Messenger in Manassas ,Virginia, was closed at the end of last year with the loss of 105 jobs. Ten days ago he replaced that with a daily paper in Tulsa, Oklahoma, for an undisclosed amount to add to the growing empire housed in BH Media.
Buffett’s doom-laden views now seem very distant, judging by his latest commentary to shareholders of his Berkshire Hathaway company, released at the weekend:
“Newspapers continue to reign supreme, however, 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 … Charlie [Munger, Berkshire’s vice-chairman], and 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 is exploring pay models but points out the industry is still experimenting to see hat works:
“Berkshire’s cash earnings from its papers will almost certainly trend downward over time. Even a sensible internet strategy will not be able to prevent modest erosion. At our cost, however, I believe these papers will meet or exceed our economic test for acquisitions. Results to date support that belief.”
Buffett is top of the call lists for bankers looking to sell The Boston Globe, The New York Times, The Los Angeles Times and The Chicago Tribune (possibly) for the Tribune C0, which has coming out of bankruptcy. Rupert Murdoch and his new News Corp have been rumoured as possible buyers of some of these papers. Superficially, Buffett and Murdoch have similar views about the future of papers, but Buffett’s is solely financial, whereas Murdoch’s is financial and political. He loves newspapers for their influence they bring with governments, or used to before the heard heads on the News Corp board forced the company to split itself in two.
Buffett would never think of that.