“Be fearful when others are greedy and greedy when others
are fearful.”
Warren Buffett, in his 2004 Berkshire Hathaway Chairman's
Letter.
The above quote figured in my decision to buy a newspaper in
2006. In my estimation, others were being fearful of newspapers, for a variety
of reasons. I thought I’d be greedy and move in the opposite direction. A few
things were happening with the newspaper industry, in my analysis:
• Newspapers were getting a bad rap, as publicly traded
newspaper companies were having their stock prices pummeled. Knight Ridder, for
example, was forced to sell its newspapers because some idiot shareholder in
Florida thought newspapers had no future. At the time, Knight Ridder’s profit
margin was something like 19 percent, but some jasper who doesn’t read a
newspaper determined that no one else reads newspapers, either.
• Newspaper companies were overleveraged. Gannett spent
millions of dollars to buy circulation, in the form of the Indianapolis and
Phoenix newspapers. Where did that money come from? Partially skimmed from
Gannett’s other newspapers, hurting quality and newshole. McClatchy, meanwhile,
borrowed millions to buy Knight Ridder’s papers, and the company is still
trying to pay off that debt. Again, the debt payments are coming from its
newspapers, which are cutting back staff and newshole.
• In cutting back staff and newshole, newspapers were
damaging the very thing that makes them worthwhile: local content. I remember
being in meetings when the word “hyperlocal” first started being used. We were
going to “dig down to the local-local-local level.” We would come out of these
meetings to be told we were shutting down three regional bureaus and not
replacing three suburban reporters. Actions speak louder than words.
• I didn’t care what execs said in meetings, I always
believed that we were hurting our circulation and our bottom line by paying
reporters, photographers and editors a lot of money to produce high-quality
exclusive content only to give it away for free on our website.
So I thought that the smart thing to do would be to buy a
local newspaper but avoid becoming overleveraged and provide truly hyperlocal
content, which is what we did when we bought the Kuna Melba News. And we
wouldn’t give it away for free on our website.
And it worked, to a large degree. In three years, we nearly
tripled circulation and increased revenue by about 56 percent.
Back to Warren Buffett, who continually proves he’s smarter
than the rest of us.
You may have heard that Buffett recently purchased 25 daily
newspapers, to add to his existing newspaper, The Buffalo News, which he bought
in 1977.
Buffett recently wrote a letter to his new newspaper
employees, telling them that he sees a bright future for newspapers.
He makes the same points that I observed about a sane course
for the future:
• “I believe newspapers that intensively cover their
communities will have a good future.”
• “Your paper will operate from a position of financial
strength. Berkshire will always maintain capital and liquidity second to none.
We shun levels of debt that could ever impose problems. Therefore, you will
determine your paper’s destiny; outsiders will never dictate it.” (This quote,
I think, speaks specifically to being overleveraged as well as avoiding idiot
shareholders.)
• “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.”
• “The original instinct of newspapers then was to offer
free in digital form what they were charging for in print. This is an
unsustainable model and certain of our papers are already making progress in
moving to something that makes more sense.”
Thanks to jimromenesko.com for posting the full letter on
his website, from which these quotes are taken.
However, as Buffett does, he adds a couple more caveats to
the soup in his analysis. Some of the points he makes in his letter are
particularly salient when considering the purchase of a newspaper, points that
I will keep in mind if I ever decide to buy another newspaper:
• “Berkshire will probably purchase more papers in the next
few years. We will favor towns and cities with a strong sense of community.”
• “If a citizenry cares little about its community, it will
eventually care little about its newspaper.”
• “Strong interest in community affairs varies inversely
with population size and directly with the number of years a community’s
population has been in residence. Therefore, we will focus on small and
mid-sized papers in long-established communities.”
As always, good advice from Mr. Buffett.
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