Wednesday, March 6, 2013

Warren Buffett goes on a newspaper buying spree

Warren Buffett is, above all things, a capitalist. Lately, he’s been snapping up newspapers at a bargain rate, mostly to make money but partially because he “loves newspapers.”

In less than a year, Buffett’s Berkshire Hathaway company has purchased 28 daily newspapers for a total of $344 million.

Buffett is wealthy not because he invented something like a snazzy high-tech product but because he simply recognizes value and invests in it. Then, instead of breaking companies apart to earn his investment back, he grows them. His particular genius is buying things other investors find undervalued and passé, like railroads. America’s freight rail system is the largest and most efficient in the world.

He’s recently written about his newspaper investments to explain to a skeptical world why those purchases make sense. Most telling is his simple and insightful definition of news: “News, to put it simply, is what people don’t know that they want to know.”

This implies that consumers ultimately aren’t going to be happy having news “pushed” to them one story at a time. Based on that view, he believes newspapers will be around for a good, long while.

“ … people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost. The relative importance of these factors varies with the nature of the news and the person wanting it.
“Newspapers continue to reign supreme … 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.”
He considers the dubious decision by many newspapers more than a decade ago to give away their content for free online a practice in self-destruction.

“Even a valuable product, however, can self-destruct from a faulty business strategy,” he writes. “And that process has been underway during the past decade at almost all papers of size. Publishers – including Berkshire in Buffalo – have offered their paper free on the Internet while charging meaningful sums for the physical specimen. How could this lead to anything other than a sharp and steady drop in sales of the printed product?”

Of course, three of the first newspapers in the U.S. to charge for online content are in Idaho: The Lewiston Tribune, the Moscow-Pullman Daily News and the Post Register. This has helped us avoid some of the most catastrophic losses encountered by some others in our business.

It’s been a pretty unnerving few years in the newspaper business, but we couldn’t ask for a better advocate that Warren Buffett. We think he’s right.

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