Friday, May 25, 2012

What Warren Buffett and I have in common

Billionaire investor Warren Buffett
It looks like Warren Buffett and I have something in common. No, we're not both filthy rich, but it appears we both have a belief in community newspapers.

Buffet, who in 2009 said he would not buy a newspaper under any circumstance, has changed his tune, as evidenced by this story: http://paidcontent.org/2012/05/17/why-warren-buffett-is-buying-newspapers/. Given that the newspaper industry has been in an open boat in the middle of an unfriendly ocean for several years, this has to be taken as good news. Or does it?

Buffett, who according to legend started Berkshire Hathaway with $4,000 he made as a paperboy in Omaha, did not make a fortune by being sentimental. For those of you who've stayed on this page rather than going to the link (or as newspaper people would call it, the "jump"), here are a few observations and comments that got my attention:

The experience of small towns and counties has been different. In these places, a lack of print and online competition has allowed newspapers to hold onto some of their traditional monopoly power.
“In these communities, the local paper is the sole source of everyday news — from high school sports, local events or obituaries,” says Gordon Crovitz, former publisher of the Wall Street Journal and founder of digital subscription service, Press+.

Gordon Borrell (comment): (Newspapers) will bounce back. That prediction (which we thought would happen last year) is starting to come true, though it’s actually predicted to be more of a flattening than a bounceback. While they grow ad revenues over the next five years, they actually lose market share. Still, all the trimming since 2008 has made them a leaner, and thus more profitable, business. ... The size of newspapers Mr. Buffett is buying are perfect: Dominant newspapers in midsize markets with very little competition from smaller suburban newspapers. They have a strong market niche, and I don’t suspect we’ll see the death of newspapers (with the exception, perhaps, of large metros) anytime soon.

Dmitriy (comment): I don’t get Buffet on this move. He may get a modest profit given how low price he had to pay but this is not the business you want to be in if you want to keep minting the coins for the shareholders for years to come.

Ballco (comment): What you don’t understand is the great cash flow from old media products. Newspaper subscribers pay you 3 to 12 months in advance. That lets you keep a large amount of cash around to invest. Buffett doesn’t seem to have any problem finding profitable places to put cash. 10-year Treasury bills are paying 1.7% right now. 5% return for 10 years from the newspapers seems like a pretty good alternative.

Matthew (comment): Commenters and commentators may come to the internet, but without quality content and trust within the community they will not pose a threat to the position of newspapers (at least for mindshare among readers).

Tony McFarlane (comment): Now the speculators have lifted their bloody snouts from the trough, and they see these smaller papers doing just fine. So what do they do? They bundle them with bigger media entities, and make off like bandits. I gotta hand it to Buffet for being the first to see it, because soon, like carpetbaggers in Atlanta, the rest of the vulture capitalists will soon swarm in and swallow up all these local papers that communities do indeed rely on. And what will happen to these bastions of truth, once the greed destroys another once-lucrative market? Bah! You mark my words: local papers will start getting flushed before the decade is out. And of course, the bastards will tell you it’s all about new media, while they tweet from their golden toilets.

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