Each July since 1983, Sun Valley, Idaho briefly becomes the center of the traditional media universe. There, investment bankers at Allen & Co. put on a conference whose guest list is a "who's who" of big-media power players.
At the most recent event, Warren Buffett sat down with Bloomberg television reporter Betty Liu and talked about his renewed interest in acquiring newspapers. The conversation was summarized in an article written for Bloomberg by Noah Buhayar.
Three years ago, Buffett told a shareholder meeting that "for most newspapers in the United States, we would not buy them at any price." In the last several months Berkshire Hathaway, the company Buffett leads, reversed course, buying more than 60 newspapers and taking a stake in a company that owns 40 more.
One of the richest men in the world, Buffett has earned a reputation as a savvy investor, so the shift in strategy got people wondering if he was driven by opportunity or nostalgia. As Jeff Bercovici reports at Forbes, it's probably a bit of both.
Bercovici notes that acquiring the Omaha World-Herald, Berkshire Hathaway's local paper, might be an act of charity, but the other deals are based on some sound principles. The loan made to Media General when Berkshire-Hathaway acquired the company returns 10.5% a year, a great rate in the current economy. Focusing on local newspapers also provides a chance to put up paywalls around unique content.
I'd add two other things that make strategic sense here:
- In acquiring dozens of newspapers, Berkshire-Hathaway creates a wider base against which investments in technologies to support hyper-local journalism can be amortized.
- The company favors direct acquisition, but taking a stake in companies like Lee Enterprises, which owns another 40 newspapers, provides Berkshire-Hathaway with a window into how the other guys are doing things (for better or worse).
In talking with Liu, Buffett is clear that "the prices should be low because their revenues are going to decline”, but he seems to believe that newspapers can still be profitable. He also intends to charge readers for content, something that ad-supported hyper-local solutions like Patch have not tried to do.
A side note: If you have a chance to click through the Bloomberg article by Noah Buhayar, check out the last two lines, in which Bloomberg provides e-mail links to reach both the reporter and the editor for the story. It's a level of engagement that I hope Mr. Buffett is looking at closely.