Long Haul

Why Warren Buffett Still Buys Newspapers as the Industry Sinks

As newspapers struggle, one billionaire is bullish. Warren Buffett on why he thinks print has a future.

Nati Harnik / AP Photo

Warren Buffett insists he’s not just snatching up newspapers because he loves them.

“It’s not a soft-headed business decision,” the 81-year-old investor tells me from his Omaha office. “It’s not going to move the needle at Berkshire Hathaway. If it were the widget business, I wouldn’t do it. The kind of earnings we’ll draw from our newspaper properties will be a very tiny fraction of, say, Burlington Railroad. But it’s not a dumb decision financially.”

In putting his considerable money where his mouth is—Buffett’s company is in the process of buying 63 Media General newspapers for $142 million—the chief executive is challenging the widespread belief that the industry is trapped in a death spiral. His move comes at a time when the New Orleans Times-Picayune and three other Newhouse papers in Alabama are cutting back publication to three days each week.

“This three-day-a-week stuff really kills you,” Buffett says. “You want people who look at you every day…Once people get used to online, I don’t think they come back.”

When Buffett sings the praises of this ink-on-paper product, he can sound like a tribune of an earlier era, when young boys delivered the daily on bicycles to nicely tended front lawns. As a kid, he says, he checked the paper every day—first the stock quotes, then the box scores, “to see if Stan Musial went 2 for 4.”

The Web is now awash in financial data and baseball results, of course, one of many signs of how newspapers are far less vital.

Rich men buy papers for many reasons. Rupert Murdoch has lost a fortune on the New York Post because it enhances his political influence, and overpaid for The Wall Street Journal because of its unrivaled prestige. Real-estate developer Mort Zuckerman became a player by buying New York's Daily News. But Buffett seems to have no agenda other than believing, in the end, that newspapers matter.

As owner of the Buffalo News and a major stockholder in the Washington Post Co., whose board he left last year, Buffett concedes he participated in a historic blunder: “I think we made a mistake in newspapers when we offered the same product online. I could sit here in Omaha and pay five dollars for the Sunday New York Times, or just read it online. That is not a sustainable business model.”

Buffett seemed to be abandoning his lifelong obsession in 2009, when he said that most newspapers faced “nearly unending losses.” When he bought the Omaha World Herald for $200 million last fall, it was widely viewed as an act of hometown altruism. But not only has Buffett now closed the Media General deal, he’s announced to the world that he wants to buy more papers.

But not just any kind of papers. They have to serve smaller markets where there is “more of a feeling of community,” Buffett tells me. And he made clear he won’t be bidding for the Los Angeles Times or Chicago Tribune as those Tribune Co. papers emerge from bankruptcy after Sam Zell’s disastrous ownership. “I don’t know exactly what you would do with the Tribune Company,” he says.

Why? “It’s really hard in L.A. to have a sense of community,” he explains. People there might say they live in Anaheim, or in Evanston instead of Chicago.

“They probably don’t care that much about the city council, and don’t live in the same parish their parents did. They’re not as interested in high school basketball.”

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Buffett keeps returning to this theme, citing the appeal to younger readers: “High school sports will pull them into the paper.” In his state, “they want to know about Nebraska football and care about every player on the team. That means a shot at getting young people in the habit of reading a newspaper.”

The master investor can tick off the industry’s woes as well as the most downbeat Wall Street analyst. Online advertising revenue “is peanuts compared to what you need to sustain a newspaper.” Print circulation “will decline year after year,” though at a modest rate, he insists. The loss of classified ads is depriving readers of a form of “news,” “if you need an apartment or want to know who had the best price on Coca-Cola this week.”

But the Media General deal shows Buffett still knows how to kick the tires. As newspaper analyst Ken Doctor has pointed out, the Oracle of Omaha is getting a 10.5 percent return on a $400-million loan to the company, along with a fifth of Media General—which includes valuable television stations and real estate. And Buffett bypassed one of the chain’s largest papers, the Tampa Tribune, which is locked in competition with the Tampa Bay Times.

The bottom line is that Buffett doesn’t plan to throw good money after bad newspapers. “I don’t believe in running them at a permanent loss,” he says. “I can’t do that with the shareholders’ money.”

Nor does he believe in the slash-and-strip-the-assets approach of some other out-of-town landlords. “I think it’s crazy to shrink the news hole. You’re selling information.”

And Buffett won’t be micromanaging his properties or dictating editorial policy. “I will not be running these papers,” he tells me. “I won’t know the names of the editors at the smaller ones.”

As the conversation winds down, Buffett looks ahead to a time when he is no longer running Berkshire Hathaway. Just in case his successor doesn’t share his enthusiasm for newspapers, he has structured the deals so the papers will remain part of the company. In short, says Buffett, “I’m boxing him in.”