Newspapers are Getting More Buffett Attention

Soon after purchasing the newspapers owned by Media General, Warren Buffett has now indicated that he may buy more newspaper assets in the coming years. According the the memo posted on the Omaha World-Heralds Buffett remarks

"We will favor towns and cities with a strong sense of community, comparable to the 26 in which we will soon operate. If a citizenry cares little about its community, it will eventually care little about its newspaper,"

and

"The original instinct of newspapers then was to offer free in digital form what they were charging for in print," Buffett wrote. "This is an unsustainable model and certain of our papers are already making progress in moving to something that makes more sense."

The key to his newspaper investments is to find papers in small communities where the competition is weak and the community is greatly involved in the local affairs. These are the towns where people buy papers to read the obituaries, town hall proceedings, local events, etc. These are also the towns where people are more likely to pay to access the papers online through a pay wall.

Essentially the idea is very simple

  1. Free content online is not a profitable business model
  2. Charging for online content will work if the competition does the same and people are willing to pay for it
  3. The best placed newspapers to profit from pay walls are the papers with little or no competition (small markets, only paper in town, not having to worry about competition luring away customers with free or cheaper content) and willing payers (involved community that gets value out of the content)

As news consumption becomes more digital, it is natural for the sales of the print versions to decline. If you are a newspaper and you can successfully transition your print customers to your own digital offering and charge for it, then you can continue to be profitable.

A corollary to this is that national papers and many newspapers serving a large metropolitan area do not have these advantages, unless they bring a powerful brand behind them. A New York Times or a Wall Street Journal can get away with putting a price on their content. They provide value that is not available elsewhere. I doubt Detroit Free Press can successfully do the same.

Which Papers are Next in Line?

This is unimportant. Buffett has shown his preference for the kind of business model that he thinks is sustainable. Many newspapers today are in the process of restructuring their business model. Some are early in the game, and some are still in the planning stages. If you want to invest in a newspaper, it is a good idea to ask the questions about their digital strategy and profitability model going forward.

Charging for the content will improve journalistic quality and will allow the papers to offer more to their readers. And people will pay for value when they get it. This is a significant shift in the industry that one can profit with.

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