Buffett already owns the Omaha World-Herald and Buffalo News of New York along with a stake in Washington Post, and now he is buying up most of the newspapers owned by Media General. Berkshire Hathaway (BRKA) is paying $142 million for 63 local newspapers and will also loan $400 m to the company and provide a $45 m credit line.
Buffett is on the record saying in 2009 that media companies will continue to be unprofitable. However, in 2012 shareholder’s meeting, Buffett defended the newspapers and indicated that he wishes to increase his holdings in this sector. The change of mind came as the newspapers have started charging for their online content.
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Earlier this year, we took note of the changing economics of the newspaper industry and started buying stake in a company we feel best represents the new business model and offers a good value. The new model includes, in addition to pay walls for online content, a renewed focus on local communities and expanding their digital offerings to serve the local businesses better. Newspapers have been battered over the last decade, and many have taken this time to clean up their balance sheets and deleverage which positions them well to execute their new content and revenue strategies going forward.
The Global Local Shift
The underlying macro trend of the last few decades has been the rise of the globalized mega firms that enjoy economies of scale and brand equity. These companies have been able to out compete majority of the local businesses on cost, speed to the market and general consumer loyalty. However, internet is a great leveler and it cuts down the cost of competing in many respects. This along with the rise of a more social society, again with the aid of the new technologies, is helping consumers be more local in their purchases, and the local businesses get a larger share of the consumer’s mind. As one of the enablers of this trend, newspaper with strong local and community presence will benefit in the near to medium term, as long as they continue to embrace the digital world.
Over the long and very long term though, one can reasonably expect the competition to even the playing field for the “glocal” newspapers but as long as the opportunity exists today, it is smart to take it.