Warren Buffett takes Richmond, but the reasons lie elsewhere

Warren Buffett took Richmond last week, but conquered Winston-Salem, NC and  Lynchburg, Charlottesville, Danville, Bristol, Waynesboro, Culpeper and Prince William County in Virginia too.

Buffett staked his multi-billion-dollar Berkshire Hathaway with $10,000 he earned delivering 600 newspapers a day to Washington, D.C. apartments when his father represented a Nebraska House district. He bought The Buffalo News in 1977 and has a major stake in the Washington Post Co.

Buffett’s newspaper managers proclaimed his love of newspapers as his reasoning for taking Richmond. There’s no doubt about that. I worked for him for 20 years. But everyone knows he loves making money more than even newspapers and in that vein, he’s known for buying under-valued assets he thinks can achieve higher performance.

Paying $142 million for 63 of Media General’s newspapers is chump change, and well below one-third of what they’d have cost him 10 years ago. But Buffett is obviously banking — as he did with his $200 million purchase in December of the Omaha World-Herald Co., six dailies and 17 weeklies in Nebraska and Iowa — that newspapers hit rock bottom and will rebound.

Right now, they’re hurting. Abram Brown, writing in Forbes, noted: These newspapers bring as much red ink as black. Media General posted a $83 million loss last year; it last turned a profit in 2007. While the Post Co. as a whole is profitable, its newspaper business is certainly not. That division’s first-quarter loss nearly doubled, from $12.8 [million] in 2011 to $22.6 million this year. And Gannett’s net income has been halved in five years, to $459 million.

But do weeklies have the magic sauce Buffett seeks, the moat that turns the business into a monopoly? Are weeklies his favored toll bridge that people want to cross after paying him his toll? Buffett invested in Gillette when the razor company broke into the China market and he saw billions of Chinese men and women needing shaving implements.

He’d buy radio or TV stations if he thought they were a good investment. Many scoffed at his Omaha purchase as a sentimental buy of his hometown newspaper. But presumably he’s had affection for the Omaha paper for 50 years or more, but never moved to buy it. Not until he saw value and a low price did he pounce.

There’s much more at work here than sentiment. Newspapers have lived in crisis for a decade or longer. The litany of their problems is well-known, but at the crux it’s about value as well. Newspapers are too slow to reach potential customers, especially younger ones, in formats and locations they prefer. But weeklies — there’s a school of thought that advocates the micro-journalism of weeklies could save dailies — still do that. They deliver valued, unique content.

Journalists may look down their noses at middle school cafeteria menus, scouting award lists and high school honor rolls, but customers still snap them up.

Buffett surely has not pronounced the long triage of crisis-wounded newspapers successful. But he seems to think the patient is in recovery.


About steveoncrisis

The content is about crisis management and mismanagement in a digital age. It comes from Steve Bell, who spent 30 years as a journalist for the Associated Press and as managing editor and editorial page editor at The Buffalo News. He is now Partner/Director of Public Affairs at Eric Mower and Associates, one of the nation's largest independent advertising, integrated marketing and public relations agency with six offices in the Northeast and Southeast.
This entry was posted in Uncategorized and tagged , , , , , , . Bookmark the permalink.

One Response to Warren Buffett takes Richmond, but the reasons lie elsewhere

  1. Joe Manno says:

    Look at what other properties these “undervalued” newspapers own and I’d bet you’ll discover even more reasons he’s buying them. The guy never loses!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s