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Gini Dietrich

The Future of Journalism from Warren Buffet’s Viewpoint

By: Gini Dietrich | June 7, 2012 | 
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Last month, in a move that surprised many of us close to journalism, Warren Buffet bought newspapers – 63 of them, in fact.

Now Buffet is not known for making high-risk or crazy investments. Quite the opposite. You know if Buffet is invested in something, you’d best get in on it, too.

So why 63 newspapers? And why weeklies and dailies whose headliner is the Richmond Times-Dispatch?

Because community papers are the most reliable segment of the business. 

When I speak, I always ask the question, “How many of you still read your local paper, in paper form?”

Usually about half the room raises their hands; the other half reads it in digital form. But when posed a different way, most everyone in the room either doesn’t read the major dailies (New York Times, Wall Street Journal) or they subscribe only to the digital version.

Which, although a very small segment of the United States, goes to show community papers are still widely subscribed to and read.

In 2008, Washington Post columnist Erik Wemple profiled the Current Newspapers (a set of community papers in Washington, D.C.) publisher and editor, Davis Kennedy. Kennedy told him then:

Properties generated average advertising gains of 15 percent per year over the previous eight years.

When Kennedy was asked how those papers fared since then, he said:

Things aren’t quite so rosy but we are still in the black.

So the investment makes sense. Buffet likes those that are slow and steady increases year-over-year.

But What Does this Say About the Industry?

I think most of you would agree with me that this still seems a bit odd.

Warren Buffet, himself, said in 2009:

For most newspapers in the United States, we would not buy them at any price.

And now he’s buying newspapers claiming he’s:

Loved newspapers all my life — and always will…. Berkshire will probably purchase more papers in the next few years.

We already know he knows how to cut a deal and that he wouldn’t buy anything that isn’t already producing cash flow, but why small town newspapers?

What Does He Know that We Don’t?

The paywall.

In a letter to publishers and editors of the newly acquired newspapers, he wrote:

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

If anyone can figure out the content paywall, it’s a Berkshire-Hathaway company, with the Oracle of Omaha at the helm.

This has been one that’s always bothered me. Why can’t we pay for premium content? Why do we assume it all has to be free?

Just like you, journalists have to pay their mortgages and they can’t do that if the publication they write for is giving away all of their content. Because, guess what? If they’re giving it away,they’re not making any money. And if they’re not making any money, they can’t pay their professionals. And if they can’t pay their professionals, those people can’t pay their mortgages.

See…it’s a vicious cycle and Buffet knows it can’t last.

While the New York Times and a few other major papers have tried the paywall, it’s pretty much failed. But Buffet knows there is something there. And you should too.

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, a Chicago-based integrated marketing communications firm. She is the lead blogger here at Spin Sucks and is the founder of Spin Sucks Pro. She is the co-author of Marketing in the Round and co-host of Inside PR. Her second book, Spin Sucks, is available now.

72 comments
Muhammad Umer Toor
Muhammad Umer Toor

Can you explain how NYT's paywall has failed, despite getting around half a million subscribers? The unique visitors haven't dropped, if not increased. Or, is it that the enticing promo pricing couldn't lure them to pay full price? Or, do you mean that growth is halted and it won't grow much?

rdopping
rdopping

There will always be room for everyone.

 

All you have to do is look at history. Everytime there is a movement or major shift in the way we do things it always starts out "grass-roots" and anyone can get in on the deal if they want. After a while the cream rises to the top. If I really want to read great stuff (to me) I go out an "buy" the book, magazine or paper that delivers it to me. Like I was joking about below "really good content" is subjective after you get past the schlock that makes no sense.

 

The same will happen here (on the web - qualified it just in case anyone thinks I am referring to *here*).

 

Eventually. Hey you guys are in business and you know well enough that not every formula works so someone needs to figure our the value proposition to the paywall on a news site (or wherever)the same way they have for print publication for years and years. If it's good, it will survive and if it sucks then it won't. Just remember, just like print we will get "spammed" with ads which is something that I feel is a luxury that we all benefit from avoiding now (for the most part).

Andrea T.H.W.
Andrea T.H.W.

Plus newspapers in paper form don't need batteries, don't need power, don't ruin your sight, can be read even under the rain, can be used to light a woodstove. Can you do the same with an IPAD or an ebook reader? :D

AmyMccTobin
AmyMccTobin

I just left the highest per capita newspaper readership IN THE US (Lackawanna County - Scranton- PA) where The Scranton Times still turns out an amazing paper that is focused on LOCAL LOCAL LOCAL, and they are running very much in the black..   I moved to Anna Maria Island, florida where the little local paper, The Islander, is PURE local - widely read, and really successful.  Advertising in both papers for the clients I have in both areas is always strongly considered.

 

I get tons of my news online, but I will still pay for the local paper (The Islander is actually FREE and profitable) IF the reporting is truly local and GOOD.

ExpatDoctorMom
ExpatDoctorMom

Great points Gini!  I love reading the newspaper.  Miss the New York Times and actually like the local paper abroad.  The paper abroad is sometimes the only way events are posted.  They have this habit of posting a really interesting lecture workshop or conference the day before or of the start time...

 

Wil have to keep an eye on what happens over the next year.

Take care,Rajka

rustyspeidel
rustyspeidel

 @KenMueller  makes a good point that outlets that used to be very different are all now starting to merge into this print/video/digital mess. There are SO many options. So what's worth paying for? What is Warren really buying?

rustyspeidel
rustyspeidel

He just bought our local paper too, which sucks because they fired all the good writers to keep the presses running while they ignored a good mobile and digital strategy for keeping LOCAL news alive. They filled the pages with filler and AP stories, and guess what--people are RUNNING away.

 

I agree it's a generational thing. We are all old enough that we remember a print version of things, but our kids are much less oriented that way. They are used to finding any information they want free online or, more accurately, on their phones or iPads. BUT...

 

What they can't get anywhere else but locally is LOCAL news, and that is the model forward. Big papers can consolidate all they want and buy each other up and share newsrooms, or whatever. But they cannot generate local news, sports, and entertainment easily at a national level, and folks still want that. So make em pay for it, regardless of HOW it's delivered. But how should they pay for it? Micropayments through iTunes? Hulu? A Media General subscription? Comcast? As part of the network cost? Phone companies tried that in the 90s--becoming content players--but quickly abandoned it.

 

That's the challenge--make it easy, seamless, and WORTH it to pay. For me, and I think Mr. Buffett, that means focusing on creating local value and then ruthlessly protecting access to it. Sharing is part of the deal, but now every share can at least be tracked. 

 

Comments?

TheJackB
TheJackB

We are used to getting a lot of content for free but not all. We pay for cable and or satellite television.Some of us pay for HULU, Netflix, Apple Television etc.

 

I don't think that it will be long before more people become willing to pay for good content online. Those of us who complain now do it because we have always received it for free and or because we don't see value in what we are receiving.

 

Our children are growing up in a different world. My kids think I grew up in the stone age because we didn't have cellphones, computers and color televisions my entire life.

 

It reminds me of people who say that Coke could stop advertising and people would still know why they were. Not for very long. The coming generations are a different story and they aren't growing up with the idea that you receive all content for free.

JoyFull_deb
JoyFull_deb

We are experiencing this down in south Louisiana, with The Times Picayune in New Orleans. After 175 years of publishing a daily paper, they are now going to 3 days a week, concentrating on their Nola.com website, instead. I am aware that a few friends are losing their jobs or being cut back dramatically. 

The publisher for The Advocate, Doug Manship, here in Baton Rouge, came out with a statement right away, stating that their family had NO intention of cutting back on the production of it's daily newspaper. Thank gawd!!!  I am of the generation that grew up with reading the daily newspaper. I looked forward to Sunday's paper & the tiny pleasure of coffee &  reading it cover to cover. Something about the smell &  feel & print ink all over me, speaks to traditions. I am also a hold out for reading a hard copy of a book. It's that "touchy, feely (sp?) thing about me. 

I pay for content by subscribing to our home town newspaper. As of yet, I have not or will not, pay for content with NYT or Washington Post, etc. It's funny that Buffett has changed his stance. But then, that's why he is The Oracle. He can do what he wants. I will still be subscribing to my local paper.

JeffRutherford
JeffRutherford

I think I'm the cynic in this conversation. And, I don't say this to criticize Buffett. I've read multiple bios of Buffett and his partner Charlie Munger.

 

Unfortunately, I don't think Buffett is doing these deals to save journalism - local or otherwise. If you look at Buffett's modus operandi from the past. He is attracted to companies that in his words - "throw off cash." Are newspapers as profitable as they once were? We all know that's not the case.

 

I think Buffett is doing this strictly for the cash that he can milk out of these businesses in the next 10-15 years. He probably calculates that local newspapers will still attract advertising from places like local car dealerships - companies that have resisted digital kicking and screaming - and other local businesses (coupons for local restaurants or cleaners who have decided to forgo Groupon).

 

Buffett won't invest much money at all. He'll pay entry level salaries for journalists to spend 1-2 years cutting their teeth writing about micro-local content to fill the editorial hole. And Buffett will siphon as much cash as he can from these newspapers to invest elsewhere within Berkshire Hathaway. There certainly may be some paywall experiments along the way, but Buffett is certainly not going to pour money into technology experiments if they don't bear immediate fruit. 

 

And, if the newspaper model crashes and burns 20 years down the road, Buffett will have had the cash in the meantime that he's extracted from these companies.

 

Again, not saying this to criticize Buffett. I think he's a genius business person. But this is what I came up with when I tried to figure out his business reasoning for these purchases.

Maranda
Maranda

Personally, I think it would be great to see that kind of investment in the paper of my home town. I wonder how many locations on Buffet's investments don't have access to high speed internet (my grandmother still has dialup) or the general population is 1.) old and stuck in their ways 2.) doesn't have access to tablets or even computers. 

 

Small papers are almost never full of "generic" content.  Unless something major happens in the world, the front page of the small town paper is full of local stories and updates (2 car accident, etc). The only time I've ever seen generic content is when something that makes national news happen in the area. Generic national news is buried in the center of the paper somewhere after the police blotter and the swap shop.

 

Small town papers know how to make the new social without having to have the content online. People will buy it every week.

Shonali
Shonali

I was looking at some recent research from Pew that said that while people are consuming media more and more from multiple platforms, traditional media still has a stronghold when it comes to local news, particularly as it pertains to civic life. The more global we get, thanks to the digitization of information, the more we rely on local sources we can trust when we actually have to DO something for ourselves & our neighborhoods.

I've been experiencing this firsthand; for example, I used to use Angie's List religiously to find service people, etc. But then a neighbor forwarded me our local list-serv, and now that's become a prime source of local information, because most of my neighbors have lived in the area for decades. Ditto re: my local community paper... I still read it, because it tells me things the "big" outlets can't (or the information is too tough to find there).

HeatherTweedy
HeatherTweedy

Here in Omaha, we practically had a parade when Buffett stepped in to buy the Omaha World Herald (making it one of the few papers that has always been locally owned).  Many jokingly compare the OWH pay wall to the drug dealer model.  You get a few free articles before the pay wall pops up.   It's been relatively successful, so far. 

 

If one person can figure out how to create sustainable local papers, it's Buffett.  

HerzogIND
HerzogIND

The NYT's paywall has failed?

John Fitzgerald
John Fitzgerald

I think people will pay for premium content, but I don't see much "premium" in the content coming from newspapers. Patch.com is awful, but the quality of writing for the online stories in major NYC newspapers isn't much better. I think someone (Buffett?) needs to create a high-quality journalism operation and blow the freebies out of the water.

TonyBennett
TonyBennett

The Oracle of Instagram also likes to read his weekly Shelby Township newspaper. It's a good strategy; although not likely to produce a windfall it should be consistently profitable for the better known Oracle.

bdorman264
bdorman264

And if you can't pay your mortgage, you will sell your hair to a wig shop....http://ow.ly/bqePj 

 

We are able to get so much 'stuff' for free it will be hard for some (me included because everything goes through my CFO-wife) to start paying for content. It would really have to be something I just could not do without. Otherwise, whatever I get for free just might be 'good enough.' However, I do know they have to make money someway or they won't be in existence.

 

Pretty prophetic, huh? 

lizreusswig
lizreusswig

The problem is we were conditioned to believe we shouldn't have to pay for it.  It was a huge mistake when the papers initially offered their content free on their websites...many people stopped their subscriptions.  It will take some time, but I think eventually the model can be changed...People went for years without paying for television service and now how many homes pay for their service?  I do agree though the content must be compelling and aimed at the needs of the communities they serve.

ryancox
ryancox

I don't think it's 'our' fault for not wanting to pay for content, or for trying to find a way to get the content for free. I can't keep up with the QUALITY of content in my reader, stream, and social circle as it is ... and I'm not paying a dime. (You add to that free great content @ginidietrich ) So when the IBJ wants me to pay for something, I'll admit, I get a little angry. "WTF - I don't have to pay for anything else! Grrrrrr." 

 

It is my personal belief that at it's root, the problem obviously started a loooooong time ago. You (the Internet of publishers, bloggers, writers) have conditioned me to expect reading you to be free. Heck, my content on websites is free -- would I love to charge for it -- You're damn straight. But if paywalls is the next cycle of business with online content, next thing you know I'm going to have $40 a month in transcriptions. $1.99, $2.99, $5.99 a month adds up. 

 

I agree with you that there is something there: the day I bet against Buffet is the day I bet against the smartest investor in my lifetime (in my opinion of course).

 

So why I acknowledge that I should know there is something there, I don't have a clue of what it looks like.

ginidietrich
ginidietrich moderator

 @umertoor It failed from the perspective that people figured out how to get around the paywall and started posting the content in places where you don't have to pay to get it. It's not right. It violates copyright laws. But it's happening and it's something all subscription-based, online media are facing.

Anthony_Rodriguez
Anthony_Rodriguez

 @rustyspeidel And by local, it shouldn't mean all the crime that happens locally. There's only so much talk about death a person can handle. That'll keep them running too. There are so many other local stories a newspaper should cover that don't revolve around the police blotter. It's really why I can't watch television news. That's all it is. The mantra of 'if it bleeds, it leads' has to end.

ExtremelyAvg
ExtremelyAvg

 @TheJackB I pay for HULU, Netflix, and Spotify.  I'd pay for Twitter, if they wanted to charge me. I'm happy to pay for good quality.  I think all the papers should put up pay walls and the one's that are valued will survive. It would be a great way to weed out the rubbish.

Latest blog post: Lake Effect: Ch 11 Day 10

Anthony_Rodriguez
Anthony_Rodriguez

 @JoyFull_deb I wonder, does the 3-days-a-week publishing of the Picayune have anything to do with the hurricanes that scattered the New Orleans population and they just never came back?

Carole Mathewson
Carole Mathewson

Please tell me why Mr. Buffett is purchasing newspapers.  Would it not be more cost effective to start new papers and put ineffective newspapers out of business? 

ginidietrich
ginidietrich moderator

 @Maranda You raise a very good point about our straddling two different types of people: Those who are stuck in the old way of doing things and will never change and those who would never buy a print paper to save their lives. 

 

It's hard for me to see this local issue because I live in a huge city where no one cares about local news, because it's also national news. I call it the big city bubble...I forget in most communities people care about the high school's football team and the hardware store-sponsored Little League team.

ginidietrich
ginidietrich moderator

 @HeatherTweedy You know, my very first "real" job was writing the wedding announcements for the OWH. I loved that job. They offered me a full-time job when I graduated, but I couldn't imagine writing wedding announcements for the rest of my life (which was the job at the time)!

ginidietrich
ginidietrich moderator

 @HerzogIND I don't know that it's necessarily failed, but it didn't go as they expected. People find loopholes and publish the content on free sites.

ginidietrich
ginidietrich moderator

 @fitzternet That would be great if it happens! I think what this comes down to is people are willing to pay for their local (super local) news, but not for national news because they can get that anywhere for free. And Buffet knows it...which is also why these papers are still profitable. 

TonyBennett
TonyBennett

@bdorman264 Funny Story - I caught my 4 yr old singing a lullabye to his lil sister using the words from that commercial.... It was epic!

ginidietrich
ginidietrich moderator

 @lizreusswig I still don't understand why papers did that. I just picked up a copy of Harvard Business Review in the airport. It was $16.50 (!!!!). I paid it because I needed something to read during takeoff and landing, but I can get most of the content in the magazine for free on the web. I can't imagine they can exist solely on people running through airports and needing something quickly.

ginidietrich
ginidietrich moderator

 @ryancox I think there are three levels of content: Free (the blog), registered (case studies or information that helps you do your job, but can be found in other places if you want to take the time to put it all together), and paid (premium content that can't be found anywhere else).

Muhammad Umer Toor
Muhammad Umer Toor

 @ginidietrich Thanks for replying. I'm little new to US newspaper industry situation, want more explanation.

Do you think a heavy consumer of NYT would take this tedious route of getting every article from indirect sources?

Or, NYT deliberately created this leakages, as we know, to keep up its traffic, and unlike London Times, its traffic didn't fall? WSJ also has leaks in its paywall.

But I can see that paywall alone, as strategy, never really worked for other conventional industries hit by web disruption. What strategy do you suggest for NYT so that it can monetize in a better way its content?

Thanks

JeffRutherford
JeffRutherford

 @ginidietrich I don't know the profit/loss on those papers either. It'd be interesting. Obviously, newspapers aren't the cash cows they once were, but they're not dead yet.

Muhammad Umer Toor
Muhammad Umer Toor

 @ginidietrich Perhaps, competing like Google ... My strategy professor told their strategy is based or inspired by Brown and Eisenhardt's "Competing on the Edge" ... Just a thought.

ginidietrich
ginidietrich moderator

 @Muhammad Umer Toor I wish I had an answer for that question. I don't know what it is. I think the value in paying for content is in having access to pieces that you can't get anywhere else. But that also means the people who do pay for it have to honor the paywall and copyright and not copy and paste it into another free format. I"m not sure that can be controlled.

Trackbacks

  1. [...] for instance, the conversation we had a couple of weeks ago about Warren Buffet buying 63 local newspapers because they’re cashflow [...]

  2. [...] Gini Dietrich in Spinsucks sheds some light on Buffett’s business model, in his letter to publishers and editors of the newly acquired newspapers: “The original instinct of newspapers then was to offer free in digital form what they were charging for in print. This is an unsustainable model and certain of our papers are already making progress in moving to something that makes more sense.” In short, Buffett believes that what did not work on the national and international news level, would work at the local level; that people would be willing to pay for exclusive near-home information. [...]

  3. [...] people are familiar with the fact that the world of journalism has contracted in nasty ways in recent years, putting many fine writers out of business and sending them into new [...]

  4. […] for instance, the conversation we had a couple of weeks ago about Warren Buffet buying 63 local newspapers because they’re cashflow […]