Warren Buffet Says the Newspaper Industry Is in Serious Trouble, He Thinks It Will Only Get Worse And He Sees No Solution. The Beginning of the End?

Philip Stone May 5, 2005

There are few American investors more respected than Warren Buffett, the world’s second most wealthy man behind Bill Gates. Buffett runs the highly profitable and respected Berkshire Hathaway holding company and when he speaks each year at the company’s annual general meeting Wall Street pays close attention. His negative comments in a news conference about the long-term viability of the US newspaper industry should cast fear in newspaper executive suites.
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Buffett used himself as an example of what is wrong for newspapers. Even he  goes onto the Internet and takes down stories from major newspaper sites the night before their morning print delivery and he noted he does not pay any subscription for that electronic news. His Economics 101 reading on that: “It’s not a good idea to be charging a lot of money for something that you can get for free.”

And then there is the economics of the production process for newspapers vis a vis the Internet. He asked how newspapers can compete with the Internet’s  simple click by a computer mouse as opposed to an extremely expensive newspaper production process which starts with cutting down trees and feeding paper through multi-million dollar presses.

And if that wasn’t enough he pointed out that the Internet is capturing more and more advertising money, some of it coming from monies that previously would have been spent on print.

And while he recognized that newspaper web sites are doing well he is by no means convinced that newspapers will dominate news on the web.

From all of that his long-range conclusion: “The economics of newspapers are very, very close to certain to deteriorate over the next 10-20 years. I see nothing that will turn around the erosion from both the circulation and advertising standpoints.”

As if to prove his points circulation figures announced in the past few days covering the past six months showed drops of more than 6% at three major US publications – the Los Angeles Times, the Chicago Tribune, and the San Francisco Chronicle. Overall, U.S. newspaper circulation dropped by 1.9% during the six-month period ending in March. The Newspaper Association of America points out that US newspaper circulation has dropped by some 13% since 1984.

Analysts were unanimous that the US situation was getting worse and there was no light at the end of the tunnel The New York Times quoted analyst John Morton saying, “I don’t see any bright spots and I don’t see any reasonable expectation this is going to change anytime soon.”

Colby Atwood, an analyst for Borrell Associates summed up what is probably the biggest problem facing the industry:  “That young people aren’t reading newspapers is a pretty fatal formula for any business. If all your customers are dying off, you’ve got to be concerned, and that’s what happening in the newspaper industry.”

Ouch!

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Buffett Buys Business Wire - January 18, 2006

Warren Buffett may not think too much of the US newspaper industry’s financial; future  – even though he still owns some 20% of the Washington Post – but that hasn’t dampened his outlook for those businesses dealing in news and information.

His Berkshire Hathaway has announced an agreement to buy the privately owned Business Wire, a global distributor of corporate news and regulatory filings. Financial terms were not announced.

Buffet said that in making the purchase Berkshire Hathaway utilized its usual criteria – “buying profitable companies that are industry leaders and yet still have significant growth potential”

One area where Business Wire is looking to expand is Europe. It has set up regulatory disclosure networks to handle the EU’s Transparency Obligations Directive that takes effect in January, 2007. The Directive mandates harmonized pan-European disclosure standards for publicly traded companies in the 25 Member States.