Fake Profits: Buffett Gives Up On US Newspapers
Warren Buffett has finally given the thumbs down to print media, all but abandoning it as an area of investment in a move that could see a new group of investors to manage America’s dying newspapers into an assisted death.
When Warren Buffett takes a surprise course of action with a long held investment, others in the same industry and investors sit up and notice. Buffett has made a big deal about not selling assets once they are tucked into the Berkshire empire - that doesn’t mean some assets aren’t restructured and outlets, factories closed.
He is a keeper overall, but the decline in print media has now proved too much, so he has gone down an interesting route - outsourcing the management of his 30 most important newspapers to a rival.
With hundreds of papers up for sale in the US (Raycom Media this week excluded its 100 papers from a merger of its TV stations with those of Gray Media and has put the group up for sale), Buffett’s move has already attracted attention. Print is dying and no one wants it even at fire sale prices.
In Canada this week, the country’s biggest print group, Post Media Network announced the closure of another six papers, put others on a website only basis and revealed plans for another 10% cut in staff costs. It is the 5th such announcement from this group in the last couple of years and underlines how much os a basket case Canada’s newspaper sector has become.
So rather than sell or close his weakening 70 or so newspapers now clustered in BH Media, Buffett has decided to outsource the management of his 30 daily papers to a rival print group in middle America.
The deal will see Lee Enterprises, an Iowa-based regional newspaper group managing Berkshire’s 30 dailies for the next five years for a fee of $US50 million. The papers are in Nebraska, Virginia and North Carolina.
It won’t be the last time that US newspaper owners look at similar move as a way of avoiding a fire sale and big losses in any closure. Lee owns 46 dailies and more than 300 other publications (weeklies, bi -weeklies etc).
Lee will run the Berkshire papers, manage costs and try stabilise sliding sales and revenue. BH Media’s print circulation has dropped about 15% since 2015. It has struggled to build digital subscriptions and advertising as audiences have shifted from print to online. But while it will be able to cut costs, it will not be able to sack staff and rationalise back office and printing operations at the papers without Berkshire’s approval.
“In addition to the primary benefit of deploying Lee’s successful strategies at BH Media, this alliance provides a significant expansion of operating scale, adding 30 markets to our own 49,” Lee President Kevin Mowbray said. Warren Buffett explained in a statement that, “although the challenges in publishing are clear, I believe we can benefit by joining efforts. Lee Enterprises’ growth in digital market share and revenue has outpaced the industry.”
Buffett told CNBC earlier this year that be believes only two newspapers, The New York Times and The Wall Street Journal, are assured to survive the current climate. “They have developed an online presence that people will pay for.” (But not the Washington Post which he used to control and is now owned by Amazon’s Jeff Bezos).
After ruling out owning any more US papers in 2009 (Berkshire has owned the Buffalo News for decades and had a controlling stake in the Washington Post up to 2011) Buffett surprised in 2011 when his company began buying more newspapers. 63 were picked up in a financing deal with a company called Media General.
BHMedia has largely let them run themselves, as it does with its 90 or so other subsidiaries, but like all papers that hasn’t stopped them from suffering sales, revenue and readership slides. Separate to the Media General deal, Berkshire Hathaway paid $US200 million (including debt) for The Omaha World-Herald in 2011.
All up he has spent around $US400 million on his group of papers but would struggle to get anywhere near a decent part of that back now because of the fall in revenues, profits and especially circulation.
In fact Buffett is familiar with Lee, having not long ago lent it $US94 million toward refinancing some of its $US500 million debt, which came about in large part from buying the St. Louis Post-Dispatch in 2005 in a $US1.46 billion transaction. Those were the days.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.