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Posts Tagged ‘berkshire hathaway’

There is no Santa Claus. Many people in the news business know that as a literal fact, but they still believe there may be a kind of Santa Claus who will step into their lives. If they did not, we would not have stories such as this, from Nieman Lab this time, wondering what in the world Warren Buffett (or replace his name with your favorite media-owning billionaire) has in mind for his newspaper(s). The article by Joshua Benton wonders what might be read into the absence of tea leaves about newspapers in Buffett’s most recent letter to shareholders.

I’ll tell you what: Nothing.

In 2013, shortly after getting a new job after being laid off from Media General in the wake of Buffett’s purchase of that company’s newspaper assets, I was called by a reporter (perhaps it was Reuters, but I don’t recall for sure) who was working on a story about what Buffett was really after. I told her that from what I saw from the time of the purchase announcement in May 2012 through the transition period until the final cuts that November, you had to take Buffett at his public word — that he thought that prudent, conservative management would keep the papers viable and profitable for some time, but that he had no plans to experiment or try anything that would surprise people.

So far, Buffett’s company has been completely consistent on its management of the company’s newspapers, which is to say conventional. The managers are budget-minded. Papers have to make their “numbers,” above all. Everything has been consistent with what I saw in my brief exposure to that management structure.

So why the never-ending stream of stories wondering what lies over the rainbow, or whether there is a rainbow?

Because people thought Buffett was Santa Claus.

People in news don’t often think of news as a business. It’s a calling. It’s not a way to make money. People take pride that it doesn’t pay well, as people do when they get great satisfaction from a job that doesn’t pay well. It’s a mission. That makes it personal, to a great extent. But Warren Buffett, like most business owners, approaches his business as a business. This is business, but the news people are taking it very, very personal.

Please stop it, all of you. To the extent that Jeff Bezos or other billionaire-come-latelys to the business are trying new things or talking about new models, please, by all means, spread the word. New ideas need consideration. But please stop waiting for secret plans on how to get out of the quagmire from anyone who steps in and does not enunciate any plans that differ from what you already know or, as in the case of Orange County, require a reality other than the one you know.

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What’s wrong with news companies? Do they have a strategy for surviving past the age of print? Why aren’t they executing it? Why do they only cut expenses? Why don’t the billionaires build the digital news business model?

The questions have been asked for so long that they grow tiresome.

After Ken Doctor’s recent piece on whether newspaper companies are even trying to build a sustainable digital business model, I had a Facebook discussion with a friend who has a digitally based job with a television station. He said, in part:

“Big Media print organization wont last much longer. If warren buffet cant figure out a business model for you – who will? My guess is they will milk as much as they can until it isnt profitable any more and then the papers will have to buy the rights back to their names. My advice would be just to start a blog, hire some stringers per piece and get a good, small digital sales team together.”

And that’s what so many people say, in a nutshell. Chuck the paper now, the legacy costs as well as the legacy revenue, and just go whole hog into digital.

That might seem like a slam dunk to those in the digital business, but it makes a giant assumption: that the people running news companies are primarily interested in journalism.

I have argued increasingly what is implied in Doctor’s new article for Nieman Lab, that those running the news business by and large are not in it to serve the community, which is why there is not great concern with making sure there is a future news model that works.

The idea of retooling and refocusing, of giving up some — or, to be more accurate, most of — your current revenue to build a currently less profitable kind of business that has more legs, so that local journalism survives matters only if what is of top importance to you is local journalism. If you don’t care about journalism, if you are first and foremost a business person, your decisions are based on current revenue. Why would you cut your profit on purpose to pursue a theory that may, possibly, bring you more money in 20 years than your current path is likely to bring? That’s 20 years away — and it’s a theory.

Take my friend’s example, Warren Buffett. People keep pointing to him and saying he hasn’t “figured out” a business model. But look back at his statements. He never said he would reinvent the industry. What he has said is that if someone else finds something that actually works, he would evaluate it, but in the meantime he thinks small, locally focused papers can be profitable for some time.

And that’s what made Buffett a billionaire — looking for places where there is money to be made with minimal investment. He isn’t a venture capitalist.

We keep waiting for someone with deep pockets to rescue journalism. Charles Foster Kane existed only in the movies, but even there he was losing $1 million a year.

News people will not stop feeling screwed around by the people on the business side until there are no more business people left, and they will have left because there was no more money to be made.

When journalists move on from newspapers, it feels different. It’s personal. It’s more than a career shift and a mindset change.

When business people leave newspapers, they don’t change careers, they just move on to the next job. It isn’t personal. It’s ledgers, assets, liabilities and margins — money in, money out.

That’s why it feels like such a betrayal to journalists, and why journalists never seem to understand why everyone seems only to want to break their hearts.

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Nice column by the L.A. Times’ Michael Hiltzik about the breathless greeting every billionaire who buys a newspaper company receives. Summed up:

“Why do we keep getting taken in? Partially it’s the recognition that the economics of news-gathering are daunting in the modern age, solutions hard to come by, and the success of everything that’s been tried is still uncertain at best.”

I wrote something similar the summer of last year after Jeff Bezos bought the Washington Post, but I hadn’t revisited any of the cases I raised there. Hiltzik’s column saves me the work on Bezos (“The Washington Post has done superb work under its new owner,” he writes, and I would add that while it’s still early to judge the financial performance, things appear encouraging) and Aaron Kushner’s Orange County Register (“the Register is staggering financially”), plus adds a couple of new cases of billionaires jumping into journalism (though not newspapers).

But I still like my post’s ending better.

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I was exasperated the other day at the latest entry in the “No, come on, what is Warren Buffet really up to?” genre of columns. There are two things these things seem to have in common: One, the writers all believe Buffett is a genius who can’t make a bad call; two, they think that he can’t possibly be telling the whole truth about why he is buying newspapers. I am not remotely qualified to judge the first, but I’m willing to bet he’s telling the truth about his newspaper plans, which is merely that he wants them run prudently and well, and he thinks that under the right conditions, considering the markets they are in, they will be profitable quite a while. That seems to meet with a lot of skepticism. I certainly was among the skeptics, but since going to work in January in the kind of market Buffett seems to favor, my perspective is changing, at least some.

There’s a saying in medicine, “When you hear hoofbeats, think horses, not zebras.” It’s the Occam’s Razor principle: When multiple explanations are available, the simplest version is preferred. In other words, I think too many people are overthinking this situation and skipping the simple answer. When people look at the papers Buffett has bought and notice that most of them are in North Carolina and Virginia, and deduce from that some kind of grand plan, I have to shake my head. When he bought Virginia-based Media General’s newspapers in 2012, that accounted for all but two of his current NC/Va papers, and those other two (Greensboro and Roanoke) came from one Virginia-based company, Landmark, this year. Essentially that’s two points (MG and Landmark) on a graph. But before buying MG he bought Omaha in 2011, and after buying the MG papers he bought two in Texas (Waco and College Station). And before he bought Omaha, he owned only Buffalo. Plot all those points on a graph and it’s not as tidy.

One argument that has been made is that with all of those papers in a relatively tight geographic area, there’s potential for pooling resources and eliminating duplicate costs. Indeed. Or, indeed there used to be. MG and Landmark each did quite a bit of that; putting the two groups together will allow a bit more, but I would bet not a huge amount. And on the news side, I can say as one of the two people who had been at MG in charge of encouraging the sharing of news resources and responsibilities, those who bet for moves on that front again are ignoring what Buffett has said. Editors are reluctant to give up control of their own resources, or to turn over traditional areas of coverage to other publications, even within the same company, or even just to stop doing things that duplicate what sister newspapers are doing if they view the topic being duplicated as important to them. It can be done — see what Digital First Media is doing — but to make that part of the company strategy would go against Buffett’s stated intention of letting editors run their newsrooms independently, without central direction of what their coverage should be.

With all of the above rolling around in my head, this morning Steve Buttry pointed to a column about a parallel situation of basic psychology. In the column Are you mad at me? Adam Bryant talks about how people are constantly reading their bosses, often reading too much into little things and misinterpreting the situation. I think that’s exactly the kind of thing going on in the news business with Buffett. He’s not the boss of most of us, but in a way — he has the money and he’s calling the shots, at a time when no one else seems willing to — he really is.

But I’m going to treat Buffett the way I wish my employees would treat me: I’m taking him at his word.

So, are you willing to say Warren Buffett is a big, fat liar?

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I have trouble figuring out Warren Buffett’s fixation with newspapers. He didn’t get to be a billionaire by being a sentimental, soft-headed fool, but in his statements about newspapers I often wonder whether it’s that he didn’t know what the newspaper economic model was when he started buying them, or (on the optimistic side of me) that he knew what it was and wants to provide a bridge to move the industry to a new model.

His recent message to Berkshire Hathaway shareholders does nothing to lessen my puzzlement.

My skepticism of his understanding has stemmed from his repeated insistence that paywalls are necessary, that it’s a poor business model to give away what it costs money to produce. That underpinned my questioning whether he understood that newspapers HAVE ALWAYS GIVEN AWAY WHAT THEY PRODUCE. The price you pay to buy a copy of a newspaper doesn’t come close to the actual per-unit cost of producing a newspaper. Advertising has always paid the freight. Newspapers have been willing to essentially give their product away for a price that, for all intents and purposes, is close to free in order to court more advertisers.

But in his recent message to shareholders, Buffett made clear he understood this:

“Indeed, your paper contained so much you wanted to learn that you received your money’s worth, even if only a small number of its pages spoke to your specific interests. Better yet, advertisers typically paid almost all of the product’s cost, and readers rode their coattails.

“Additionally, the ads themselves delivered information of vital interest to hordes of readers, in effect providing even more ‘news.’ Editors would cringe at the thought, but for many readers learning what jobs or apartments were available, what supermarkets were carrying which weekend specials, or what movies were showing where and when was far more important than the views expressed on the editorial page.

“In turn, the local paper was indispensable to advertisers. If Sears or Safeway built stores in Omaha, they required a ‘megaphone’ to tell the city’s residents why their stores should be visited today. Indeed, big department stores and grocers vied to outshout their competition with multi-page spreads, knowing that the goods they advertised would fly off the shelves. With no other megaphone remotely comparable to that of the newspaper, ads sold themselves.

“As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference.”

The advertising itself “delivered information of vital interest to hordes of readers.” Advertising is free content, then, so it costs nothing to create; in fact someone is paying you to print something that helps you draw readers, so giving away the product in that case makes sense. OK, so maybe he knows the history after all.

He also knows the recent history:

“Now the world has changed. Stock market quotes and the details of national sports events are old news long before the presses begin to roll. The Internet offers extensive information about both available jobs and homes. Television bombards viewers with political, national and international news. In one area of interest after another, newspapers have therefore lost their ‘primacy.’ And, as their audiences have fallen, so has advertising. (Revenues from ‘help wanted’ classified ads – long a huge source of income for newspapers – have plunged more than 90% in the past 12 years.)”

So at this point, we know he knows the traditional business model is in the tank. And?

“Newspapers continue to reign supreme, however, in the delivery of local news.”

All right, he wants to change the model from one in which newspapers make their money by selling their audience to advertisers to one in which the newspapers actually do what journalists have always pretended was the real business: selling the news to the audience.

And he has said publicly that he wants his newspapers to be so good that a person will “get the shakes” if he misses his daily paper.

That would be one humdinger of a newspaper.

But I don’t see the real evidence of his belief in that model. Where have salaries increased so he can attract the kind of creative minds that would induce withdrawal symptoms? Where has staff been increased, other than papers that were allowed, now that they didn’t have to feed a parent company’s debt payments, to fill long-vacant positions? Point me to a paper where there is movement toward addictive content.

Where has the price of the daily paper increased to reflect this valuable content that is available nowhere else? Though perhaps you could argue that holding the price steady while losing advertising — which Buffett himself described as valuable content that often drew readers on its own — could be a form of increasing prices. Your paper still costs 75 cents or a dollar a day, even though it is half the size it used to be.

The American newspaper industry conditioned the public to believe for more than 100 years that content was very nearly free because, with advertising paying the bills, it could afford to. Buffett now proposes to make people pay for that content. Bravo. I wish that had been the case for decades. I wish, in fact, that publishers had asked readers whether they would rather pay more than see some of their favorite features and sports beats hacked in order to keep the price of a daily paper from rising when advertising went off the cliff in the late 2000s.

But what is the plan for making Buffett’s vision work? Buffett’s statement to shareholders holds up the Arkansas Democrat-Gazette as “the main exemplar for local newspapers” for having gone early to a hard paywall, because of which the paper “has retained its circulation far better than any other large paper in the country.” True. But it is still losing advertising, just as everyone else has, and has had to hike its price. And predictions are that, paywalls or no, advertising will continue to decline.

Paywalls alone, charging something similar to a print subscription, can’t save newspapers if advertising continues to fall. So, assuming that at some point everyone will have to pay more, what is the ultimate price point at which Buffett thinks his papers can be self-sustaining? Does Buffett think people will pay $3 a day for a newspaper in Danville, Va., or Waco, Texas, or Enterprise, Ala.? The industry’s longtime executives obviously think not, or they would have hiked prices much faster and sooner. Would Advance have cut its days of production in New Orleans rather than raise the price if company officials thought a price hike would achieve the same ends? I hope not, but I can’t rule it out — newspaper executives don’t inspire confidence in their ability to game out the various scenarios.

Buffett obviously thinks that in the long run, the day-cutting strategy in New Orleans and other places will lose:

“… the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.”

Well, fine, you’ll produce lots of interesting stuff and people will pay for it. … But how much do you think they will be willing to pay? Just for what you produce right now, since you are not hiring a bunch more people, like the Orange County Register, in an attempt to bring readers back?

If you believe in that strategy, that content equals readers, why not actually implement it?

Reducing daily print publication “seems certain to diminish the papers’ relevance”? No, faster daily personal schedules plus TV, radio and the Internet did that already. Print circulation had been in decline before the very first news website ever was created. “Local news” will bring them back? Define “local.”

Some newspaper executives seem to think that if you jam a paper full of press releases and community announcements, that’s “local content,” and people will value it. I think not. I think people will read it and see that it’s all badly written, fluffy crap, and they will resent paying for it, or being asked to pay for it.

Here’s my radical proposal: The kind of people who are willing to pay for something to read enjoy reading. And I don’t mean they enjoy seeing random printed words on a page. They want to READ. They want writing that engages the mind and the imagination. That the writing happens to be factual and about their neighbors and community only makes it more engaging.

And you can’t get that from writers paid slightly more than migrant field hands are paid, which still is the going wage in some newspapers (including some of Buffett’s).

The future may yet see Buffett’s team roll out an aggressive, content-building strategy tied to a price-raising strategy that includes pay that rewards the best and brightest content-creators, so that the papers all are truly primarily selling content. That’s not happening yet, no one has proposed a path for getting there, and if it weren’t Warren Buffett making the pitch, I wonder how many people would buy what he’s selling his shareholders.

Full disclosure: In November I was laid off by Warren Buffett’s World Media Enterprises. I have made my arguments about pricing, pay and paywalls in the new news environment since long before that.

UPDATE 3/5/13: Yet another interview in which Buffett has to answer no hard questions at all. Buffett says, “It’s almost unnatural how much I love newspapers.” Yes, it is, almost as unnatural as how seemingly all journalists see nothing at all worth questioning about his company’s stewardship and plans, or lack thereof, for what he has bought.

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If you had told me I’d be back editing the Lenoir News-Topic 25 years after I left, I would have laughed. It’s not the direction I saw my career going. But Warren Buffett intervened, and in the process of saving modern journalism (if that didn’t sound sarcastic in your head, you have to read it over again) he put me and 104 other people out of jobs. Long story short, here I am, and here, in the Jan. 27 News-Topic, I make my version of Charles Foster Kane’s “declaration of principles.” If you don’t want to follow the link, here’s a summary:

I want to get the website into the 21st century, and with any luck not too long after that it might actually catch up to the current date.

I want to get the staff engaged online with the audience. In a small town, that may be a little bit redundant, but the early returns on our very embryonic start look good.

But mostly, with two new hires — one made, one in process — I’m putting good writing front and center in my reclamation project. I’ve long maintained and made the argument that in the long run, as more and more data and nuggets of information can be found for free online, good writing and creativity can make a site stand out and get readers to keep coming back. Now, in a small way, I have a chance to try it myself.

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If I had been blogging angry, my post last week about Warren Buffett’s letter to his company’s new editors and publishers might have sounded like Clay Shirky’s take on it:

“Buffett is famously the greatest investor alive, and almost as famous for plain-spoken observations about the market, so you’d assume his first public memo about Media General would offer insight into the current state of the newspaper business. The actual text, however, merely makes it clear that Buffett doesn’t understand that business.”

A lot of the rest is similar to what I said, though. I take no credit for influencing Shirky, I just wrote faster. But he has a line I wish I had thought of:

“Small-town residents of the sort Media General serves tend to adopt technology late, but the future eventually arrives, even in Opelika, Alabama.”

The CEO of Media General, in an interview with a Richmond-area business website, says something pointing in that very direction:

Publishing revenues are down about 50 percent over the past five years, Morton said, but much of the costs— printing presses, delivery drivers, etc. — have held steady.

“There was nowhere to hide from these revenue declines,” Morton said.

“Over the past five years, our first thought was that this was heavily due to the recession and, like many other recessions in the past, that this was a cycle. You tighten your belt, freeze hiring and even drop the number of people.

“So we went through a couple years thinking that was the way to handle it. But it kept going.”

It wasn’t until the second quarter of 2011, Morton says, “that we realized the world had changed.”

UPDATE: And from John Robinson, a briefer but better explanation than I gave of what these newspapers, unshackled from MG’s debt, ought to be doing:

“The real question is, what is the newspaper spending its profits on? And the follow ups: Is it investing in the future? Is it investing in its staff? Is it reducing the profit-taking so that more can be funneled back into the operation? Is it reducing its investment in the newsprint product so that it can increase an investment into digital news creation and distribution?”

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