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Posts Tagged ‘berkshire hathaway’

Warren Buffett
I would wager you would have a difficult time finding an employee of any Media General newsroom that is soon to become part of Berkshire Hathaway’s BH Media Group who wasn’t thrilled by Warren Buffett’s letter to his company’s publishers and editors. It declares what he calls a “hands-off principle” in the management of the newspapers. As far as it is defined, it sounds as good as any management declaration that living journalists who don’t own their own papers would be able to remember.

On content:

“I believe newspapers that intensively cover their communities will have a good future. It’s your job to make your paper indispensable to anyone who cares about what is going on in your city or town.
“That will mean both maintaining your news hole — a newspaper that reduces its coverage of the news important to its community is certain to reduce its readership as well — and thoroughly covering all aspects of area life, particularly local sports. No one has ever stopped reading when half-way through a story that was about them or their neighbors.
“You should treat public policy issues just as you have in the past. I have some strong political views, but Berkshire owns the paper — I don’t. And Berkshire will always be non-political.
“… Our job is to reign supreme in matters of local importance.”

On the possibility of duplicating the debt levels that could not be maintained as revenue shrank:

“We shun levels of debt that could ever impose problems. Therefore, you will determine your paper’s destiny; outsiders will never dictate it.”

Read that again: “You will determine your paper’s destiny; outsiders will never dictate it.” That is where the rubber meets the road in this story, because it’s not entirely true, and the real question is to what extent editors and publishers understand that.

What is it that is driving the industry’s decline? The debt was a factor, so its removal is a great help and provides breathing room, but it’s not the driver. The level of debt that Media General had incurred might have been manageable at the levels of revenue that were coming in 10 or 15 years ago, and if those had kept up then everything would have been peachy. What changed? Buffett’s letter somewhat addresses this:

“We must rethink the industry’s initial response to the Internet. 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. We want your best thinking as we work out the blend of digital and print that will attract both the audience and the revenue we need.”

Clearly the experiments with online paywalls now under way at a number of these newspapers will continue, but that doesn’t address the real driver. If you find the formula for paywalls of any kind that get you back to the paid-content equivalent of whatever your paid circulation was 15 years ago, you are not fixing the problem because paid circulation has never, at least since the 19th century, come close to paying the cost of producing the news. If you drop $1 in a newspaper box, the actual per-unit cost of creating that newspaper probably was $3 or $4. Traditionally, the bulk of that cost is covered by advertising because advertisers have thought it was well worth it to reach the mass audience. Newspapers produce news, but their business has always (at least since the 19th century) been selling eyeballs to advertisers, not selling newspapers.

Paywalls may help, to the extent that they provide at least some revenue and the lack of free local news online can stem the loss of print circulation, which in turn helps justify the rates charged to advertisers. But advertising has been declining for years for reasons that have nothing to do with drops in print circulation.

The real driver behind the industry’s trouble is that the Internet is not just an alternate delivery medium. As Jeffrey Cole of the University of Southern California’s Center for the Digital Future has put it, the advent of high-speed Internet is driving changes in society and personal behavior just as the advent of television did. That, not the decision by newspapers “to offer free in digital form what they were charging for in print,” is the force behind the growth of 24/7 news on mobile devices and tablets. If you somehow could put every newspaper in the world behind a hard paywall, that wouldn’t address all the TV networks, local TV stations, radio networks (NPR, to name one), web-only news sites, local place blogs, topic-oriented websites, and on and on and on. People expect to find everything they want to know online not because newspapers are there but because, as I said in a post last month, everything else is there. And because everything and everyone else is there, that is where many advertisers increasingly want to be – and they are not just trading print news sites for online news sites, they are exploring the Internet’s plethora of options for reaching an audience.

Buffett knows all this, I think. As he told the Richmond Times-Dispatch in an interview Thursday, “(Print) circulation for the industry will decline,” and experimentation is necessary:

“Some newspapers are experimenting with various pay-for-content models in their digital editions. Buffett didn’t specify what sort of model should be adopted, saying that is something the company’s newspapers will have to work out themselves.
“‘I think there is a better formula’ than the current revenue model, Buffett said in the interview. ‘I don’t think staying free over the next 10 years is the sound choice.’”

So we have to circle back to the “hands-off principle.” Here’s what the directive to publishers and editors boils down to in plain English: You make the decisions, as long as you maintain both your news hole (that’s one of the few things specifically spelled out in the letter) and profitability (not spelled out, but Buffett’s not running a charity, so it’s assumed).

The situation, then, is not much changed from what it was before, for these papers and any others: If advertising continues to migrate not just to other platforms but to non-news venues, what’s left is higher prices for readers, in print and online. Can a paywall for a small or medium-size news organization bring enough revenue to cover all production costs that are not covered by the remaining advertising? I hope so. I think so. If it can’t, hands-off or hands-on won’t matter.

Which brings us to this portion of Buffett’s letter:

“American papers have only failed when one or more of the following factors was present: (1) The town or city had two or more competing dailies; (2) the paper lost its position as the primary source of information important to its readers or (3) the town or city did not have a pervasive self-identity. We don’t face those problems.”

No, we don’t. But that doesn’t mean we won’t discover a No. 4 reason: The publisher and editor failed to recognize what the problem really was.

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