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Posts Tagged ‘warren buffett’

One thing in particular to note from the news earlier today that Warren Buffett’s World Media Enterprises is closing one of its newspapers:

“Terry Kroeger, chairman of World Media, said the newspaper is in direct competition with many other publications and, being part of a large metropolitan area, had a tough time finding the sense of community that a community newspaper needs to prosper. He said the paper had been losing money for years.”

That’s not entirely true. If you check on Facebook for the page of insidenova.com, the website of the News & Messenger, which is the Virginia paper Buffett’s company is closing, you’ll see it has more than 24,000 likes, and if you dig down you’ll find that the Facebook community that had formed around insidenova.com is an active one. There is a community there. The problem is that WME, like other print publishers, doesn’t know how to make a profit from that. That’s the entire crux of the crisis in print publications. There is not necessarily the lack of an audience for news about any particular community, there is just (so far) a lack of ways to make enough money from those folks to keep the lights on.

UPDATE: Don’t take my word for it. From the Washington Post:

“This is horrendous news for everyone in Prince William County and those who care about Prince William news. The News & Messenger and InsideNoVA are the definitive source of news in Prince William.”

And note this quote: “They put a lot of emphasis on their digital products,” Kroeger said, “so their print circulation fell even further.”

So [Edited to clarify] If that view is correct throughout the industry, then the question is whether the closing of the News & Messenger is an aberration or a sign of things to come.

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I feel a bit like the teenage Henry Hill in “Goodfellas” after he was arrested for the first time, and Jimmy comes to greet him at the courthouse and tells Henry, “Congratulations.”

“Why? I got pinched.”

“Everyone does. You did it right.”

I’m not a hood, I’m a journalist, so instead of getting arrested, I got laid off. I think I did it right: I saw it coming literally six months ago, and even if I hadn’t, it was virtually telegraphed to me by the new ownership of the company (here’s a hint, in case you are ever in the same boat: When people stop communicating with you, you’re on the way out), but I was the good soldier and kept at the job every day. I kept quiet about what I saw coming — which hit another 104 people besides me today — and showed up early every day, worked at least a little most weekends. Just this morning a woman came by and asked me whether I ever went home. When the news came, I was ready, I had just a couple things at the desk to gather up, and I walked out without fuss.

So. What’s next?

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In his address to the Arizona Newspapers Association, Steve Buttry summed up the argument against newspaper websites setting paywalls or pay meters (and it is just newspapers; you never hear of TV stations debating whether to charge for access to their sites). I’ll quote the part that sums up his summation:

“Most of the forward-looking paths to prosperity work better with a larger audience, and paywalls (or meters or whatever you want to call them) limit your audience. Most of the paths to prosperity demand that we reach a younger audience, and paywalls continue a model in the comfort zone of newspapers’ aging and dying audience.”

There is an argument to be made in favor of paywalls, and Warren Buffett has summed it up – become indispensable:

“Make the paper so good that I get the shakes if I don’t have it.”

This is not an outrageous theory or one new to newspapers. I have pointed before to a slimmed-down version of a Newspaper Next presentation about creating an “experience” in the news pages, the argument being that people pay all the time for an experience rather than the actual product being sold. Under the experience theory, people will seek out and buy a news product online if it gives them a good emotional jolt or something to talk about. It becomes a valuable part of the day by the effect it has on their day.

Where this theory falls apart is the way that real-world newspaper publishers are trying to keep their businesses afloat.

You cannot create indispensable stories “so good that I get the shakes if I don’t have it” if you are paying the story-creators so little that they make as little – or less – money than first-year teachers. Good stories come only from good minds, and good minds may take a first job paying that little, but they also will soon find a way to something better, and then your flash-in-the-pan indispensability departs with them.

But low pay has been built into newspapers’ current cost structure. It was the way that publishers dealt with, first, the demand for maintaining profit margins and, in the recession and crash of advertising revenue, the need simply to stay afloat. Newsrooms across the country – not all of them, but many – tried to maintain as many staff positions as they could by squeezing pay. Now they are stuck.

If you are stuck with a revenue level that won’t support filling your staff with indispensable storytellers, you need to rethink your staff and content model, slim down the staff size and build up the pay. Otherwise you resign yourself to forever being completely dispensable.

You can’t be indispensable and poorly written at the same time. In that case, Steve’s point is completely correct: You will get online subscriptions from current newspaper addicts, the people who are so used to reading you that they just can’t do without. But they will die off, and you will have nothing that non-subscribers find worthwhile, so you also will die off.

Paywall defenders could argue that there is no “prosperity” to be found in unpaid models so far, but Steve is absolutely correct that in order to survive you need to bring in new consumers, new readers, new audiences.

The most recent real example I’ve seen of this is here in Richmond, where Bill’s Barbecue recently went out of business. Bill’s was a Richmond institution. When I moved here in 2001, I saw Bill’s everywhere. I figured it had to have really good barbecue for it to be so widespread. Then I went into one near home and bought some. Lord, that was some awful barbecue. It was soupy. It smelled funny. I started asking around, and to date no one I have met in Richmond thinks Bill’s had good barbecue (everyone praises the pies, but you don’t build a big barbecue restaurant chain based on the dessert). It was skating on a decades-old reputation, frequented apparently by old-Richmonders who fondly clung to memories (although not many of them; there were two Bill’s within a mile of my house, and neither was ever busy, at any time of day). Finally, the family that owns the business decided to stop.

This is where many newspapers are. There is a base of loyal customers who are willing to pay, though they lament what has been lost in the past 10 years. But there is less and less reason for any new customers to come through the door, and to the extent there is any at all, tighter and tighter paywall restrictions cut off the potential new-customer base. At some point, publishers will feel it necessary to open the walls, but by then their product may be an afterthought, a niche publication in a universe of alternative news sources.

With or without a paywall, you can’t attract an audience when you have little worth reading.

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Congratulations to Earl J. Wilkinson for his post on INMA’s The Earl Blog coining a new term (new to me, at least, even if you’ve heard it before) for the nearly mythical, not to say non-existent, kind of news story that takes forever to report and write but which hardly anyone actually reads: “Trekking Through Zimbabwe.” It’s no “hiking the Appalachian Trail,” but it will do.

Wilkinson’s post is about the new “ownership class” emerging in what once was the newspaper industry (he says it’s emerging as the newsmedia industry). He identifies two categories of these new owners: Owners who are doing everything in their power to repair the old model or invent a new model before the economic waves cover them up; owners who, evaluating the cost/benefit analysis of making those changes, are electing to divest and find more efficient ways to invest shareholder monies.

The post is an assessment of where the industry’s evolution is. It’s worth a read.

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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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