The news is bad news

George Johnson at Hypergene digs up Warren Buffet’s eulogy for the newspaper business and notes that, gee, we didn’t see much coverage of this in newspapers. He gets the quotes from Matt Stichnoth’s coverage of this year’s Warrenstock.

The outlook for newspapers is not great. In the TV business, a license from the government was essentially the right to a royalty stream. There were basically three highways to people’s eyeballs, and companies like P&G, Ford, Gillette, and GM would pay a significant amount of money to be get on those highways and advertise their products to a mass audience. But as the ways to get in front of people’s eyeballs increases, the value of those highways goes down. …

Q: If you were looking at newspaper publishers as possible investments, what would you use as a margin of safety?

WB: What multiple should you for a company that earns $100 million per year whose earnings are falling by 5% per year rather than rising by 5% per year? Newspapers face the prospect of seeing their earnings erode indefinitely. It’s unlikely that at most papers, circulation or ad pages will be larger in five years than they are now. That’s even true in cities that are growing.

But most owners don’t yet see this protracted decline for what it is. The multiples on newspaper stocks are unattractively high. They are not cheap enough to compensate for the companies’ earnings power. Sometimes there’s a perception lag between the actual erosion of a business and how that erosion is seen by investors. Certain newspaper executives are going out and investing on other newspapers. I don’t see it. It’s hard to make money buying a business that’s in permanent decline. If anything, the decline is accelerating. Newspaper readers are heading into the cemetery, while newspaper non-readers are just getting out of college. The old virtuous circle, where big readership draws a lot of ads, which in turn draw more readers, has broken down.

Charlie and I think newspapers are indispensable. I read four a day. He reads five. We couldn’t live without them. But a lot of people can now. This used to be the ultimate bulletproof franchise. It’s not anymore.

CM: I used to think that GM was a bulletproof franchise. Now I’d put GM and newspapers in the “Too Hard” pile. If something is too hard to do, we look for something that isn’t too hard. What could be more obvious?

WB: It may be that no one has followed the newspaper business as closely as we have for as long as we have–50 years or more. It’s been interesting to watch newspaper owners and investors resist seeing what’s going on right in front of them. It used to be you couldn’t make a mistake managing a newspaper. It took no management skill–like TV stations. Your nephew could run one.

No more.

  • Interesting. As a dedicated netizen I have to agree that the newspapers appear to be in decline.

    Throwing on the thinking cap, I think that one area that newspapers and other traditional publications shine is in the areas of professionalism and quality control. As I’m sure most people realize the Internet is full of stuff which really would never have seen the light of day if publishing hadn’t become so cheap and available.

    What I’m hinting at is a lack of quality. Maybe traditional news can survive if they accept the fact that they can no longer be first, or on top of everything we need to know, but that they can provide additional analysis and fact checking. They might be able to live if they maintain some additional credibility perhaps.

    Regardless, at the current time, I wouldn’t be putting money into them unless they represented a synergistic opportunity.

  • sam

    Newspapers have themselves to blame. Look at the lead story in today’s NYTimes that the UN says the US should close the Guantanamo prison camp. Why is this the lead story, considering how discredited the UN has become? Not until the 10th paragraph is there a comment from a US representative who talks of an extensive presentation made by this country–with no further discussion of what the US said. Also, no mention of the fact (seen elsewhere) that the UN commission never even went to Gitmo. But hey, if it makes the US (and Bush) look bad, it leads.

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