What Buffett Sees In The Newspaper Biz

Warren Buffett created a stir with Berkshire Hathaway’s recent acquisition of the Omaha World-Herald, with his firm venturing into an industry that has numerous questions swirling around it.

Just what did Buffett see in buying the Nebraska newspaper? Last week, he explained his logic to World-Herald shareholders. Accoridng to the World-Herald’s Steve Jordon, Buffett said that “the economics of the newspaper business … have changed dramatically in recent years”, and that the industry faces several “big problems” going forward. “[The daily newspaper is] still primary on a lot of things, but it doesn’t have the universality of primariness that really made the paper such an incredible bargain and a necessary purchase for everyone,” he said. He also added, “It is a high-cost form of distribution, as you’re doing everything from cutting down trees all the way to getting a product in my hands early in the morning, and there are a lot of steps in that and a lot of people involved.”

In addition to those two problems, there is a third: free distribution of content. “That’s a business model you have to think through carefully over time,” Buffett said.

But Buffett added that he thinks newspapers have “a decent future” if they can address one of those three main problems. “So far, I would say the evidence is there will be many papers who can deal with those problems,” Buffett says. “It is still an enormously useful product to a great deal of people.  … The great majority (of newspapers) are making money. The question is whether the trends take those papers into a position of loss. I don’t think it has to happen, but I don’t think it’s 100 percent sure it won’t happen. … From what I see, I think The World-Herald will earn a reasonable return on the money we’re laying out for it.”