The reason why Warren Buffett commands so much attention is not so much that he makes a lot of money, but that he loses so little: the last time you heard of Berkshire Hathaway getting rid of something unprofitable was probably 1985, when the company finally abandoned the textile mills upon which it was founded back in the 1800s.

So Buffett's recent expansion into the newspaper business must be viewed, not as an attempt to pile up tax losses, but as an investment for the future. In the beginning, there was the one paper: The Buffalo Evening News, which BH acquired in 1977 and repositioned as a morning paper following the demise of the rival Courier-Express. The News has been solidly profitable, though Buffett questioned the industry's business model:

Saying his interest in owning a newspaper "is not totally rational," Buffett says he is content with just one. But he also sees that the industry as a whole did not properly utilize the Internet when it came on the scene.

"When the Internet came along, you gave away your [online] product for free and charged for it in another place [print]," he says. "I'm not positive what you would have done differently, but not figuring out some kind of business model was a mistake."

Like other media, newspapers are dependent on eyeballs: getting enough people to read the advertising that pays the bills. But getting them in the door to read has to be the first step, and Buffett says that the papers perhaps have been remiss:

"They should have probably tried to get more revenue from circulation over the years. Newspapers were essential years ago," he states. "If they had trained [readers] to value it more, they might have had a model that worked in this environment."

Buffett's second newspaper acquisition was his hometown paper, the Omaha World-Herald, in late 2011. Six months later, he bought all but one of Media General's Southeastern-based papers: Media General retained, but then later sold, The Tampa Tribune. Two Texas papers were added to the group.

Then, a few weeks back, the Tulsa World, which published a bullish article on the future of newspapers. Smaller newspapers, anyway:

The Omaha-based investment conglomerate and its billionaire leader are drawn to newspapers in small- to moderate-sized markets places such as Richmond, Va.; Omaha, Neb.; and Tulsa, said Terry Kroeger, president of BH Media Group.

"Those are places where the community can still rally around ideas," Kroeger said. "There's a lot of engagement. There's a lot of discussion. There's a lot of passion about one community." Newspapers in bigger cities aren't interesting to the company because the communities are less cohesive and, therefore, the newspapers are less capable of drawing broad readership, he said.

Kroeger, you should know, is not somebody Buffett picked out of the crowd, but a man who worked his way onto the masthead: he spent over 20 years with the Omaha World-Herald, eventually rising to Publisher. It can be safely assumed that he knows papers and knows Buffett.

And while Buffett isn't going to be holding hands with World management, his letter to Berkshire Hathaway shareholders details his current thinking on newspapers generally:

Successful newspapers will dedicate lots of space to news stories, publish every day and be managed by local experts.

"We do not believe that success will come from cutting either the news content or frequency of publication," Buffett wrote. "Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And 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."

The most visible of the latter the New Orleans Times-Picayune has cut back to three days a week.

What all this means for the Tulsa World is unclear. Nothing has been said about the reporting pool, in which the World and the Oklahoman rely on each other for some state stories, so I anticipate that it will continue. Certainly the World will have greater resources for a backstop: the Lorton family had money, but not on Buffett's level. Buffett's perceived slightly-left-of-center politics are not so different from the World's. One possible worry: the paper's daily circulation, near 150,000 in 2006, has fallen below 100,000, though it's been dropping more slowly of late. Still, the World has always been profitable, and Buffett's track record as a long-haul investor suggests that the paper should continue to thrive.

The Vent

  17 March 2013

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 Copyright © 2013 by Charles G. Hill