Berkshire Hathaway 2009 Annual Meeting Audience Question # 24

Newspapers have the possibility of just going to unending losses

Warren Buffett:


Andrew Ross Sorkin:

OK. This question comes to us from Dennis Wallace in Waldorf, Maryland. We got a lot of these. And I’m selfishly interested in the answer.

Given the current economic conditions in the newspaper and publishing business, can you please provide some of your thoughts on its impact on Berkshire? Given that our investee, the Washington Post Company, has had a substantial decline in its stock value, is it still a good use of capital?

And given the, quote, “cheap trading prices of newspapers in the current climate,” would Berkshire considering… consider purchasing additional newspapers to add to the Buffalo News and Washington Post properties?

At what price does it become compelling to invest in the newspaper business? Or is there no price at which it becomes compelling in today’s environment?

Warren Buffett:

I would say, it isn’t today’s environment. I mean, it’s an evolutionary development.

But… so the current economic environment has accentuated the problems in newspapers. But it is not the basic cause.

Newspapers are, to the American public as a whole… Charlie and I… I read five a day. Charlie probably reads five a day. We’ll never give them up.

But we’ll also be the last guys reading a newspaper while having a landline phone, you know, by our side.

So, you don’t want to judge consumer preferences by what we do. The newspaper… no. The answer is, for most newspapers in the United States, we would not buy them at any price.

They have the possibility, and in certain places, they’ve already hit it, but they have the possibility of just going to unending losses.

And they were absolutely essential to a very high percentage of the American public, you know, 20, 30, 40 years ago. They were the ultimate business.

It was a business where only one person won, basically, in almost every town in the country. There were 1,700 papers in the United States. And about 50 of those, 20 years ago, existed in a city where there were multiple papers.

So they were a product that had pricing power, that was essential to the customer, essential to the advertiser. And they’ve lost that essential nature.

They were primary 30 years or 40 years ago if you wanted to learn sports scores or stock prices or even news about international affairs.

And then that nature, what Walter Annenberg used to call “essentiality,” I don’t know whether it’s in the dictionary or not, but it started eroding. And then the erosion has accelerated dramatically.

And they were only essential to the advertiser as long as they were essential to the reader. And you know, nobody liked buying ads in the paper. It was just that they worked.

And that has… that is changing. It’s changing every day. And I do not see anything on the horizon that causes that erosion to end.

We… you know, at the Buffalo News, Stan Lipsey would greet me 10 years ago. And he would say, “Warren, you should… on an economic basis… you should sell this paper.” And I said, “I agree 100 percent. But we’re not going to do it.”

And you know, we could’ve sold the Buffalo News for many hundreds of millions of dollars some years back. And we couldn’t sell it, you know, for remotely anything like that now.

And that’s one of the policies. We have a union that’s been very cooperative… unions, a bunch of unions… have been quite cooperative with us in recent months in trying to have an economic model that will at least keep us making a little money.

And as I put in the annual report, in our economic principles, that as long as we don’t think we face unending losses or have major union problems, we will stick with the businesses, even though it would be a mistake if you were acting as a trustee for, you know, a bunch of crippled children or something of the sort. And that’s just our policy at Berkshire.

The Post has a very good cable business. It has a very good education business. But it does not have answers on the newspaper business, as Don Graham wrote in the annual report. Nor does anyone else.

Now, we all keep looking around for somebody that will find the model. But there… I think there are about 1,400 daily papers now in the United States, and nobody yet has found the model.

We are as well-positioned in Buffalo, believe it or not, I think, to play out the game as anyone else. But whether we find something before the lines get so that we’re inexorably in the red, whether the situation gets so we’re inexorably in the red, I don’t know.

But we will play it out as long as we can. It’s not what they teach you in business school. But it’s the way we run Berkshire.


Charlie Munger:

Well, I think that’s all 100 percent right. And it’s really a national tragedy. The… these monopoly daily newspapers have been an important sinew of our civilization.

And, by and large, they were impregnable from advertiser pressure. And by and large, they were desirable editorial influences.

And by and large, they kept government more honest than it would otherwise be.

So as they disappear, I think what replaces it will not be as desirable as what we’re losing. But this is life.

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