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Berkshire Hathaway's mysterious newspaper investment

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Why did Warren Buffet's Berkshire Hathaway acquire the Omaha World Herald Co., investing in an industry in decline and paying full price to do so? “The only way I can put it together is that it was an act of altruism,” said Ken Doctor, affiliate analyst at Outsell Inc. Doctor is only half joking. He said Buffet, the famed “Oracle of Omaha,” proved his altruism when he waded into the U.S. debt crisis debate earlier this year by arguing that the “superrich,” such as himself, should be paying more in federal taxes. Doctor also speculated that the purchase of the Omaha World-Herald by Berkshire Hathaway, which also picked up several local Nebraska and Iowa newspapers as well, is at least partially an investment by Buffet in keeping these local instruments of democracy up and running. Whether it is a good financial investment is another question. In a statement when the deal was announced Nov. 30, Buffet laid out the rationale for the acquisition: “The World-Herald delivers solid profits and is one of the best-run newspapers in America; and we are pleased to have Terry Kroeger [CEO of Omaha World-Herald Co.] and his team join Berkshire Hathaway.” Doctor said the price—reportedly $150 million, plus the assumption of about $50 million in debt—was surprising, especially given that the San Diego Union-Tribune, which reportedly sold for about $110 million in November, serves a significantly larger market. Another downside is the seemingly inexorable decline of newspaper revenue. Overall newspaper revenue declined for the 21st straight quarter in the third quarter, according to the Newspaper Association of America. Revenue for the quarter fell to $5.6 billion, a decline of 8.86% from the same period in 2010. But there are some bright spots in the NAA figures. For example, online advertising revenue grew 6.2% in the third quarter, to $732.6 million. Additionally, NAA said its analysis of Web traffic to newspaper sites indicated that mobile page views of newspaper content increased 65% in September compared with September 2010. Doctor said that despite the steady decline in revenue, there are legitimate business arguments for investing in newspapers. He cited The New York Times' implementation of a metered paywall as a reason for optimism, saying that indicates it is possible for newspapers to generate revenue online not only from advertisers but also from readers. Doctor also noted newspapers such as the Omaha World-Herald are offering more marketing services and can function as regional advertising agencies, helping their marketing customers reach a local audience. The adoption of tablets is good news for the industry as well. The devices offer advertisers a larger canvas for their marketing messages and one that is similar to what newspapers have traditionally provided in print. “It's giving newspapers a platform for more printlike advertising and maybe more printlike rates,” Doctor said.
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