In our Web-obsessed era, some folks—especially folks in the newspaper newsrooms—regard newspapers as victims of the new technology.
But back in the mid-1960s, well before the first big Internet pipes were laid, the newspaper was already in crisis. The population was growing faster than newspapers were adding circulation, a trend that executives saw would spell slow death for the industry. In ensuing decades, newspapers have tried almost everything to reverse their decline. They’ve attempted to make coverage more local or relevant. They’ve set lures and hooks to snag minorities and young readers. They’ve followed readers into the suburbs. They’ve spiced up the design, added color, and allowed readers to “sound off” in special sections. They’ve increased lifestyle, weather, sports, consumer, and news-you-can-use coverage. They even tried to invent the Internet. All to no avail.
Perhaps the most prescient voice on the fate of newspapers has been Berkshire Hathaway Chairman of the Board Warren E. Buffett. (Disclosure: Buffett is a Washington Post Co. director. Berkshire Hathaway is also a mega-investor in the Post Co., which owns Slate.) In a Feb. 28, 1992, letter to Berkshire Hathaway shareholders, a good three or four years before www become part of the lingua franca, Buffett declared that “newspaper, television, and magazine properties” were losing their status as profit-spewing franchises. Expanding on a theme he’d introduced the year before, Buffett wrote:
An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation. The existence of all three conditions will be demonstrated by a company’s ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise’s profitability, but they cannot inflict mortal damage.
In Buffett’s view, a strong trademark (like Coca-Cola), or a broadcast license (as with radio and TV stations), or near-monopoly position in the market (as with the Washington Post or the Buffalo News, the latter of which Berkshire Hathaway owns) can convey franchise power on a company. Still, increased consumer choice for information and entertainment has reduced such media franchises from cash cornucopias to mere money-making businesses. He continues:
Dollars are dollars whether they are derived from the operation of media properties or of steel mills. What in the past caused buyers to value a dollar of earnings from media far higher than a dollar from steel was that the earnings of a media property were expected to constantly grow (without the business requiring much additional capital), whereas steel earnings clearly fell in the bob-around category. Now, however, expectations for media have moved toward the bob-around model. And, as our simplified example illustrates, valuations must change dramatically when expectations are revised.
How quickly did the media business landscape change? Writing just seven years earlier in his Feb. 28, 1985, shareholders letter, Buffett held that dominant newspapers would continue to churn out excellent profits whether their contents were first-class or third-class. “That is not true of most businesses: inferior quality generally produces inferior economics. But even a poor newspaper is a bargain to most citizens simply because of its ‘bulletin board’ value,” he wrote. If Buffett feared that newspaper were about to lose their franchise status, he didn’t express it to shareholders until a letter dated March 1, 1991.
Based on my Googling, the last time Buffett held forth on newspapers in a shareholder letter (PDF) was on Feb. 28, 2007. He noted that business reality had caught up with his early prophecy—newspaper properties were no longer selling “as if they were indestructible slot machines”—and he warned aspiring press lords that there’s “no rule that says a newspaper’s revenues can’t fall below its expenses.” The newspaper’s declining profits, Buffett wrote, “will almost certainly continue.” He goes on:
Simply put, if cable and satellite broadcasting, as well as the internet, had come along first, newspapers as we know them probably would never have existed.
That’s a sad assessment coming from a man who professed to “love newspapers” and claims to “read five a day.”
“Balzac said that behind every great fortune lies a crime,” Buffett told his biographer. “That’s not true at Berkshire.” Why so defensive, Warren? Behind every great Twitter is a blithering egomaniac. I said that, not defensively at all. Send your Balzacian wisdom to email@example.com. (E-mail may be quoted by name in “The Fray,” Slate’s readers’ forum; in a future article; or elsewhere unless the writer stipulates otherwise. Permanent disclosure: Slate is owned by the Washington Post Co.)
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