Did Warren Buffett Just Save the Newspaper Industry?

Warren BuffettMost Americans know Berkshire Hathaway chairman Warren Buffett as "the greatest investor in history." But history itself may remember Buffett as the man who saved the newspaper industry -- the man who, in the darkest hour when newspapers were dying off to be replaced by the Internet, opened up his incredibly large wallet and made sure newspapers would survive.

Last week, Buffett moved to save a failing Media General (MEG), paying $142 million to buy 63 struggling newspapers from the media conglomerate. The deal, expected to close one month from now, will expand Buffett's media empire (which currently consists primarily of minority stakes in The Washington Post (WPO) and Lee Enterprises (LEE)) and give him outright control over such storied names as the Richmond Times-Dispatch and the Winston-Salem Journal.

Buffett also bought his hometown paper, The Omaha World-Herald, last year, and he owns a few Iowa and Nebraska papers, as well as The Buffalo News in New York.

He's also positioned to profit from Media General -- or, if necessary, take over what's left of it -- having agreed to extend a $400 million term loan and a $45 million revolving credit line to keep the rump-company afloat. In addition to collecting on the loans, Buffett's Berkshire Hathaway (BRK.A) (BRK.B) received warrants to acquire 19.9% of Media General's shares at an unspecified strike price.

Meet the Next Rupert Murdoch

So what is Buffett up to? Is Media General a prelude to Buffett's building a media empire that will counterbalance News Corp (NWS)? Are we -- not to put too fine a point on it -- witnessing the birth of the next Rupert Murdoch?

Yes and no. Yes, because it's pretty clear that Buffett and Berkshire are embarking on a concerted effort to build a media business. They've even established a subsidiary to keep track of all the new holdings: "BH Media Group."

But no, it's not likely that Mr. Buffett has designs of supplanting Mr. Murdoch as the No. 1 media figure, or even of playing a liberal yin to Murdoch's conservative yang.

Addressing the suspicion head-on in a recent memo to his new papers' editors and publishers, Buffett assured them that they will retain full editorial independence under his ownership:

I have some strong political views, but Berkshire owns the paper -- I don't. And Berkshire will always be non-political. We have more than 600,000 shareholders of all stripes and I do not use Berkshire's resources, directly or indirectly, to speak for them.


Buying Time for the Newspaper Industry

But if Buffett's not buying a megaphone for his political views, what is he up to? The answer is scattered throughout his memo to the publishers in several key statements:

Times are certainly far tougher today than they used to be for newspapers. Circulation nationally will continue to slip and in some cases plunge.

That's hardly a news flash.

We must rethink the industry's initial response to the Internet. The original instinct of newspapers ... was to offer free in digital form what they were charging for in print. This is an unsustainable model ... We want your best thinking as we work out the blend of digital and print that will attract both the audience and the revenue we need.

And this is key. Beset upon from one side by cheap, virtual "news" operations like Yahoo!, Google, and Huffington Post, which stole away their readers, and on the other side by Cragislist, Cars.com, and LinkedIn, which siphoned off their ad revenues, newspapers have been scrambling to find a sustainable business model -- and failing. Buffett's entrance into the industry however, will change all that. Under Berkshire's ownership:

Your paper will operate from a position of financial strength. Berkshire will always maintain capital and liquidity second to none. We shun levels of debt that could ever impose problems.
In other words, Buffett is taking his $200 billion company, its $37.8 billion bank account, and the nearly $13 billion in annual free cash flow it generates, and using them to backstop the newspaper industry -- to buy them enough breathing room so that they have time to think and figure out a way to conduct business in the Internet age. In so doing, he has given them a fighting chance at survival.

Let's wish him well in that. Let's hope that years from now -- many years, hopefully -- when history finally gets around to writing an obituary for Warren Buffett, it won't begin with praise for "the world's best investor." Let's hope it reads: "Warren Buffett, the newspaper boy who grew up to save the newspaper industry ..."

Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of LinkedIn, Google, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Google, and LinkedIn.

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Mike Greggs

The small community newspapers that are still firmly in the black and never stopped being profitable resent all the ignorant, naive remarks and the general notion that they are "struggling" and in need of Buffett's charity.

May 31 2012 at 3:53 PM Report abuse rate up rate down Reply
maccadd

No, he did not save the dying newspaper industry.
But he did pre-pay for 83 Obama endorcements come this November.

May 29 2012 at 4:20 PM Report abuse rate up rate down Reply
joanne

Save - NO slow down Yes

May 29 2012 at 8:44 AM Report abuse -1 rate up rate down Reply
Master Sixkiller

Must be nice to have that kind of cash to waste on a dieing fossil from a bygone day.

May 29 2012 at 8:18 AM Report abuse -1 rate up rate down Reply
pmjohnson1717

Next, he will cut wages, fire some people and demand vendors go broke supplying him the materials he needs. The orifice of Omaha strikes again.

May 29 2012 at 7:55 AM Report abuse +2 rate up rate down Reply
dnllgrady

Looks like he just lost his supposed title.

May 29 2012 at 12:06 AM Report abuse -1 rate up rate down Reply
Taina

Print newspapers are a dead business model.

May 28 2012 at 10:31 PM Report abuse -1 rate up rate down Reply
1 reply to Taina's comment
percheron1

Plan on paying for news on the internet real soon now...Buffett is probably about to change the internet model of news organizations giving away their product

May 29 2012 at 12:50 AM Report abuse +3 rate up rate down Reply
1 reply to percheron1's comment
Mike Greggs

...exactly what's going to happen, why would anyone think different?

May 31 2012 at 3:54 PM Report abuse rate up rate down
GEORGE

He has proven to be a self serving leftist in what he say's and does. He just bought more more leftist newspapers for the DNC. He will probably write off the investment as a political contribution.

May 28 2012 at 10:11 PM Report abuse +2 rate up rate down Reply
tomgold125

Warren Buffett along with George Soros are dishonest and leftists. A pure political move.

May 28 2012 at 9:32 PM Report abuse +5 rate up rate down Reply
gp341

Senility has found Mr. Buffett.

May 28 2012 at 9:30 PM Report abuse rate up rate down Reply