Did Warren Buffett Break His Promise?
Dec 4th 2012 10:24PM
Updated Dec 4th 2012 10:28PM
A little more than six months ago, Warren Buffett set out to save the American newspaper industry. Paying $142 million to acquire 63 struggling newspapers from Media General (NYS: MEG) , the Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) chairman made a number of promises to his new employees ... and to his new readers.
He promised, for example, to "rethink the [newspaper] industry's initial response to the Internet," and to "blend ... digital and print [to] attract both the audience and the revenue we need."
While acknowledging that "times are certainly far tougher today than they used to be for newspapers," Buffett assured his journalists that under Berkshire's aegis, they would "operate from a position of financial strength" and be part of a company boasting "capital and liquidity second to none."
Perhaps most importantly, Buffett promised his papers that in his opinion, they had "earned the time, money, and respect that subscribers allot them." He promised them: "You will determine your paper's destiny; outsiders will never dictate it."
Then, just a few months later, Buffett shut one of the papers down.
Oops. They killed the "Messenger."
In November, just a few months after acquiring it as part of the Media General acquisitions, Berkshire's World Media Enterprises (the subsidiary set up to run Buffett's news emprie) announced it was shutting down the Manassas News & Messenger, and laying off all 33 employees. Effective Dec. 30, the Messenger will be no more.
The Messenger, which publishes five days a week in the suburbs of Washington, D.C. and boasts a circulation of some 10,000 readers, didn't do anything wrong in particular. To the contrary, in a letter announcing the closing, the Messenger noted that its 33 staffers had "worked very hard as we took several approaches to make this newspaper successful." It continued: "Despite those efforts, business conditions drove us to this decision. We do not see a long-term viable way to maintain a daily news operation here."
Nevertheless, according to WME, "an exhaustive review of The News and Messenger" failed to reveal any "scenario that would result in a likelihood of profitable operations there." (In related news, WME's parent company recently confirmed in SEC filings that it has reduced its stake in newspaper operator Lee Enterprises (NYS: LEE) as well.) Notwithstanding Buffett's assurances of last summer, it seems Berkshire is no longer committed to letting its papers "determine their destiny." "Outsiders" are indeed dictating at least one newspaper's fate. And they've decided to kill the Messenger.
So what really happened here? Did Warren Buffett fail? Or did he break his promise and kill the Messenger out of sheer profit motivations?
Responses from Messenger subscribers are what you'd expect, ranging from distressed ("I get national/international news on TV or Internet but where am I supposed to get local news now?") to bitter ("The world of the 'community' newspaper is dead"). From heartfelt ("Goodbye, News and Messenger, you'll be missed by many") to sarcastic ("So you all got Bained by your homeboy Warren Buffet?") to wry ("How are the homeless going to stay warm without this paper?")
Mostly though, readers seem resigned to the Messenger's demise. It was inevitable. This was a paper not even Warren Buffett could save.
For his part, Buffett seems noncommittal. Asked about the closure recently at a party thrown by friend and Fortune writer Carol Loomis, Buffett hedged. He said he plans to discuss his newspaper-running philosophy at some length in Berkshire's upcoming shareholder letter (due out in February). But for now, all Buffett's saying is that he intends to keep on buying newspapers and hopes to eventually own "a lot more" than the 60-odd papers he now controls. As for the Messenger, Buffett dismissed that one as an isolated, "troubled paper."
Tempting as it is to cast this news as a "even Warren Buffett can't save the newspaper industry!" story, the upshot appears to be more optimistic.
In a world where free Google (NAS: GOOG) News has replaced paid subscriptions to actual news-papers for many readers, and where Craigslist has made classified ads -- and classified ad revenues -- as obsolete as the quill and ink, Buffett gambled on his ability to save 63 Media General castoffs ... and he's still trying to make a go of 62 of 'em. He's got a success rate -- or at least a not-yet-failed rate -- of 98.4%.
How many other investors can say we've done as well?
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