Understanding the billionaire media gambles
“No grand strategy, no new business models for news will emerge from Omaha. Ultimately, these papers will be closed or sold.”
Our journalism business never ceases to provide surprises and fodder for speculation — that’s what makes this year-end round of prediction posts so much fun and, often, so far off base. For example, none of the Lab’s prognosticators a year ago predicted that one billionaire would toss $250 million into a business that has been dying for years, while another would pony up the same sum to launch an as-yet un-named and largely mysterious “new mass media organization.”
So the big question is what will these gentlemen bring to the table besides money — in particular, can they find business models around digital news that have so far eluded everyone else?
As the economy started pulling itself out of the doldrums a few years ago, some like the Lab’s Ken Doctor expected the newspaper industry to undergo broader consolidation — a “roll-up,” in Doctor’s words — of the kind long sought by MediaNews founder Dean Singleton and others. My question at the time was whether it would truly be a roll-up (a consolidation toward strength derived from national network efficiencies and opportunities, like the consolidations in the radio industry) or a mop-up — a sweeping-up of cheap, obsolete assets, with a strategy of squeezing the final years of cash flow out of them.
The expectation was that with easier credit, major newspaper groups might find the financial backing needed to merge, acquire, and swap assets in order to build stronger regional and national groups and to make the necessary R&D investments to build toward their digital future. But with cash still hard to come by, we’ve seen few steps of that kind.
Instead, most of the action in the newspaper business has come from billionaires and near-billionaires getting into the game. They’ve included legendary investor Warren Buffett (whose BH Media Group has picked up 28 local newspapers and about 40 other titles in 10 states for $344 million), money manager and Red Sox owner John Henry (who dropped $70 million on The Boston Globe), greeting-card magnate Aaron Kushner (Freedom Communications including The Orange County Register), and Amazon founder Jeff Bezos ($250 million for The Washington Post).
Are these investments roll-ups, mop-ups, or something else?
Buffett’s real strategy
I think Warren Buffett is really pursuing a mop-up strategy. He says otherwise, of course: “Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.” What else is he going to say? He may actually believe this, and believe that printed newspapers will remain viable for a long time, and may prefer to read news on paper like most people in his generation. But Buffett’s backup strategy is this: He is buying newspaper assets cheap and not investing much into them, in the expectation that even if they lose all value over the next 6 or 8 years, he will have made a decent return on his investment....MORE
