Buffett is latest billionaire to struggle with newspaper revival
Warren Buffett, the investor famous for betting on aging industries like railroads and insurance, is now trying to pull off something other billionaires have tried and failed to do: save the newspaper business.
His company, Berkshire Hathaway Inc., has spent more than $342 million on 80 newspapers — including its hometown paper, the Omaha World-Herald — and used them to build a new business unit. And Buffett isn't done. Though the division announced plans to close an underperforming newspaper in Virginia last month, he's said that more acquisitions may be in store.
Terry Kroeger, the newly installed chief of Buffett's newspaper empire, runs the operation from a 15th-floor office overlooking the expanse of wide streets that make up Omaha. The goal, Kroeger says, is to reintroduce newspapers to what they do best: delivering urgent, local information that readers can't get elsewhere and coaxing people into paying for it. He's creating offshoot websites with corporate sponsors and branching out into Internet video.
“We've got to evolve with what people are looking for, and I think our industry has done kind of a crappy job with that,” Kroeger, 50, said.
Kroeger, who started working at the World-Herald 27 years ago, once kept a pair of sneakers under his desk to mow the lawn whenever the grass around the office building got unsightly. Just like in those early days, it's essential to charge readers for the reporting that journalists provide, he said. The World-Herald erected a so-called paywall last year, and Kroeger aims to roll out the same approach across his other newspapers.
“You can't spend millions of dollars assembling something and then give it away,” he said, endorsing a strategy adopted by the New York Times, News Corp.'s Wall Street Journal and most of Gannett Co.'s papers.
The World-Herald, Buffett's flagship paper, will record a decline in revenue this year as circulation shrinks, Kroeger said. It generates about $100 million annually and remains profitable, said Kroeger, who declined to elaborate on its finances.
Buffett's acquisition of 63 newspapers from Media General Inc. this year accounts for most of the newspaper unit. Based on Media General statements, those newspapers generated $299.6 million last year, a 50 percent decline from 2006.
Kroeger said that Buffett's newspaper division is in the black and should remain so, despite the shrinking revenue.
“We're profitable this year,” he said. “I have a high degree of confidence we will remain profitable next year as well. We're very high on the industry.”
The paywall has helped gain revenue, though the program is still in the early stages, he said.
The World-Herald's circulation, meanwhile, has continued to shrink. It fell 3.2 percent in weekday readership to 130,932 from a year earlier, according to the most recent data from the Alliance for Audited Media. The Sunday edition dropped 2.9 percent to 165,397.
Even if the paywall draws help boost subscriptions, the move is more of a palliative than a cure, Kroeger said.
“We have to get into new businesses,” he said.
One such venture, under way, aggregates health care articles from the World-Herald and other Berkshire-owned Nebraska newspapers into a website sponsored by Blue Cross and Blue Shield of Nebraska. The site, which is freely available to readers, has advertising in addition to the sponsorship.
The risk is that sponsorships jeopardize a newspaper's objectivity, especially when it comes to medical information, said Todd Gitlin, a professor at the Columbia University Graduate School of Journalism.
“Medical news is already rigged or bent toward breathless accounts of miracle cures,” Gitlin said. “It's risky to indulge further in corporate sponsorship.”
Kroeger said the arrangement with Blue Cross doesn't affect the content.
The broader question is whether newspapers can evolve quickly enough to revive a decaying business. They're confronting shrinking demand for print advertising, declining circulation, and encroachment from Internet companies such as Google Inc. and Facebook Inc. The industry's ad dollars dropped 6.6 percent in the first six months of 2012 from a year earlier, according to the Newspaper Association of America.
While community papers have an edge over publications in crowded media markets, no one has found a way out of the slump, said Ken Doctor, a media analyst with Outsell Inc. in Burlingame, Calif.