Warren Buffett's decision to buy 63 daily and weekly newspapers from Media General confirms the market value of organizations that build a strong community around local news.
That value is precisely what digital news entrepreneurs like MinnPost, Texas Tribune and Voice of San Diego are counting on as they build their organizations.
Buffett, CEO of the conglomerate Berkshire Hathaway, is not betting on newspapers, so all of those bankrupt organizations out there that are looking for capital had better look elsewhere. Buffett is betting on the value of community news, especially in smaller communities where newspapers are the primary source of news and information.
Buffett is famous for his relentless search for value, especially for companies that have a dominant market position that gives them pricing power. And, of course, he wants to buy at a very low price, in this case $142 million.
He saw all those elements in the Media General newspapers. Significantly, the deal did not include Media General's money-losing Tampa Tribune. Poynter Institute's Rick Edmonds told Reuters that the newspaper group was probably profitable without it. (His April analysis of Media General is here.)
For news organizations that can keep their costs low and their products focused on niches neglected by other media, there are strong opportunities. This is the model that many new digital operations are trying to build on.
The newspaper groups that are struggling today have debt loads that have become unmanageable as their revenues and cash flow plummeted in the past few years. They also were providing commodity news freely available on the Web. They lost their exclusivity and pricing power.
What Buffett sees in the Media General papers and in the two other newspapers that Berkshire Hathaway owns, the Buffalo News and the Omaha World-Herald, is the economic power that comes from creating a community.
Buffett once famously observed that "your idiot nephew" (see p. 2 of transcript) could have run a daily newspaper in those golden days of high profit margins before the Internet. And although it is not as easy today, Buffett is betting on that the old-fashioned community newspaper is still as valuable as some of the other old-fashioned products his company has invested in -- railroads, insurance, candy and Dairy Queen.
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