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Newspapers AREN'T Dead...Their Stocks BEAT the S&P 500 in 2012!

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Hussman sees an industry that generates nearly $60 billion a year in print ad sales and subscription fees, and that supports the expenditure of roughly $7 billion a year on newsgathering operations, and worries about it all slipping away in an era in which news is so abundant – and so free. “It would be wonderful if someone could figure out a way” to do all that online, he says before concluding, “but I just don’t see it now.”
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I don't think the magnitude of newspaper stock changes are instructive due to financial leverage.  For example, LEE has nearly $1 billion in debt and a market cap of $60 million while MNI has $1,515 of debt to $292 in mkt cap.


Not taking a stand on other parts of article but don't own newspaper.  They are in my "too hard" pile given timing of FCF decline.

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I think what this shows is more of an adoption of technology that was destroying the franchise than anything else.  The outright slaughter of the newspaper by the internet has been stemmed and newspapers are learning how to use their content via the internet to generate incremental revenues.  The same has happened in radio and TV.  They have adapted to the new technology and are using the technology to their advantage. 


For radios and TVs, I don't think the stock market realizes this yet.  The M&A market realizes this as evidenced by the multiples paid for these types of businesses (10 - 12x EBITDA) and the debt market is willing to lend to these businesses at low rates 5 to 6%s for B type credits (see TVL and GTN re-fis).  The only market that is not inline is the equity market. 



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I enjoyed watching Buffett say, first, newspapers are dead: "I would not invest in them at any price." 


Then, years later, he buys up a huge swath of local papers.  He explains his rationale to the market.  And, in doing so, 'hints' that, well, everyone should start charging for online access: "You can't give away your product and simultaneously charge for it."


It's clear, of course, papers will never be what they once were but Buffett played this pretty well.  Even if it is a drop in the Berkshire bucket.



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I enjoyed watching Buffett say, first, newspapers are dead: "I would not invest in them at any price." 


Then, years later, he buys up a huge swath of local papers.  He explains his rationale to the market.  And, in doing so, 'hints' that, well, everyone should start charging for online access: "You can't give away your product and simultaneously charge for it."


Well, let's rationalize it by saying that he didn't invest in "newspapers", but branded and trusted information providers.

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His earlier statements weren't quite so blanketing. He talked about the advantages of local coverage.


Rabbit, they were very, very close.  But, I concede he never said never to every paper.


May 2009




"Warren Buffett will keep the Buffalo News and a stake in the Washington Post Company (NYSE: WPO)but won't play white knight for the newspaper industry. The billionaire financier told shareholders at the Berkshire Hathaway annual meeting taking place today in Omaha, Neb., that newspapers face possible "unending losses" and that the company would not buy most U.S. newspaper "at any price," according to MarketWatch and WSJ."

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Okay, taking the unweighted average of share price change was bugging the crap out of me when the companies varied from 3 million to 4.5 billion market cap so I weighted it based on their latest closing market cap.


Drumroll please................................


20.07% weighted average return  :P


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We Buy Some Newspapers. . . Newspapers?


During the past fifteen months, we acquired 28 daily newspapers at a cost of $344 million. This may puzzle you for two reasons. First, I have long told you in these letters and at our annual meetings that the circulation, advertising and profits of the newspaper industry overall are certain to decline. That prediction still holds. Second, the properties we purchased fell far short of meeting our off-stated size requirements for acquisitions.


We can address the second point easily. Charlie and I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, a widget company. Addressing the first point requires me to provide a more elaborate explanation, including some history. News, to put it simply, is what people don’t know that they want to know. And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost. The relative importance of these factors varies with the nature of the news and the person wanting it.


Before television and the Internet, newspapers were the primary source for an incredible variety of news, a fact that made them indispensable to a very high percentage of the population. Whether your interests were international, national, local, sports or financial quotations, your newspaper usually was first to tell you the latest information. Indeed, your paper contained so much you wanted to learn that you received your money’s worth, even if only a small number of its pages spoke to your specific interests. Better yet, advertisers typically paid almost all of the product’s cost, and readers rode their coattails.


Additionally, the ads themselves delivered information of vital interest to hordes of readers, in effect providing even more “news.” Editors would cringe at the thought, but for many readers learning what jobs or apartments were available, what supermarkets were carrying which weekend specials, or what movies were showing where and when was far more important than the views expressed on the editorial page.


In turn, the local paper was indispensable to advertisers. If Sears or Safeway built stores in Omaha, they required a “megaphone” to tell the city’s residents why their stores should be visited today. Indeed, big department stores and grocers vied to outshout their competition with multi-page spreads, knowing that the goods they advertised would fly off the shelves. With no other megaphone remotely comparable to that of the newspaper, ads sold themselves.


As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference. (As one Southern publisher famously confessed, “I owe my exalted position in life to two great American institutions – nepotism and monopoly.”) Over the years, almost all cities became one-newspaper towns (or harbored two competing papers that joined forces to operate as a single economic unit). This contraction was inevitable because most people wished to read and pay for only one paper. When competition existed, the paper that gained a significant lead in circulation almost automatically received the most ads. That left ads drawing readers and readers drawing ads. This symbiotic process spelled doom for the weaker paper and became known as “survival of the fattest.”


Now the world has changed. Stock market quotes and the details of national sports events are old news long before the presses begin to roll. The Internet offers extensive information about both available jobs and homes. Television bombards viewers with political, national and international news. In one area of interest after another, newspapers have therefore lost their “primacy.” And, as their audiences have fallen, so has advertising. (Revenues from “help wanted” classified ads – long a huge source of income for newspapers – have plunged more than 90% in the past 12 years.)


Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in yourtown – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. 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.


Even a valuable product, however, can self-destruct from a faulty business strategy. And that process has been underway during the past decade at almost all papers of size. Publishers – including Berkshire in Buffalo – have offered their paper free on the Internet while charging meaningful sums for the physical specimen. How could this lead to anything other than a sharp and steady drop in sales of the printed product? Falling circulation, moreover, makes a paper less essential to advertisers. Under these conditions, the “virtuous circle” of the past reverses.


The Wall Street Journal went to a pay model early. But the main exemplar for local newspapers is the Arkansas Democrat-Gazette, published by Walter Hussman, Jr. Walter also adopted a pay format early, and over the past decade his paper has retained its circulation far better than any other large paper in the country. Despite Walter’s powerful example, it’s only been in the last year or so that other papers, including Berkshire’s, have explored pay arrangements. Whatever works best – and the answer is not yet clear – will be copied widely.




Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

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The New York Times’s landmark metered paywall will be two years old next month, and it’s already successful beyond anyone’s expectations.


The NYT’s newspaper industry rarity.



The newsonomics of zero and The New York Times



The Kingdom and the Paywall.



The NYT paywall is working.



On Porous Paywalls


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