Washington Post: Why didn’t Buffett buy it?

Washington Post: Why didn’t Buffett buy it?

By Stephen Gandel, senior editor August 6, 2013: 5:00 AM ET

Despite his recent acquisitions, Warren Buffett may not be as optimistic about the future of print as some people think. FORTUNE — With the sale of the Washington Post, Warren Buffett is once again showing the limits of his love affair with newspapers. Warren Buffett’s Berkshire Hathaway (BRKA) is the largest outside investor in The Washington Post Co. (WPO) and has held the stock for four decades. Berkshire holds just over 1.7 million shares. The sale of the flagship paper to Amazon (AMZN) CEO Jeff Bezos pushed the value of Buffett’s holding in the company up $45 million in after-hours trading on Monday. But Berkshire’s overall gain is far bigger than that. Buffett first began buying shares back in 1973. In 2008, Berkshire in its annual report said the position was worth $674 million and had a cost basis of $11 million. After the sale, Buffett’s stake is now worth about a billion.So if past performance is an indication of future gains, you would think Buffett’s heart for newspapers just grew a little fonder. And indeed, Buffett has been talking a lot recently about how much he likes newspapers, and he has bought about 30 daily newspapers in the past two years.

But Buffett hasn’t added to his stake in The Washington Post Co. in a long time. The oldest financial disclosure you can get for Berkshire Hathaway online is from 1999. Back then, the company owned 1.7 million shares of The Washington Post Co., which is the same as now.

And The Washington Post Co. said its bankers approached six other potential buyers before making a deal with Bezos, who is buying the paper personally. Given Buffett’s long history with the company and the fact that he has been buying papers recently, it’s not a stretch to assume Buffett was in that group of people who passed. At the very least, it’s likely that Donald Graham, the Post’s CEO, ran the sale past Buffett and that the billionaire agreed it was time to let the storied paper go. Buffett declined to comment on the paper’s sale.

Despite his newspaper buying spree, Buffett has avoided the nation’s biggest dailies. Earlier in the year, Buffett said he wasn’t interested in buying the group of papers owned by the Tribune Co., which includes the Chicago Tribune and the Los Angeles Times, which appear to be on the block. Buffett has said he sees value in newspapers in tight-knit communities that specialize in local news.

Still, you might have expected Buffett to make an exception for The Washington Post given his long history with the paper. The problem doesn’t seem to be price. On average, Buffett has been paying about $500 per customer for the papers he has bought. Bezos is paying about the same amount — $520 per customer of the flagship paper — but he is also getting a few smaller papers in the deal, which would bring down his cost per subscriber number. So that was well in Buffett’s range.

Instead, it appears it really came down to whether Buffett thought the business of owning one of the most most influential papers in the country, with its large staff and taste for expensive investigative stories, is a good business. It appears Buffett’s assessment was no.

August 6, 2013

Bezos Brings Promise of Innovation to Washington Post

By JENNA WORTHAM and AMY O’LEARY

The big news in newspapers — that Jeffrey P. Bezos is buying The Washington Post — was not even 24 hours old when shock and wisecracks about the unexpected $250 million deal began to give way to acceptance and even envy. What, many are asking, does Mr. Bezos, the billionaire founder and chief executive of Amazon.com, see in a 135-year-old newspaper that others do not? If Mr. Bezos’s business history is any indication, don’t expect a quick answer and don’t expect any short-term fixes for The Post, which has suffered from years of sliding revenue and circulation. While terms like disrupter and innovator are often used to describe Mr. Bezos in his years at Amazon, he has also proved to be a long-term thinker, someone willing to buck Wall Street demands for big profits in order to invest in his company’s growth.Now that he is the private owner of The Post, it would not be surprising to see him worry little about turning a quick profit and instead push to upend the often ossified world of newspaper publishing, just as he did with books more than a decade ago.

Indeed, Mr. Bezos, who declined a request for an interview, hinted in a letter to employees that he felt a “need to invent, which means we will need to experiment,” and that “there will, of course, be change at The Post over the coming years.”

But just what those experiments will be is anyone’s guess.

“Jeff Bezos doesn’t need The Washington Post to make money tomorrow or even in five years,” said Glenn Kelman, the founder and chief executive of Redfin, a real estate site that, like Amazon, is based in Seattle. “He’s proven that he’s able to think over a geological time scale.”

In recent years, newspapers large and small have experimented with concepts aimed at capturing elusive online revenue to make up for losses in print circulation and advertising. The Post, for example, has dabbled in some experimental news products, including the creation of a social reader for Facebook and a recommendation engine called Trove.

Other news organizations have toyed with various strategies, most with limited success. The Daily, an iPad-only news app developed by News Corporation, shuttered after less than two years. The Wall Street Journal, The Financial Times, The New York Times and The Post have adopted various pay models for digital readers. The Guardian started a United States-based operation in 2011 to experiment with a digitally focused newsroom.

All of these companies have created mobile apps and made significant investments in online video, where advertising revenue is expected to grow, but no paper has cracked the code on how to replace steep declines in print advertising. Other traditional print magazines, like The New Yorker and Vogue, have digitized and sold portions of their archives.

They have also dabbled with new ways to make money through Amazon, particularly through the Kindle Singles, which are shorter e-books. Amazon’s biggest influence has been disrupting the economics of newspapers through millions of its Kindle mobile devices.

Mr. Bezos said The Post would be run separately from Amazon, but there is little doubt that he will bring what he has learned over the years to the newspaper world.

“He’s done an amazing job of bringing e-books to reality,” said Matt Galligan, the co-founder of the mobile news start-up Circa. “There’s a strong likelihood that a similar transition could happen at The Post.”

Though Mr. Bezos demurely noted in his letter that he had no history in newspapers, that he is an outsider not steeped in the old ways of newspaper management has excited some.

“Washington Post to be sold to Jeff Bezos?! I’d actually return to the journalism world if I could work for him,” wrote Adrian Holovaty on Twitter after the news broke.

Six years ago, Mr. Holovaty held the title “editor for editorial innovation” at The Post, but left in 2007. The co-creator of the popular Web framework Django, he thinks Mr. Bezos will bring “fresh, baggage-less thinking.”

No baggage — and deep pockets — means room to try new things. Might Mr. Bezos apply tech industry concepts like frictionless payments, e-commerce integration, recommendation engines, data analytics or improved concepts for mobile reading?

One of the biggest challenges for any company trying to sell goods on the Web, whether it is a crop-top shirt or a news subscription, is “creating relevance,” said Deena Varshavskaya, the founder and chief executive of Wanelo, a stylish e-commerce site popular among young women.

That is an area where Mr. Bezos might be primed to flex his expertise in analyzing data to find ways to engage a younger audience. In addition, Mr. Bezos’s money could come in handy when it comes to adding to the newspaper developers, engineers, designers and others who could radically change the way the organization looks and runs.

The tech industry from which Bezos has emerged certainly has offered new ways to consume news. Start-ups like Flipboard, Digg, Pocket and Feedly have long been testing and building out alternative ways to read and consume information on the Web and via mobile devices. That includes experimenting with news aggregation, recommendations and clever ways to bookmark interesting articles to read later.

James M. Brady, who was the executive editor of The Post’s Web site from 2004 to 2008, said that traditional news outlets had struggled to build and experiment with the digital arms of their organizations while retaining the values that built the company.

“We all tried to do it on the news side, but when you’re dealing with declining revenues and still trying to put out a daily news product, there’s not much money left for the developer side,” he said. “We should have done it anyway, but at the time we were trying to preserve the core product, the daily newspaper.”

In other words, the new ownership is an opportunity for a tech-oriented reboot.

Mr. Kelman said that the steady flow of new ideas and the consumer reach of sites like Yahoo, Google, Facebook and Twitter meant that tech had a lot to say about the future of The Post and other newspapers. That a tech mogul is now also a newspaper mogul shouldn’t be a shock.

“It used to be that in Silicon Valley we just built the platforms and someone else wrote the content,” Mr. Kelman said. “But that is changing. The lines have been blurred for a long time and this is just another step in that process.”

Bezos the Innovator Is What News Business Needs

One can only hope that Jeff Bezos, founder of Amazon.com Inc. (AMZN) and the new owner of the Washington Post (WPO), doesn’t mean it when he says he won’t be involved in the Post’s day-to-day operations. This is precisely where fresh thinking is needed in the newspaper business.

Nobody needed to be told that the industry is in trouble and maybe terminal decline. In discussing the sale, Washington Post Co. Chief Executive Officer Donald E. Graham frankly admitted defeat, noting that he “couldn’t see how to grow the paper and began to wonder if there was a better owner.”

It would be hard to imagine a more intriguing one. Bezos is among the most creative and disruptive innovators American capitalism has ever seen. Many Internet billionaires have, you could say, had success thrust upon them, playing at projects they thought were cool and discovering that the world agreed. Bezos is different. He brought deliberate vision and remorseless commercial logic to the overthrow of existing ways of doing business. He’s no accidental revolutionary.

This is what makes his acquisition of the Post so exciting — that, and the strategic, operational and financial room for maneuver that such a deep-pocketed owner can provide.

Various commentators (including Henry Blodget at Business Insider, an Internet news-and-comment site in which Bezos has invested) point to possible synergies between news and the Amazon model. Like newspapers, Amazon is in the content and distribution business, and via its Prime service it has found a new way to collect subscriptions from users. Amazon understands the economics of physical and virtual delivery — the puzzle that’s defeating newspapers all over the world.

User-generated content is another intersection. A hallmark of Amazon’s success as a retailer has been its focus on customer service and use of customer reviews, something buyers now take for granted across all e-commerce. Empowering consumers and recasting them as producers has been an Amazon specialty. Bezos found a way to engage with and make money from shoppers in a new kind of community — and it’s the heart of his business, not an afterthought. Notice that the online news business is increasingly preoccupied with social media, user-generated content by another name. Bezos might try to marry these ideas in new ways.

So many other complementarities suggest themselves that a deal that surprised almost everybody is already looking like something that had to happen. A newspaper in every box? An accelerated shift to all-digital? Maybe both. The challenge that’s eluded the industry so far is to manage the upheaval and thrive commercially at the same time. Bezos may find the answer, and we wish him well.

To contact the Bloomberg View editorial board: view@bloomberg.net.

Jeff Bezos and his journalists

By Felix Salmon

AUGUST 6, 2013

I’m a huge admirer of Jeff Bezos, and the way in which he has managed to dodge the biggest pitfall facing the managers of public companies: rather than maximize short-term profits, he instead has concentrated — with enormous success — on building long-term value. Amazon is now worth about $140 billion, or more than 500 Washington Posts — more, indeed, than the combined valuation of every single newspaper in the world, put together.

Many of those newspapers, including the Washington Post, were once public companies, with stock-market listings and quarterly profit reports and the like; historically they had very fat margins, and as a result of those fat margins they had substantial stock-market valuations. When those margins imploded, taking the newspapers’ profits with them, the papers were left with almost no value: the Boston Globe was sold for essentially a negative sum, once pension obligations are taken into account, while the Washington Post was sold for the price of a nice Cézanne. Meanwhile, if Amazon were to start losing money for a few quarters, few people would blink an eye; the value of the company certainly wouldn’t plunge to less than a billion dollars.

On the face of it, then, the acquisition of the Washington Post by Jeff Bezos is very good news. If newspapers were ever suited to public stock-market listings, they’re not any more; private ownership, especially ownership by an individual benign billionaire, is a much better model for all concerned. Bezos is not the kind of man who worries about losing a few million dollars here or there: he has his eye on building long-term value and relevance, which is exactly how the best newspaper owners behave. After the Graham family bought the Washington Post in 1933, for instance, it took 20 years before the paper started making real money. Jeff Bezos, who has spent some $42 million building a clock designed to last 10,000 years, has exactly the amount of patience, and money, that a modern newspaper owner needs.

What Bezos lacks, I fear, is the kind of personal talent-management skills common to most great publishers. There’s a virtuous cycle to successful publishers: as you grow in size and prestige, both advertisers and readers flock to you, you start making lots of money, which in turn allows you to hire the best writers and editors and art directors, and to spend big money on fast, effective distribution. Those people, in turn, put out a first-rate product which is very difficult to compete with.

Until, of course, the internet comes along, and everything fragments into a million tiny pieces.

If Bezos were to look at the most successful large-scale publishing operations of the past few decades, he would see a lot of waste. Some publishers, like Condé Nast or the Time Inc of old, turned lavish profligacy into something of an artform; newer entrants into the scene, such as Bloomberg, are no slouches on that front either. Meanwhile, as journalists of all stripes find themselves converging on the same digital platforms, print journalists are increasingly direct peers and competitors of their TV counterparts, where money has always been much more abundant.

Online, it’s all too easy for such operations to be disrupted by lean and efficient upstarts. Bezos’s previous investment  in the journalism space was in Business Insider, one such operation: the journalists there work very hard, in a no-slack, no-waste environment, putting out vastly more content per person than any print or TV operation would ever dream of. At places like the Huffington Post, or Gawker, or Business Insider, the goals are clearly articulated, and usually revolve around pageviews or unique visitors or some such metric. And while such outfits certainly can and do spend a lot of time working on projects which might not pay off in a narrow traffic sense, they generally do so consciously, deliberately, as a tactical departure from the hyper-efficient default mode.

At a large newspaper, the default mode cannot be hyper-efficient; the papers which have tried, which have modeled themselves on digital startups, have generally failed. A large and valuable franchise like the Washington Post generally improves the more slack there is in the system. If you have enough money that you can hire stars, treat them generously, and then leave them alone to do their thing, then they will ultimately reward you with first-rate (and very expensive) content. Your job, then, is to find a way to monetize that content.

Amazon, by contrast, is all about efficiency. It has a relatively small number of executives at its headquarters, who are paid overwhelmingly in stock; if the stock does well, they do well. It also employs, mostly indirectly, thousands of workers in warehouses around the world, picking and packaging the goods it sells; those workers are treated badly, and enjoy effectively zero slack in their working lives. What Amazon doesn’t have is paternalism, or a culture which in any way tolerates any unnecessary increase in labor costs. Its employees are cogs in the corporate machine, and they are expected to work as efficiently as possible.

The Grahams (or the Sulzbergers, or the Newhouses, or the Chandlers, or the Bancrofts) never thought of their journalists and editors that way. And the fact is that while you can achieve better profits by cutting here and maximizing there, you can never achieve long-term greatness that way. Greatness emerges mysteriously from the slack in the system, from source lunches and newsroom cross-pollination and expensive editorial whims. It emerges, ultimately, from the ability to give people time and space and money, in the certain knowledge that most of that time and space and money will end up being wasted, and embracing that waste as a good and ultimately necessary thing.

The Washington Post has not had the luxury of being able to waste time and space and money, not in many years — and as a result it is no longer a great newspaper. Maybe no newspaper can ever be great again, in that sense: the economics just don’t support it any more. But the fact is that Jeff Bezos is now an employer of journalists, and as such he is in charge of hiring and firing and paying a group of employees quite unlike any he has hired in the past. They’re not always rational, they’re not always efficient, and as a group they tend towards the skeptical and cantankerous. On top of that, they’re not entirely motivated by money.

Happy proprietors tend to like journalists — they admire what they do, and how they think. (Exhibit A: David Bradley, at Atlantic Media.) Jeff Bezos, I fear, is not going to be a happy proprietor. He’s going to keep himself occupied thousands of miles away from where his journalists will be working; he’s not going to get to know them on a personal level; he’s certainly not going to enjoy gossip-fueled lunches at the Four Seasons with Tina Brown or Arianna Huffington. If Ezra Klein is ever tempted to take Wonkblog to richer shores, or just to quit altogether to concentrate on a television career, it’s hard to imagine Bezos offering him a glass of whisky and promising to make whatever changes would be necessary to get him to stay.

To put it another way: the best proprietors are only happy when their journalists are happy. They throw resources at those journalists, and then the journalists smile, in their grumbly way, and waste a bunch of what they’ve been given, and ultimately produce wonderful content, which the proprietor can then turn around and monetize in one way or another. Bezos isn’t going to be like that, or at least I don’t think he will be. Still, I hope I’m wrong. Because if he does take an avuncular interest in whatever makes his journalists happy, then a man with his skills, and his resources, could yet turn out to be one of the most interesting and successful newspaper proprietors of all time.

Billionaire Barons Back in the Newspaper Game

When I stepped down as the editor of Reason magazine in 2000, I had no idea I was leaving behind the business model of the future.

I left nonprofit publishing just as the Internet was about to do to metropolitan dailies and many other periodicals what television had done to general-interest magazines such as the Saturday Evening Post and Collier’s: Destroy their businesses by swiping their advertisers and giving their audience alternative content free.

Now the future of journalism depends on the model I knew so well in the 1990s: patrons and amateurs. The patrons underwrite a relatively small cadre of professionals, while the amateurs use other sources of income to subsidize their work. (Think of all the academics writing here and elsewhere, or of the many consultants churning out free columns and blog posts to woo new clients.)

Jeff Bezos’s purchase of the Washington Post and John Henry’s of the Boston Globe are the latest shift toward that model. These new owners are following the well-established form of family newspapers — with a major difference. Old-style press barons combined their civic-mindedness and personal aggrandizement with the pursuit of profits. Their papers made them rich.

Bezos and Henry, by contrast, aren’t really investors. Both are immensely rich: Bezos founded Amazon.com and Henry made his first fortune in commodities trading. They’re white knights coming to the rescue of culturally significant institutions. Like the fans sending pledges to National Public Radio (or Reason) or the foundations funding ProPublica and the Center for Investigative Reporting, they’re patrons.

Cultural Shift

A world of patrons and amateurs can produce excellent work. But it won’t reproduce the journalistic culture that newspaper reporters, in particular, are accustomed to.

It means, first of all, abandoning the monolithic norms established by American metropolitan dailies.

Beginning in the late 19th century, U.S. newspapers developed a principle of objectivity based on the need to deliver as many readers as possible to mass-market advertisers. As more papers became monopolies and journalists professionalized, the idea became ever-more entrenched. Newspapers took a business requirement for broadly acceptable content and turned into a definition of “ethical” journalism so restrictive that it would exclude most magazines. (Vogue is not “objective,” and no one wants it to be.)

At the same time, newspapers professed allegiance to muckraking ideals — “afflicting the comfortable and comforting the afflicted” — that required taking sides and in many cases campaigning for controversial policy changes. Coexisting uneasily, these two standards defined the culture of American newspapers and, because of the sheer number of jobs newspapers supplied, the culture of journalism schools, journalism prizes and other norm-enforcing institutions.

Journalism supported by patrons and amateurs will, of necessity, be more diverse: in content, style, viewpoint, reliability and organizational forms. Money is fungible, but passion is not.

The goals of patrons and amateurs are more varied than providing a platform for department store ads. Some will want to preserve 20th-century ideals of objectivity and investigative reporting. Some will want to explore new forms of story-telling or data analysis. Some will want to pursue social crusades, and those crusades will themselves vary. Some will want to demonstrate their high-mindedness or support for the arts. Some will want to support political candidates, foster downtown development or root for local sports teams. Some will, like magazines, want to serve niche audiences, defined by lifestyle, ethnicity, religion, ideology, education or enthusiasms.

Reader Focus

The second big shift complements this increased variety: a greater emphasis on the audience’s experience. “The duty of the paper is to the readers, not the owners,” Bezos told a Post reporter.

Coming from the chief executive officer of Amazon, that sounds like a restatement of the company’s emphasis on customer experience over short-term shareholder gains. Coming from a newspaper owner, however, it means something slightly different. It signals a shift toward readers, rather than advertisers, as the primary customers — and toward reading, rather than buying papers, as what the paper wants most from them. By buying the Post, Bezos gives readers hope that they can get its reporting even if advertising and subscription revenue continue to collapse. For a patron, whatever his goals, reading is fundamental.

(Virginia Postrel is a Bloomberg View columnist. She is the author of “The Future and Its Enemies,” “The Substance of Style” and the forthcoming “The Power of Glamour.” Follow her on Twitter at @vpostrel.)

To contact the writer of this article: Virginia Postrel at vp@dynamist.com.

Jeff Bezos Can Make Newspapers Profitable

I was in the New York Public Library’s Stephen A. Schwarzman Building when I learned yesterday that Jeff Bezos had bought the Washington Post. (WPO) Looking around the majestic Rose Reading Room, recently renovated with the help of $100 million from Schwarzman, I thought, this is a moment I’m going to remember.

The business model of a traditional newspaper, like that of a library, is crumbling. Both institutions now require the backing of billionaires.

Why would a rich person buy a local newspaper? Many of them clearly think it’s a good idea: Warren Buffett’s BH Media Group already laid out more than $344 million for 29 daily newspapers, Rupert Murdoch has his, David and Charles Koch have toyed with buying several, and now Bezos has spent less than 1 percent of his net worth to buy the newspaper that all of political Washington reads over its cornflakes.

My bet is that Bezos will exploit the opportunities that any great local paper still has. After all, a newspaper with a stable of loyal subscribers is a modestly profitable unregulated monopoly — provided no other paper is struggling in the same area. Driven by habit and interest in their community, subscribers will keep reading comprehensive local news (the mayor, the planning commission, the high school scandal) as well as marriage and death notices. If you can please your audience so that your advertisers have someone to sell to, keep staff costs reasonable and gradually build an effective online paywall, you’ll do fine.

Yes, the Internet has stolen a lot of the revenue from classified advertising, but newspapers are figuring out ways to make up some of those losses. (Ever place a death notice in the New York Times (NYT)? It’s extraordinarily expensive.)

Local newspapers are now available at bargain-basement rates. The Boston Globe’s pennies-on-the-dollar sale to Boston Red Sox owner John Henry would have been the feel-weird newspaper story of the week if it hadn’t been for Bezos.

It’s true the communications business has changed. Twenty years ago, Americans were accustomed to receiving specific services through special-purpose networks. Television and radio were broadcast across airwaves designated for their use, letters were sent through post offices, phone calls were placed over telephone wires, and newspapers printed on wood pulp were carried to family doorsteps and city street corners.

In such a world, newspapers could build a narrow moat around their businesses. Steady income from advertising and subscriptions allowed for lavish cross-subsidization: Sports scores and business data attracted newspaper buyers and subsidized investigative reporting and opera reviews. The enterprise saw itself as one multifaceted entity.

Now all of the old delivery methods have collapsed into Internet Protocol bits, and though the newspaper has gone digital, it is just another website among many. Advertisers have a host of ways to reach customers online, and have little reason to pay newspapers special tribute — even though a newspaper’s online audience may be far larger than its print subscriber list.

Donald Graham, the Washington Post Co.’s chief executive officer, told his employees this week that revenue had declined seven years in a row.

There are still profits to be made by newspapers, but without investments large enough to intimidate would-be competitors, even the best ones will wither away.

Enter Bezos, an investor with the deep pockets and the logistical acumen to get the Post in fighting shape, to provide a fine local product to more people for less money. Not incidentally, he can cope with the paywall problems and spruce up the Post’s second-rate website.

Plus, Bezos probably has a civic heart. Think of Stephen Schwarzman and the library building. It feels good to put your name on something grand. And in Bezos’s case, his investment should also return a tidy profit.

(Susan Crawford, a contributor to Bloomberg View and a professor at the Cardozo School of Law, is the author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” Follow her on Twitter at @scrawford.)

To contact the writer of this article: Susan P. Crawford at scrawford@scrawford.net.

August 6, 2013 6:52 pm

Bezos on Page One

Amazon’s founder takes a punt on The Washington Post

As the billionaire founder of Amazon, Jeff Bezos struck terror into the hearts of traditional publishers. Now, as the new owner of the troubled Washington Post, he has a foot in both camps.

The sale ends eight decades of ownership by the Graham family, a glittering newspaper dynasty that married civic duty with the courage to defend journalism against the arrogance of power. Their near monopoly in Washington shielded journalists from commercial pressures, too: the newsroom once numbered more than 1,000 journalists and unearthed scandals such as Watergate, which for better or worse turned journalists into celebrities.

But as with other US newspapers, a captive audience may have dulled the incentive to experiment and innovate. Unlike its arch rival The New York Times, the Post abandoned its national ambitions and became a metropolitan daily. By the time the internet swept a kaleidoscope of content on to readers’ screens, the title was dangerously close to becoming an anachronism. Its top brass were slow to grasp the need for change.

The newspaper that Mr Bezos is acquiring is losing $50m annually; sales have declined in each of the past seven years. Pulling out of this death spiral will take a transformation no less drastic than the one Mr Bezos wrought on bookselling. That will require the entrepreneurial spark that created Amazon and the technological vision to come up with the Kindle tablet e-reader. His strengths are innovation – and patience.

These are virtues that should serve him well as he seeks to revive the Post. Mr Bezos has pledged to respect the newspaper’s independence – a reassuring sign given Amazon’s power as a publisher and distributor. The attractions of newspaper ownership are nowhere near as strong as when Eugene Meyer bought the Post in 1933; but the brand still has lustre. As a fellow actor in the news business, we hope this is not the end but a new beginning.

Last updated: August 6, 2013 9:05 pm

Washington Post makes paper profit for Warren Buffett

By Andrew Edgecliffe-Johnson in New York

Shares in the Washington Post Companyjumped to a five-year high, sending the value of Warren Buffett’s stake to over $1bn, as investors welcomed the $250m sale of its flagship newspaper to Jeff Bezos, theAmazon

founder.

The valuation, equivalent to 17 times the publishing business’s adjusted earnings before interest, tax, depreciation and amortisation for 2012, outstripped Standard & Poor’s estimate before the deal that the division was worth only $50m-$85m.

By the close in New York, shares in the Post’s parent company were up 4.27 per cent at $593, their highest level since the financial crisis of 2008 and up 62.5 per cent since the start of 2013. That valued the 27.9 per cent stake held by Mr Buffett’s Berkshire Hathawaygroup at just over $1bn and the 0.84 per cent holding of fourth-generation publisher Katharine Weymouth at $31m.

“It is a thunderbolt,” said Ken Doctor, a news industry analyst with Outsell, who cautioned that the sale pricethe Graham family secured may have little bearing on other metropolitan newspapers’ valuations. Shares in the New York Times Company rose only 0.9 per cent, while other US newspaper publishers’ shares fell.

Mr Bezos, who is buying the Post in a personal capacity, is taking on a business whose revenues fell 7 per cent to $582m last year and which reported operating losses of $53.7m, including non-cash pension expenses.

Its financial significance had become “largely marginalised”, S&P analysts said, noting that it contributed only 14 per cent of group revenues. The group, advised by Allen & Company, will keep its volatile Kaplan education division, its Cable One rural cable operator and its six Post Newsweek local television stations from Detroit to Miami.

Unlike many recent newspaper buyers, Mr Bezos is not buying the newspaper’s valuable head office building. In contrast to John Henry, who bought the Boston Globe from the New York Times for $70m this weekend but declined to take on its $110m pension liabilities, Mr Bezos will also take on the Post’s pension plan.

Accounting conventions have required the Washington Post Company to record non-cash pension charges, but it has not had to put a penny into its pension plans since Mr Buffett advised it to change pension adviser in the late 1970s.

The group’s pension plans show a $600m surplus, unheard of in an industry where declining headcounts in newsrooms and printing plants have strained retirement plans.

After sealing the deal he agreed in principle at the Sun Valley media and technology conference in July, Mr Bezos has yet to visit the Post’s newsroom and has given few indications of his plans in print or online. The Post’s weekday print circulation fell 16 per cent from 557,000 to 480,000 between 2010 and 2012, even as monthly average unique visitors to washingtonpost.com rose from 28.2m to 41.2m.

Print advertising fell 14 per cent to $228m last year as revenue from online publishing increased 5 per cent to $111m. More than 90 per cent of its print circulation is within 50 miles of Washington, whereas about 84 per cent of its online traffic comes from outside that area.

Grahams shepherded Post through tumultuous eight decades

Icons of both journalism and D.C. elite, dynasty presided over trade seriously buffeted by Internet era

BY ROBERT BARNES AND DAVID A. FAHRENTHOLD

THE WASHINGTON POST

AUG 6, 2013

WASHINGTON – It began with a bankruptcy sale in 1933, when a Republican businessman and presidential confidant reinvented himself as a newspaper publisher in the nation’s capital. It ended with an announcement that his descendants had sold the newspaper to an Internet wizard who lives in the Washington on the other side of the country.

In between, The Washington Post and the family collectively known as the Grahams became inseparable, indistinguishable. They were journalism royalty known around the world but remained as distinctly Washington as the cop on the beat. Which one of them was.

From Eugene Meyer to Philip Graham to Katharine Graham to Donald Graham to Katharine Weymouth, it was always a question of when power would shift from one generation to the next, not whether it would.

Until Monday. The Graham family — icons of both Washington and journalism for the newspaper they led — had made a startling decision. The Post, they said, would be better off with somebody else.

“We have loved the paper, what it stood for, and those who produced it,” said a letter from Donald Graham, The Washington Post Co. chairman and chief executive. “But the point of our ownership has always been that it was supposed to be good for the Post.”

He added: “We were certain the paper would survive under our ownership, but we wanted it to do more than that. We wanted it to succeed.”

It was the same 80 years earlier, when Meyer, a wealthy native Californian, sent a representative to the steps of the Post’s former headquarters on E Street. His winning bid for the bankrupt newspaper was $825,000, and he was not disclosed as the new owner for 12 days.

He drafted the announcement of the sale and stated his intentions: “It will be conducted as an independent paper devoted to the best interests of the people of Washington and vicinity, and hopes to have their interest and support.”

By the time Meyer was 40, in 1915, his fortune was said to be in the $50 million-$60 million range. When he bought the Post, he was 57 and most recently had been chairman of the Federal Reserve Board.

He stressed the “independent” part to dispel rumors that the paper would become a mouthpiece for the Republican Party. He said seven principles would guide the Post, the last of which was: “The newspaper shall not be the ally of any special interest, but shall be fair and free and wholesome in its outlook on public affairs and public men.”

Meyer poured his fortune into the Post and was an enthusiastic cheerleader. He was said to have tried to sell a subscription to the driver before he exited a cab.

But the real change for the Post came 21 years after the purchase, when Meyer and his son-in-law, Philip Graham, bought out its morning rival, the Washington Times-Herald. “For the Post, it meant a doubling of circulation, a morning monopoly and within five years the overtaking of the traditional advertising leader in Washington, The Star,” wrote Post reporter Chalmers Roberts in a history of the paper.

Graham was brilliant and charismatic, a former Supreme Court clerk with big ambitions and serious problems. He became publisher at 31, and Meyer arranged for him to hold more stock in the company than his own daughter, Katharine, because, he explained to her, “no man should be in the position of working for his wife.” Mrs. Graham did not object.

“I increasingly saw my role as the tail to his kite and the more I felt overshadowed, the more it became a reality,” Katharine Graham wrote in her Pulitzer Prize-winning autobiography, “Personal History.”

Philip Graham struggled with mental illness and committed suicide in 1963; his 47-year-old widow was faced with the decision of whether to sell the paper or run it herself.

It was the beginning of a long career for Katharine Graham that coincided with — and came to symbolize — two powerful trends. The first was the role of women as leaders in American life. The second was the rise of Washington’s permanent elite, an orbit of the unelected that grew along with the federal city and exercised soft power on those who had hard power.

Graham became both the leading woman in American business and a center of connection and influence in Washington society. When Graham later penned her best-selling memoir, writer Nora Ephron wrote in a review: “The story of her journey from daughter to wife to widow to woman parallels to a surprising degree the history of women in this century.”

Graham’s legacy at the Post was defined by her choice of editor, Benjamin Bradlee, and by a series of journalistic crises. In 1971, a judge had ordered The New York Times to stop publishing reports about the Pentagon Papers, a secret official history of the Vietnam War. The Post obtained its own copy. “Frightened and tense, I took a big gulp and said, ‘Go ahead, go ahead, go ahead. Let’s go. Let’s publish,’ ” Graham recalled saying.

She was best known for her support of Bradlee and two reporters, Bob Woodward and Carl Bernstein, during their reporting on the Watergate break-in. That story, which had been scoffed at by big-name reporters at the Post and elsewhere, led to the resignation of President Richard Nixon and became the most famous in the history of U.S. journalism.

“It was a small group of people on the metro staff against the world. Except we had the backing of Ben Bradlee and Katharine Graham,” said Leonard Downie Jr., who was an editor on the metropolitan staff during Watergate and served as executive editor from 1991 to 2008.

Katharine Graham later faced down a strike from the paper’s pressmen’s union in 1975, a tense period in which presses were vandalized and daily copy was ferried out by helicopter to other printing facilities.

In 1979, 33-year-old Donald Graham became the next generation to run the Post. “Today, as in the rest of my life, my mother has given me everything but an easy act to follow,” he said.

Donald Graham joked often about how he got his job, but he worked hard to expand what had been a life of privilege. He served in Vietnam and learned all aspects of the Post: He worked as a reporter, editor, advertising salesman, production supervisor, and in many other roles on the business and editorial staffs of the Post.

But before that, he became a police officer because, as his mother said, he wanted “to become acquainted with the city, its people, and its problems.”

As regal as Katharine Graham could be, Donald Graham was a down-to-earth publisher with better sources in the city and the region than most of his paper’s reporters. He prided himself on knowing the names of everyone who worked in the building.

“I hated getting into an elevator with Don, because I have a terrible memory for names,” Downie said. “He knew all the people from the ninth floor to the sub-basement.”

It is impossible to overstate how close the paper’s employees felt to the owners. When reporters picked up the check for lunch with sources, the standard line was: “The Grahams are paying.”

The fifth member of the family to run the paper is Katharine Weymouth, Donald Graham’s niece and a lawyer with degrees from Harvard and Stanford. Weymouth was announced as publisher on Feb. 7, 2008.

“Our rate of success with publishers named Katharine has been outstanding,” Donald Graham said in making the announcement.

Weymouth grew up in New York City, the daughter of Katharine Graham’s daughter, Lally Weymouth. The stories she recalls hearing about the Graham family involved its influence in Washington: Phil Graham helping put Lyndon B. Johnson on the Democratic ticket in 1960; Ronald Reagan turning up at her grandmother’s birthday parties.

Weymouth inherited a very different business than what Donald and Katharine Graham had been given. Morning newspapers everywhere had long functioned as near-monopolies, making enough money to insulate owners and journalists from the grim details of profit and loss.

But the Internet had derailed that model, in Washington and everywhere else.

“The increase in digital income is not nearly as great as the loss in advertising income. And that’s the problem,” Downie said. He recalled hearing worries about the trend long before Weymouth took the publisher’s job. “She did not preside over this change. The change began well before her.”

At the same annual meeting where Weymouth’s promotion was announced, the company also revealed a new round of buyouts for newsroom employees. And it said it would close one of its two printing plants.

During Weymouth’s tenure as publisher, the problems at the Post — and other papers — have worsened. Post circulation fell from 638,000 on weekdays to about 450,000 for the first six months of 2013. The newspaper’s revenue dropped as well. The company’s newspaper division took in $801 million in Weymouth’s first year as publisher and $582 million in 2012 — a decline of more than 25 percent.

Weymouth’s early tenure was also marred by a scandal over proposed “salons,” where the Post would connect high-paying business interests to government officials. In 2012, she replaced Marcus Brauchli, the first editor she had hired to run the newsroom, with Boston Globe editor Martin Baron.

Weymouth said she and Donald Graham together decided that the Post needed a new owner who was more like her great-grandfather: wealthy enough to buy the paper and make it again a private company.

“What I said to Don (was) if the journalism is the mission — and it is — then you can make an argument that the Post (company) is no longer the best place to house the Post,” Weymouth said Monday.

Did she consider whether Katharine Graham, her grandmother, would have approved?

“It didn’t play a role. She’s not here,” Weymouth said. “Times have changed, and we need to do what we think is best for the Post.”

Weymouth will stay on as publisher, and she described herself as “actually pretty excited.” But for the first time in 80 years, the paper will be out of her family’s ultimate control.

“The Graham family legacy is not as important as The Washington Post’s legacy,” Weymouth said.

Purchase harks back to age of newspaper titans

BY MATEA GOLD

THE WASHINGTON POST

AUG 6, 2013

WASHINGTON – The Graham family’s decision to sell The Washington Post toAmazon.com founder Jeff Bezos underscores the re-emergence of wealthy individuals at the helm of major metro dailies as newspapers seek a refuge from the battering they have experienced on Wall Street.

The news of the impending purchase came just days after the New York Times Co. announced that it is selling the Boston Globe to John Henry, the principal owner of the Boston Red Sox. And several billionaires, including the Koch brothers and Eli Broad, have been eyeing the Los Angeles Times, one of the eight newspapers that the Tribune Co. has been preparing for a possible sale.

The mashup between the Post, a 135-year-old legacy newspaper, and an Internet pioneer was cast Monday as a bet on the future. But it also represented a throwback to the era when rich industrialists controlled major metro dailies.

“In the olden days, before newspapers became big corporate interests, they were owned by wealthy individuals because to some degree they made money, but also because they gave them a sense of stature and power in their communities,” said media consultant Alan Mutter. “It’s not so much that we’re going back to some format. It’s that what we had in the post-World War II era was the anomaly. If you go back to colonial days, it was always this way.”

In announcing the sale to employees Monday, Donald E. Graham, chairman and chief executive of the Post Co., said the Amazon.com founder offers a path that the current ownership cannot provide.

“As the newspaper business continued to bring up questions to which we have no answers, Katharine and I began to ask ourselves if our small public company was still the best home for the newspaper,” Graham said, referring to publisher Katharine Weymouth, his niece. “Our revenues had declined seven years in a row. . . . We were certain the paper would survive under our ownership, but we wanted it to do more than that. We wanted it to succeed.”

But it remains to be seen how comfortable Bezos and his brethren will be with the uncertain revenue their new assets can offer.

“They didn’t get rich by absorbing a huge amount of losses,” said Craig Huber, an independent media analyst. “Sustaining tens of millions of dollars in losses year after year could accelerate the cost-cutting. There is no easy answer here to fixing newspapers, otherwise it would have already been done by the current parent companies.”

Still, Bezos’ wealth may allow him to be unconcerned about profits, others noted.

“I don’t know if he cares if it makes money,” said Jeffrey Cole, director of USC Annenberg’s Center for the Digital Future.

News of the impending ownership change was greeted with a mixture of shock and optimism throughout the industry, which has been struggling to find stable ground after years of dwindling numbers of subscribers and declining revenue.

“It’s as stunning as any industry news I’ve seen in my lifetime,” said Jim Brady, a former executive editor of washingtonpost.com who serves as editor-in-chief of Digital First Media, which owns 75 dailies. “It’s hard to imagine the Post without the Grahams. From a nostalgia standpoint, it’s incredibly sad.”

But the move also represents confidence in the future of the business, he added. “I think it shows that someone who really, really understands digital and consumer trends and consumer behavior thinks this is a good business to be in,” Brady said.

Bezos’ arrival on the scene “is the best news about the newspaper business that I’ve heard in years,” Mutter said.

“It is the very first time that a true digital native is going to own a newspaper. Heretofore, all the people running newspapers treated them like a 1953 Plymouth: tinkering with them and try to keep them going. What’s really necessary is reinventing the role and the power of a newspaper company in the modern digital era.”

Despite the hopeful cast of Monday’s announcement, the Grahams’ decision to sell reflects a grim reality of the newspaper industry. “Certain parts of the media business are finding it almost impossible to make money anymore,” Cole said.

“I think The Washington Post lucked out,” he added. “This may end up saving the paper.”

Other industry watchers said they will be looking to Bezos to do more than that.

“If he does do what I hope, which is to experiment and try new things, and if he generously shares his lessons, that could save more than the Post,” said Jeff Jarvis, associate professor and director of the Tow-Knight Center for Entrepreneurial Journalism at the City University of New York’s Graduate School of Journalism.

“I refuse to believe the only path to saving newspapers is through sugar daddies,” Jarvis added. “Yes, he may have performed an act of philanthropy by saving the Post, but I hope his greatest act is innovation. The world of newspapers will be watching what Jeff Bezos does.”

Post’s Graham First Turned to Bezos for Advice Before Sale

For years, Washington Post Co. (WPO) Chairman Don Graham turned to Jeff Bezos for advice about technology and the news business. Their conversations gave him the conviction to place the future of his family’s storied newspaper into the hands of Amazon.com Inc.’s founder.

“I know Jeff, I know about his personal qualities and technology ability,” Graham said in an interview at the Post on Washington’s 15th Street. “We had talks that centered on the well-known problems of the newspaper industry. We ended those talks and he said, ‘Well I’m still interested.’”

The decision to sell the Post to Bezos for $250 million, eventually clinched over sandwiches in an Idaho resort condominium and announced Aug. 5, was rooted in frank talks between Graham and Post publisher Katharine Weymouth over several weeks late last year. The pair — uncle and niece — focused on whether their family was the best owner for the Post as the Internet was forcing rapid changes in the industry.

“To our surprise — we asked each other whether there might be some person or company out there who could bring something different,” Graham said in the interview on the day of the sale. While no one in the family really wanted to sell, he said they wanted to give the Post “the maximum chance for success.”

To seek buyers for the newspaper assets quietly, Washington Post Co. hired Allen & Co., which it also had enlisted in 2010 to sell money-losing Newsweek magazine.

Contacting Bezos

As happened back then, the task was entrusted to Nancy Peretsman, an Allen & Co. managing director who also serves on the boards of Princeton University and Priceline.com Inc. (PCLN) The family drew comfort that she was a friend of Graham’s late mother, Katharine, who led the company during the tumultuous 1970s as Post reporters helped expose the Watergate scandal that ultimately toppled U.S. President Richard Nixon.

Graham said Peretsman had several phone conversations with Bezos early this year and then — the billionaire went silent. For two months, talks continued with other potential buyers whom Graham won’t name.

Bezos emerged again last month with an e-mail to the media executive. The talks were on.

“I was fascinated that he was interested,” Graham said. “Obviously he’d been thinking about it. This wasn’t a sudden or impulsive decision.”

Graham, 68, and Bezos, 49, have known each other for more than a decade. They had worked closely during the introduction of the Kindle and the Post’s Kindle edition.

Family Realization

While the Post’s digital business was growing, it wasn’t enough to offset declines in print advertising at the paper, where revenue had been shrinking for seven years. The company’s total revenue declined almost 3 percent last year to $4 billion as operating income dropped 56 percent.

Efforts to draw new readers and cut costs didn’t offset the declines in print advertising, Graham said. Family members came to realize there wasn’t much they could do to save the paper they had nurtured for four generations.

“We’ve tried,” the chairman said. “We have innovated very successfully in terms of building audience, in terms of our reputation and in terms of our products, but not in terms of offsetting the decline in revenues.”

The deal was eventually reached in two one-on-one meetings between Graham and Bezos in mid-July at Allen & Co.’s annual media conference in Sun Valley, Idaho.

They first met on a back porch at the conference center and spoke for about an hour, Graham said. The second encounter was in a condo at the Sun Valley resort. Graham bought sandwiches and drinks and the two men gathered at the dining room table.

Sun Valley

As Graham munched on turkey and cheese, the men had a meeting of the minds and agreed to what Graham considered “a fair price” based on talks with other potential buyers. Drew Herdener, a spokesman for Amazon, didn’t immediately respond to a request for comment. Bezos is buying the Post through a separate company.

Graham said he and Weymouth repeatedly consulted board members and billionaire investor Warren Buffett, the largest shareholder, asking, “Does this make sense?” Once Graham recommended the deal, the board agreed unanimously.

Graham and Weymouth broke the news to employees on the afternoon of Aug. 5, at a crowded meeting in a ground floor room off the lobby of the 15th Street building.

Their reaction was “sad, because of the affection and respect they have for Don and the Graham family,” Weymouth said in a telephone interview yesterday. “And shocked. But also appreciative that it’s Jeff Bezos and that he shares the values of the Graham family and the track record he has. And that we were not on the auction block.”

Bezos’ Challenge

Bezos, who has asked Weymouth, 47, and her staff to continue to run the paper, said he will keep his focus on Amazon.com. (AMZN) At the same time, he will be thinking about how to revitalize the news business, Graham said.

“He knows how to get people together to develop successful changes in what we do,” Graham said. But first, “he’s going to have to get familiar with why we aren’t growing in the first place, where news comes from, what our readers want.”

Bezos yesterday told employees the Post’s values don’t need changing and its duty “will remain to its readers.”

Graham said he was heartened by the new owner’s tone and that “one of the wonderful things he said is that it’s all going to begin with readers.”

After all, Graham said, it’s the same message his grandfather, Eugene Meyers, imparted when he bought the paper in 1933.

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net

Washington Post Sale Lets Company Face Education Challenges

Washington Post Co. (WPO)’s sale of its flagship newspaper to billionaire Jeff Bezos rids the company of its weakest division, letting it focus on a once high-flying education business now beset by government scrutiny.

The Washington-based company draws about 55 percent of its $4 billion in annual revenue from its education unit, including its Kaplan chain of for-profit colleges, whose sales tumbled 9 percent to $2.2 billion last year.

Like its competitors in the education industry, the business faces increased oversight into marketing, student-loan defaults and job-placement claims. Still, the challenges weren’t as daunting as those of the newspaper division, where revenue has shrunk for seven straight years. There wasn’t anything more the company could do to save the storied Washington Post from the print-media industry’s decline, Chairman Don Graham said.

“We’ve tried,” Graham said in an interview after announcing the sale of the newspaper yesterday. “We have innovated very successfully in terms of building audience, in terms of our reputation and in terms of our products, but not in terms of offsetting the decline in revenues.”

The sale to Bezos will add $250 million to the company’s coffers, and it spurred a share gain of 4.3 percent to $593 today. Even so, management won’t have an easy task as they turn their attention back to education. Concern about escalating student debt in a sluggish economy is hurting enrollment, and the company is dealing with more competition from traditional institutions.

Frank Discussion

The Washington-based company reported a total revenue decline of almost 3 percent last year to $4 billion, while posting a 56 percent drop in operating income.

At the end of 2012, Graham said he had a frank talk with Post Publisher Katharine Weymouth, his niece. They discussed whether they were the best owners for the Post at a time when the newspaper industry was being forced to adapt to the rapid changes brought on by the Internet.

“We asked each other whether there might be some person or company out there who could bring something different,” Graham said. “None of us — me, Katherine — in the family wanted to sell.”

Even so, they wanted to give the Post “the maximum chance for success,” according to Graham, and decided to go ahead with a plan.

Bezos Interest

The company hired Allen & Co. to handle the sale process, with the investment bank’s Nancy Peretsman leading the effort. After reaching out to a handful of potential buyers, Bezos expressed interest early this year, according to Graham, who declined to name other suitors.

Graham said he’d known Bezos for at least a decade and a half, consulting with him on technology questions facing the company. As chief executive officer of Amazon.com Inc. (AMZN), Bezos has worked with publishers to develop the Kindle e-reader.

“I had thought early on that Jeff would be a wonderful buyer, but I didn’t expect him to come forward because he’s so single-minded about his company,” Graham said.

After a few months of silence, Bezos sent Graham an e-mail last month to discuss the acquisition.

“Obviously he’d been thinking about it. This wasn’t a sudden or impulsive decision,” Graham said. The deal was eventually clinched in two face-to-face meetings in early July between Graham and Bezos at Allen & Co.’s annual media conference at Sun Valley, Idaho.

Media Breakups

Washington Post Co. is just the latest newspaper company to cut ties with the print-media business. Tribune Co. announced plans last month to spin off its papers from the company’s TV operations, and News Corp. split up into publishing and entertainment divisions in June.

Time Warner Inc., meanwhile, plans to spin off its Time Inc. magazine empire this year. That will let it focus on its cable networks, including HBO, TNT and TBS.

Washington Post Co. also has tried to diversify its business by expanding into wide-ranging markets. Last month it agreed to buy Forney Corp., a maker of gas and oil igniters, and invested in FaithStreet.com, a website that helps people find a church. Last year, the company announced plans to buy a seller of hospice services. Washington Post Co., which plans to rename itself after the sale to Bezos, also will retain cable systems and broadcast TV stations, as well as websites such as Slate.

Restructuring Ahead?

The education market still makes up the majority of the company’s sales, leaving it vulnerable to a tougher regulatory climate. Last year, Kaplan said it stopped signing up students at nine campuses and was folding four others into nearby locations.

Kaplan Higher Education’s revenue fell 12 percent in the first quarter, and the company said it is evaluating its cost structure and may incur more restructuring charges this year.

The Post sale at least takes some pressure off the rest of the company, and Bezos is seen as a buyer who can preserve the asset, said Ross Levinsohn, CEO of Guggenheim Digital Media, who sits on the board of Tribune Co.

“It’s a wonderful result for an institution like the Washington Post,” Levinsohn said.

The Graham family’s decision to sell the Post puts a spotlight on the Ochs-Sulzberger clan, which controls the New York Times, said Ken Doctor, a media analyst with research firm Outsell Inc.

New York Times Co. agreed to sell the Boston Globe to Red Sox owner John Henry last week. The question now is whether it tries to sell the flagship Times newspaper as well, given the worsening landscape for print media, Doctor said.

“With the Post sale, you have to wonder about the Sulzbergers,” he said. “Do the Sulzbergers have the financial wherewithal and the emotional capacity to do what needs to be done? Without that, the logical decision would be to find someone like a Bezos for the Times.”

To contact the reporters on this story: Edmund Lee in New York at elee310@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net

Jeff Bezos Bought The Washington Post. But So Did Amazon

BY CADE METZ

08.06.13

After learning that Amazon founder and CEO Jeff Bezos was paying $250 million for The Washington Post, the news media fell over itself trying to make sense of this sudden and surprising announcement.

That’s what you’d expect from the world’s media pundits. Bezos was buying one of their own, and he runs one of the most powerful companies of the internet age, an outfit that controls so much the online world that newspapers have so much trouble coming to terms with. The irony is that most pundits were reluctant to suggest the purchase had anything to do with the internet giant he founded.

Yes, Bezos bought The Washington Post with his own cash, not through Amazon. But that’s the best way of merging the two.

Like so many newspapers, The Post must change to survive. As print revenues continue to drop, it must find a home in the online universe created — and constantly reinvented — by internet players like Amazon, but that’s oh so hard to do from inside a public company where there’s pressure to please shareholders. The best way to save The Post is to plug it into Amazon — but from outside the company. And surely, after spending $250 million, Bezos wants to save The Post.

“He’s not buying this because he wants the paper to deliver his views on space travel,” says Alan Mutter, a former columnist and editor with the Chicago Daily News, the Chicago Sun-Times, and The San Francisco Chronicle who has since become a serial Silicon Valley CEO. “He’s buying this because he sees a big business opportunity, a new market for him figure out and conquer in the way that he figured out a way to not only sell books online, but batteries and razor blades online.”

Yes, Bezos could do this without Amazon, but he’s smarter than that. At the very least, he’s clever enough to use what he has.

Many others are looking to protect struggling newspapers from wrath of shareholders. Several years ago, the publicly-traded Belo Corporation, owner of The Dallas Morning News, separated its print holding from its broadcasting arm. Others, such as media behemoth News Corp., have followed suit, trying to give their newspapers room to breathe. And just before Bezos bought The Post, John W. Henry, owner of the Boston Red Sox, took the Boston Globe private with his $70 million purchase of the paper from The New York Times.

Bezos is following in their footsteps. Yes, Amazon has a knack for convincing Wall Street that short term profits aren’t that important, but saddling the company with a print newspaper is a bridge too far. “Bezos probably could have talked the Amazon board into buying The Washington Post,” Mutter says, “but then they would have put it on stringent requirements for profitability — and they would not have been willing to write the checks necessary to reposition the business and take advantage of all the digital opportunities ahead. Bezos, I think, didn’t want to worry about that.”

As Mutter points out, you could instantly boost the reach of The Post simply by making it the newspaper app of choice on the Kindle, Amazon’s answer to the Apple iPad tablet. But this is merely the most obvious option. The thing to realize is that Amazon has built a sweeping technical infrastructure designed to promote and distribute all kinds of goods and services — and to keep people people coming back for more.

“Amazon is really a technology infrastructure company,” says Mike Ananny, an assistant professor at the University of Southern California’s Annenberg School for Communication & Journalism. “This is someone who builds online infrastructure and who now has a paper that’s looking to make a move in the online space.”

Ananny is careful to say that he means Bezos here, not Amazon — and that Bezos has not explained what he intends to do with The Post. But he agrees that Amazon’s expertise could help change the wayThe Post operates. As he and others point out, Amazon has built online recommendations engines that could serve the newspaper game, and it has a particular knack for customer service.

“The compelling fact is that Amazon has the best customer experience on the web,” says Ken Doctor, an analyst with Outsell, a research and consulting firm that serves the publishing business. “If you think about customer interaction — the relationship to a customer, the news industry hasn’t cracked that nut. They put out a lot of news. The formats on the web, on smartphones, on tablets are OK. But they have not figured out what we might call a NetFlix for news or an iTunes for news.

“You can take a lot of the friction-removing processes Amazon has mastered over the years and apply them to news. How do you buy a digital subscription? How do you do a vacation-hold? How do you save stories? How do you share stories? But also how do we actually read things — how is it customized on the fly?”

Alan Mutter is willing to go further. He argues — and rightly so — that Bezos isn’t someone to make a purchase like this without a plan, and he believes The Post could benefit from so many other parts of the Amazon machine, including its ability to deliver physical goods. Now that Amazon is doing same-day delivery, why not deliver newspapers?

But there’s another side to this $250 million purchase. Just as The Post can benefit from Amazon, Amazon can benefit from The Post.

Traditionally, newspapers are owned by companies in the newspaper business, but we’re now moving into a world where they’re owned by individuals and companies with agendas outside the news world. John Henry runs the Red Sox. Warren Buffet’s Berkshire Hathaway, which nows owns several local newspapers, invests in everything else under the sun. There is at least the potential for people like Henry and Buffet to use their papers to promote their other interests.

Again, the Bezos buy takes this dynamic even further. The Post isn’t a local paper. With nearly 500,000 subscribers, it’s read on Capitol Hill and in the White House and across the country — and Amazon is a company that can benefit from that, in big ways. The online giant has long struggled to fight laws that would force it to pay sales tax in certain states, and more recently, it has faced complaints about working conditions in its warehouses.

You might argue that The Post’s influence is dwindling, and that it’s not the sort of paper that you could turn into your own mouthpiece. Bezos himself has said he won’t run the paper day-to-day. But the truth is that if you own the paper, you have an effect on its coverage — at least in subtle ways — and you can exert even greater influence on its op-ed page. Few pundits think Bezos would be so heavy-handed as to reinvent The Post in Amazon’s image, but as time goes on, that may change.

“There synergy for Amazon in that it’s great to own the opinion pages of The Washington Post, in Washington, D.C,” Doctor says. “It brings a huge amount of clout to issues that a huge company like Amazon will be involved in.”

Bezos has said that in 20 years, print newspapers will be all but extinct. Now that he has spent $250 million on one of his own, we can only assume that he wants to transform it into something new. “If he’s successful and The Post becomes bigger, richer, has a bigger audience, has more revenues, can hire more writers, can create more content, can touch more lives in a more meaningful ways, then he’s not catching a falling knife,” Mutter says. “He’s grabbing an important a brand that’s bigger and more important than it is today.”

TUESDAY, AUGUST 6, 2013

What Can Jeff Bezos Teach a Troubled Industry?

By JOHN KIMELMAN | MORE ARTICLES BY AUTHOR

A $250 million acquisition is normally stuck on the back pages. But this one is clearly different.

The financial press has generated a flood of stories about Amazon.com founder Jeff Bezos’ decision to buy the Washington Post for his personal portfolio.

The purchase of a steadily declining urban newspaper, picked up for a paltry $250 million, is arguably not a major business or investment story. Acquisitions of this size in other industries are normally relegated to the back pages. And everyone knows that general-interest newspapers have been in steady decline for years.

But it’s journalists who decide what appears in the paper and online. And the Washington Post has long been admired by many an ink-stained wretch. There’s a whole generation of journos that took a pass on law school and other possible career avenues because of the excitement generated by a small team of reporters and editors who exposed the Watergate scandal and brought down a president. The Post, while always known for its strong political coverage, also revolutionized newspaper feature writing with its Style section.

To be sure, the acquisition’s news value, if not its value as a bona-fide business story, does get a huge lift from the person who is buying the Post. Can Bezos, who has mastered retail distribution like few others in history, add value to a paper with a steadily eroding customer base?

Forget for a moment that the Amazon founder is spending only 1% of his net worth to buy the Post. If he can bring 21st century thinking to a business that peaked in the 20th century, there may be lessons for many other publicly-traded companies still anchored to newspaper properties, including the new News Corp. (ticker: NWSA), the parent ofBarron’s, and the New York Times Co. (NYT).

In a Business Insider column, top editor Henry Blodget discussed the ways in which Amazon.com could complement the Post’s business while leading to some interesting synergies.

For example, “Amazon is already in the content production and distribution business — and news is just another kind of content,” writes Blodget. “Amazon distributes massive amounts of print and digital content. The content the Washington Post publishes and distributes could be bundled or distributed with that content. And, similarly, the content that Amazon produces — mainly commerce-related, but increasingly media — could be integrated with the Washington Post’s content, offering more choices for customers and consumers.”

Blodget also points out that the news-gathering business “is the digital equivalent of a high-traffic intersection: As people pass through to figure out what’s happening they might also stop to do some shopping.”

The story makes several other perceptive points and is worth a read.

Most accounts of this acquisition mention that one of Bezos’ greatest attributes is his patience. After all, he was willing to endure the criticism in the 1990s that Amazon.com was the greatest business “never to have turned a profit” as he slowly made the investments necessary to create one of the greatest retailers of all time.

A piece in the New Yorker by Matt Buchanan discusses Bezos’ willingness to take the long view on many projects he pursues, including Blue Origin, a privately-funded venture Bezos launched to make space travel affordable one day for the Earth’s citizens.

“The [Blue Origin Website] notes that its work ‘is a long-term effort, which we’re pursuing incrementally, step by step,’ ” Buchanan writes. “It might as well be talking about rebuilding the Washington Post, which has been radically downsized over the last several years. Bezos is a man, after all, who’s trying to build a clock that will run for ten millennia which is buried inside of a remote mountain in Texas, simply because he desired the existence of an icon for long-term thinking.”

Print and digital journalists, along with their bosses, will be closely watching what kind of moves are made at the Post in the coming years. Still, it’s significant that it was Bezos who saw fit to buy the Post rather than another multi-billionaire with a long-time interest in newspaper properties — Warren Buffett.

As a Fortune article points out, Buffett, whose Berkshire Hathaway(BRK.A) has long been a major shareholder of the Washington Post Co., has bought many small papers in recent years. But “despite his newspaper buying spree, Buffett has avoided the nation’s biggest dailies,” writes Fortune senior editor Stephen Gandel. “Earlier in the year, Buffett said he wasn’t interested in buying the group of papers owned by the Tribune Co., which includes the Chicago Tribune and the Los Angeles Times, which appear to be on the block. Buffett has said he sees value in newspapers in tight-knit communities that specialize in local news.”

“Instead, it appears it really came down to whether Buffett thought the business of owning one of the most influential papers in the country, with its large staff and taste for expensive investigative stories, is a good business,” concluded Gandel. ” It appears Buffett’s assessment was no.”

We’ll see who’s right.

Updated August 6, 2013, 8:33 p.m. ET

Jeff Bezos’s Tool Kit for the Post

Amazon Founder Brings Skills in Data Gathering, Software, E-Commerce

KEACH HAGEY and GREG BENSINGER

As owner of the Washington PostWPO +4.27% Jeff Bezos will have an opportunity to transform how the money-losing newspaper generates revenue in an industry desperately in need of a makeover.

Although Mr. Bezos bought the paper in a personal capacity, many media-industry experts expressed optimism that the Amazon.com Inc. AMZN -0.08% founder will be able to apply to the Post the same software development, data gathering and e-commerce chops—as well as his patient investment philosophy—that turned his company into a powerhouse.

“Building audience, personalizing the offering, and, certainly, monetization,” those are the core competencies that Jeff Bezos and Amazon have developed, said Alan Mutter, a newspaper consultant. “The more you interact with an individual on her smartphone, the more you are able to gauge an individual’s response, the more you learn about that individual, the better you can be about providing both content and advertising to that individual,” he said.

Amazon is most famous for e-commerce, and experts say that is where Mr. Bezos may best serve the newspaper.

“The success of Amazon has been hugely disruptive to multiple industries, from books to retail to streaming video, and Bezos has been at the helm of that,” said Clark Fredricksen, a vice president at eMarketer. “Bezos knows a thing or two about selling things online; that is a definite potential new outlet for the Post and the industry.”

To truly capitalize on either the e-commerce or digital data-mining potential of the Post under Mr. Bezos, experts agreed, the paper will likely have to become more of a national platform. For years, the Post has felt a dissonance between its international fame as a Watergate-era icon and its largely local advertising base.

Mr. Bezos’s intentions aren’t clear. Since the announcement on Monday that he was buying the paper for $250 million, he has declined to give interviews, except to the Washington Post itself.

He told staffers that he doesn’t plan to get involved in day-to-day operations. Some detractors have speculated the billionaire might have merely wanted a trophy media property or a mouthpiece, while others close to him theorize that he bought the paper as a public service. A spokesman declined to comment further on Mr. Bezos’s investment.

The Post has already experimented with e-commerce and Amazon, beginning several years ago embedding Amazon links in its book review section that allowed the Post to take a small cut from books purchased through the links. But the revenue newspapers have drawn from e-commerce have so far not amounted to much.

“If you look at the amount of money we are making in e-commerce, I would say it’s been something that we haven’t really done very well, and it’s not really in the history of what we’ve generally done,” said Jim Brady, the former executive editor of washingtonpost.com and current editor in chief of Digital First Media. “Mixing commerce and journalism is always fraught with its own perils on the ethics side, so we probably didn’t do as much as we could have.”

Still, industry observers say Mr. Bezos may do well to look at European sites such asAxel Springer AG’s SPR.XE -0.58% Bild news site. There readers can buy iPhones, watches, soccer uniforms and pricey sports memorabilia books.

Many American papers have e-commerce arms. New York Times Co. NYT +1.68%sells memorabilia and travel packages and Wall Street Journal owner News CorpNWSA +1.13% sells wine and other items. Tribune Co.’s TRBAA -1.13% Los Angeles Times operates a store offering branded T-shirts and notebooks out of its headquarters building.

So far, though, most publishers have concentrated on cutting costs and, more recently, trying to boost subscription revenues by raising prices for print editions and instituting “paywalls” that restrict how many articles nonsubscribers can read free. That has helped some increase digital subscription revenue.

One possibility is that Mr. Bezos could eliminate print publication or, as some newspaper owners have already done, reduce it. Last year, Advance Publications Inc., which owns the New Orleans Times-Picayune, the Cleveland Plain Dealer and other papers, began reducing daily publication in cities including New Orleans and Birmingham to three days a week—though the outcry in New Orleans was so loud that it reinstated a daily print product earlier this year. Nonetheless, the company has continued its march of scaling back publication and home delivery of its printed paper, while beefing up its websites, in an effort to cut costs and follow readers and advertisers to the Web.

Steve Newhouse, the chairman of Advance.net, said data indicate a boost in the papers’ digital audiences. “We’re too early in our transformation to really give any sense of whether the changes we’ve made will be successful in the long term,” said

Another possibility is simpler: Mr. Bezos could invest in the paper, in the same way that he invested in Amazon for years before it turned a profit.

That is what former greeting-card executive Aaron Kushner and his partner did when they bought the Orange County Register last year. The pair have hired an additional 350 staffers, boosting the papers’ employment to about 1,000—the reverse of what most other publishers have been doing.

The Register turned a profit last year and is on track to do the same this year, Mr. Kushner said. He sees parallels with Mr. Bezos and Amazon.

Amazon is “consistently criticized for investing too much in the next thing they are going to give their customers, and yet, every investment ends up yielding a return,” Mr. Kushner said. “We are criticized for over investing in our community, but if you are not investing, fundamentally, you can’t grow.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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