At Papers, Berkshire Rewrites Its Script; Warren Buffett’s Conglomerate Is Buying and Retooling Newspapers

At Papers, Berkshire Rewrites Its Script

Warren Buffett’s Conglomerate Is Buying and Retooling Newspapers

ANUPREETA DAS

Jan. 1, 2014 6:09 p.m. ET

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Warren Buffett, tossing a newspaper at Berkshire’s 2012 annual meeting, typically favors stable, growing businesses in industries with good prospects. Reuters

Shortly after Warren Buffett‘s Berkshire Hathaway Inc. BRKB +0.44% bought the Richmond Times-Dispatch newspaper in 2012, things began to change. Eight-year-old newsroom computers were replaced. A malfunctioning sound system in the 180-seat auditorium of the paper’s downtown Richmond, Va., headquarters was fixed. The company also spent $1.3 million last year to upgrade the paper’s production plant.Like the Times-Dispatch, dozens of small newspapers around the U.S. are discovering the benefits of being owned by the billionaire investor. One key advantage: Berkshire’s deep pockets mean the newspapers Mr. Buffett buys don’t have to rely on costly bank loans to survive.

“Not having the suffocation of debt means you have more breathing room,” says Tom Silvestri, the paper’s publisher and a senior executive at BH Media Group, a Berkshire business unit created in 2011 to house the conglomerate’s newspaper acquisitions. More deals are likely on the horizon, as Tribune Co. TRBAA +0.19% , among others, has announced plans to spin off newspapers and Mr. Buffett has indicated he would like to keep buying, though he hasn’t specified any targets.

Mr. Silvestri said that Berkshire’s push into newspapers is about “new ideas, new blood, new energies.”

Those aren’t attributes typically associated with Berkshire, where Mr. Buffett is known to favor buying stable, growing businesses in industries with good prospects and little need for operational improvements. In its expanding newspaper unit, the conglomerate is jumping into a declining industry and taking an active role in retooling the businesses, including by investing in equipment upgrades and experimenting with a range of digital initiatives. Berkshire executives including Mr. Buffett have said they don’t get involved in news or editorial decision-making.

One key reason behind the hands-on approach is Mr. Buffett’s personal fondness for newspapers. Other billionaires, too, have taken an interest in the past year; in October, Amazon.com Inc. founder Jeff Bezos paid $250 million for the Washington Post.

Growing up, the now 83-year-old investor was a paperboy for The Omaha World-Herald, which he bought in 2011. He has owned stakes in media companies throughout his investing career and helped the Omaha Sun win a Pulitzer Prize in 1973 for its exposé on a local charity. Mr. Buffett, who owned the newspaper at the time, pointed reporters to relevant tax records and even helped with the writing and financial analysis in the stories.

Berkshire Hathaway now owns about 70 newspapers, including 30 dailies. The bulk of the papers, including the Richmond Times-Dispatch, came from a 2012 deal to buy 63 papers from Media General Inc., for $142 million in cash. Mr. Buffett’s company also lent Media General $445 million under a separate agreement, freeing the papers from bank debt.

To be sure, newspapers are barely a blip on Berkshire’s balance sheet.

All told, Berkshire has spent around $400 million for its newspaper purchases. The papers account for roughly $500 million in annual revenue, less than 0.5% of the conglomerate’s $162 billion in annual revenue that comes from a variety of activities including railroad, insurance, manufacturing, energy and retailing operations.

The newspapers are profitable—Mr. Buffett said at Berkshire’s 2013 annual meeting that he is targeting an after-tax return of at least 10% on his newspaper investments—and the billionaire has shown a willingness to shutter poor performers: In 2012, Berkshire closed the News & Messenger of Manassas, Va., because it was losing money in a competitive market.

Since these deals don’t materially affect the conglomerate’s results, shareholders are more willing to indulge Mr. Buffett even if newspapers don’t exactly fit the profile of Berkshire businesses.

“It doesn’t involve a lot of capital, and it’s an area that’s close to his heart,” said Jeff Matthews, a hedge-fund manager who has written books about Berkshire. “He sees a part that Berkshire can play, and he’s got no competition” from other buyers.

Mr. Buffett declined to comment.

Newspapers have been battered by steep declines in advertising and circulation revenue as readers migrated online. In recent years, dozens of papers have folded, laid off staff and cut costs as new purveyors of news and entertainment encroach on their business.

In his most-recent annual letter to shareholders, Mr. Buffett acknowledged that the industry is unlikely to recover. But he said he and his partner, Berkshire Vice Chairman Charlie Munger, would continue to buy papers if the “economics made sense.”

In particular, the duo pursues newspapers in small towns and communities that are near-indispensable to readers because they cover local news that no one else will. As long as such papers were smart about their digital strategy and didn’t skimp on content, Mr. Buffett reasoned, they would make enough advertising and circulation dollars to survive.

“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,” he wrote to shareholders.

Terry Kroeger, a fellow Omaha native who runs BH Media, said the unit was profitable in 2013 but declined to provide details. The unit is also debt-free, except for a legacy mortgage on an Omaha newspaper building, he said.

Mr. Kroeger said he is focused on turning BH Media into a digital-savvy business. In 2013, BH Media built a content-sharing network so that its newspapers, including the Tulsa World and the Greensboro News & Record, would be able to access stories, photos and videos beyond their own staffs’ output.

Berkshire-owned papers are experimenting with online newsletters, mobile apps and ways of charging readers online. The goal is to move all the papers to a digital subscription model under which nonsubscribers are limited to a certain number of free articles; so far, eight papers have set up such metered paywalls, Mr. Kroeger said.

Mr. Buffett’s interest in newspapers has had another impact: Banks are more willing to look at the newspaper industry again, said Phil Murray of newspaper advisory firm Dirks Van Essen & Murray. “It’s made a difference in the lending environment,” Mr. Murray said.

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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