If you’ve been reading the Wall Street Journal recently, you’ve seen that newspapers are hot topics.
A flurry of acquisitions involving John Henry, Jeff Bezos, and even Warren Buffett has the print world buzzing. But wait a minute; I thought the newspaper industry was dead? And if newspapers are dead, why is everybody buying them?
Each of these purchases was made for a different reason, but in the end I think that newspapers are still sells.
Buffet buying newspapers
In Buffet’s 2012 shareholder letter, the famed investor said that his conglomerate Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) spent $344 million in purchasing 28 newspapers. This surprised many investors because Buffett has long predicted the demise of the print newspaper industry. So why did Buffett buy the papers? He did it because he still sees profit in certain areas of the market, mainly small local operations.
Buffett himself said it best when he explained in the letter:
“Newspapers continue to reign supreme in the delivery of local news. If you want to know what’s going on in your town – 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.”
I think Buffet is spot on. Still, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B)’s deals aren’t an indicator that the newspaper industry is coming back. Yes, there is still potential on the local market, but big market newspapers like the New York Times (NYSE:NYT) and the The Washington Post Company (NYSE:WPO) still have plenty of problems that should worry investors.
Bezos takes the Post
Recently, The Washington Post Company (NYSE:WPO) announced that Amazon CEO Jeff Bezos bought the The Washington Post Company (NYSE:WPO)’s newspaper segment for $250 million. Bezos made the purchase with his own cash and Amazon is not involved.
The deal seems a little out of the blue, especially considering the Post’s dismal decade. The newspaper has seen a decline during the past decade, with circulation down 39% from 769,000 in 2002 to just 472,000 in 2012. The Post’s revenue decreased 31% over the same period, and operating income went from a $109 million profit in 2002 to a loss of $53.7 million in 2012.