Warren Buffett on newspapers [pdf](online.wsj.com)
online.wsj.com
Warren Buffett on newspapers [pdf]
http://online.wsj.com/public/resources/documents/LettertoPublisherandEditors.pdf
52 comments
Just want to point out how insane is is that none of us would price even the most basic SaaS product at less than $30/month, but people balk at paying $18/month to have a professionally edited newspaper printed and DELIVERED TO THEIR DOOR.
Newspapers are so hosed.
Newspapers are so hosed.
Consumers don't buy SaaS products that cost more than $10 / month. Businesses regularly pay $30+ / month for things, it's way cheaper for them. But in the consumer land, cost is king 99% of the time.
Consumers buy Netflix for $9 / month, or Dropbox for $10 / month. Consumers don't buy $30 / month SaaS Internet services. Heck, the only "service" most consumers pay for that costs more than that is cable TV / high speed internet. They're entrenched with high prices, everyone accepts them. Newspapers have always been cheap, making them expensive now is not acceptable unless I'm really getting more of what I want.
Consumers buy Netflix for $9 / month, or Dropbox for $10 / month. Consumers don't buy $30 / month SaaS Internet services. Heck, the only "service" most consumers pay for that costs more than that is cable TV / high speed internet. They're entrenched with high prices, everyone accepts them. Newspapers have always been cheap, making them expensive now is not acceptable unless I'm really getting more of what I want.
SaaS products have support costs. Newspapers are media - they're produced, replicated a bunch of times, then consumed.
Ever received a letter to the editor? Legal threat from a story you published? Had someone get fired over a piece you wrote and had to deal with the guy's family having to sell their house. These are extreme examples, but newspapers have support costs, too.
As a reporter! These are all VERY real considerations, and very very VERY common. i wrote stories that contributed to a few local elected officials getting the boot. I've had people threaten legal action on my stories too. There are lots of things most people never see/think about concerning journalism. (edit: while there are some reporters who are assholes and who relish getting people fired, most decent ones agonize over whether they are reporting accurately and fairly. Such was the case with Woodward and Bernstein).
Also, the local news thing Buffett talks about is so true. Why would you run national news in a local paper people are buying when folks can get it free from CNN ? or a blog?
I think there's a healthy mix that hasn't really been found yet. The NYT has a decent model of 10 articles a month that seems to have been working well so far. I also really like the thing that that foreign company "Piano" is doing (I had a very similar idea. It's like cable subscriptions but for newspapers).
I'm not ready to say newspapers are dead yet, but they're mighty close, especially if they don't come up with a new business model. =\
Also, the local news thing Buffett talks about is so true. Why would you run national news in a local paper people are buying when folks can get it free from CNN ? or a blog?
I think there's a healthy mix that hasn't really been found yet. The NYT has a decent model of 10 articles a month that seems to have been working well so far. I also really like the thing that that foreign company "Piano" is doing (I had a very similar idea. It's like cable subscriptions but for newspapers).
I'm not ready to say newspapers are dead yet, but they're mighty close, especially if they don't come up with a new business model. =\
Why do you think a version delivered to your iPad should be cheaper than the print version? Do you not receive the same value in both cases?
How could you possibly believe all of the efficiency gains from having a digital supply-chain wouldn't lead to a cheaper product?
Those gains are MORE than cancelled out by the miserable rates they are charging for digital ads versus print.
Thank about it: even if you read every page of the paper online every day for a month you wouldn't generate anywhere near $18 in revenue. Heck, you probably wouldn't generate that if you clicked on every ad.
It used to be that the cost of the paper roughly covered just the printing and distribution. All the money to actually pay reporters and editors and photographers came from the ads.
Thank about it: even if you read every page of the paper online every day for a month you wouldn't generate anywhere near $18 in revenue. Heck, you probably wouldn't generate that if you clicked on every ad.
It used to be that the cost of the paper roughly covered just the printing and distribution. All the money to actually pay reporters and editors and photographers came from the ads.
So here's a theory. An old adage used to be "I know half my advertising dollars are wasted, but I don't know which half!"
Now that you can get analytics on ad views and interactions, we do know that the interaction rates on ads in publications are terrible. Therefore, they command lower rates.
Is this a case where technology is "cleaning up" an ineffective use of marketing dollars?
Another change for advertisers is that they can get superior targeting online. Why broadcast to everyone when you can target your niche directly?
On a side note, I hate marketing. I want to either be the customer or the product, but never both. That said, I might pay extra for newspapers or media with no ads, only reporting. I want investigative journalists essentially on my payroll. Which is basically public broadcasting (NPR or PBS in the US), but I wouldn't be opposed to a completely private alternative. The issue there is that I'd want to pay an established name, an upstart would have to convince me that they'll provide excellent work.
Now that you can get analytics on ad views and interactions, we do know that the interaction rates on ads in publications are terrible. Therefore, they command lower rates.
Is this a case where technology is "cleaning up" an ineffective use of marketing dollars?
Another change for advertisers is that they can get superior targeting online. Why broadcast to everyone when you can target your niche directly?
On a side note, I hate marketing. I want to either be the customer or the product, but never both. That said, I might pay extra for newspapers or media with no ads, only reporting. I want investigative journalists essentially on my payroll. Which is basically public broadcasting (NPR or PBS in the US), but I wouldn't be opposed to a completely private alternative. The issue there is that I'd want to pay an established name, an upstart would have to convince me that they'll provide excellent work.
For sure, that's part of it. But I think a bigger part is that the role newspapers play in society is changing and new media is filling roles that were once their exclusive domain.
Or, put another way, I think Craigslist obliterating the classified ad market has more to do with it than analytics suddenly enabling marketers to see their ad dollars were wasted at newspapers.
I might pay extra for newspapers or media with no ads
I probably would too, but that's a terrible deal for the advertiser: pay us money to broadcast your message to only the cheapest, least engaged segment of our audience.
Or, put another way, I think Craigslist obliterating the classified ad market has more to do with it than analytics suddenly enabling marketers to see their ad dollars were wasted at newspapers.
I might pay extra for newspapers or media with no ads
I probably would too, but that's a terrible deal for the advertiser: pay us money to broadcast your message to only the cheapest, least engaged segment of our audience.
To play the devil's advocate, a product that is cheaper to produce, doesn't necessarily sell for a lower price to consumers. The pricing could relate to consumer demand for the product, competitors' prices, etc., rather than being a simple function of the price of production. I'm not an economist, and I might be wrong.
I'm not an economist either, but what you say is - for what I understand - the consequence of the whole supply/demand concept. There is no global "value" of things, in the end the only real value is what people are willing to pay for it.
Because I value the product more than I value the distribution channel. If you can deliver me interesting, in-depth reporting, then I'll pay for it and I honestly don't care how you get it to me.
You consider the cost of printing and delivery to be much higher than it really is. You also ignore the elements of the newspaper that used to off-set various costs for you that are disappearing.
In essence, you were never paying for the news, and so unfortunately, you don't have a firm grasp of the true cost.
In essence, you were never paying for the news, and so unfortunately, you don't have a firm grasp of the true cost.
In essence, you were never paying for the news, and so unfortunately, you don't have a firm grasp of the true cost.
This is such a critical thing to understand. No one understands the true cost, because no one has ever paid for the news, it's always been advertisers. And now, for whatever reasons, advertisers don't want to pay for the digital equivalent, and they don't seem to be coming around.
This correlates to brandnewlow's comment above as well. It would be fascinating to see a news source that was paid for entirely by customers and thus not beholden to advertisers--something like HBO. But it would very hard to sell such a thing, because $15-$30/month for news, historically speaking, seems insanely high.
This is such a critical thing to understand. No one understands the true cost, because no one has ever paid for the news, it's always been advertisers. And now, for whatever reasons, advertisers don't want to pay for the digital equivalent, and they don't seem to be coming around.
This correlates to brandnewlow's comment above as well. It would be fascinating to see a news source that was paid for entirely by customers and thus not beholden to advertisers--something like HBO. But it would very hard to sell such a thing, because $15-$30/month for news, historically speaking, seems insanely high.
This correlates to brandnewlow's comment above as well. It would be fascinating to see a news source that was paid for entirely by customers and thus not beholden to advertisers--something like HBO. But it would very hard to sell such a thing, because $15-$30/month for news, historically speaking, seems insanely high.
Sounds basically like what Stratfor was trying to do. I don't know what they charged, or if the value was there, though.
Sounds basically like what Stratfor was trying to do. I don't know what they charged, or if the value was there, though.
I know i'm not really adding anything to this discussion by posting this, but I just want to say this thread here is an excellent analysis. If I could sum up the plight of newspapers in a few paragraphs, i would pick this and its few parent comments.
Although he doesn't mention it here, Berkshire also owns about 18% of the Washington Post:
http://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshi...
Not sure if this is related at all, but Adrian Holovaty (co-creator of Django, founder of EveryBlock) also worked at the Washington Post -- he has been a big proponent of the hyper-local strategy for Newspapers (the original reason why Django was developed).
Probably a coincidence, but maybe there's some latent hyper-local vibe in the halls of the Washington Post.
http://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshi...
Not sure if this is related at all, but Adrian Holovaty (co-creator of Django, founder of EveryBlock) also worked at the Washington Post -- he has been a big proponent of the hyper-local strategy for Newspapers (the original reason why Django was developed).
Probably a coincidence, but maybe there's some latent hyper-local vibe in the halls of the Washington Post.
Yer absolutely right. Hyper local is the only way to win as a newspaper. Sure, you can just reprint the AP stories on the big international news of each day, but a better tactic is to post pictures of locals on the front page, and to let them voice their opinions in the op-eds and column sections.
An Ohio paper did this just right a number of years ago, though I forget which city it was. It wasn't the Cox News towns, so not Dayton...
Anyway, this local Ohio paper's tactic was to replace its business section with a "Mothers" section, with info for local mothers, like day-care news, preschool listings, parenting tips, and info on places to take toddlers during the day. It worked extremely well, and the paper then opened an online forum for these Mothers, who then became the most common users of their Website.
I'm a journalist, as some of you may know. The thing that really makes a printed outlet work is its readers. They should be able to be a community, in the physical sense, rather than the social network sense. It's tough for magazines to make meatspace reader conncetions, as they are national. But local newspapers, they're a perfect place to build local communities.
An Ohio paper did this just right a number of years ago, though I forget which city it was. It wasn't the Cox News towns, so not Dayton...
Anyway, this local Ohio paper's tactic was to replace its business section with a "Mothers" section, with info for local mothers, like day-care news, preschool listings, parenting tips, and info on places to take toddlers during the day. It worked extremely well, and the paper then opened an online forum for these Mothers, who then became the most common users of their Website.
I'm a journalist, as some of you may know. The thing that really makes a printed outlet work is its readers. They should be able to be a community, in the physical sense, rather than the social network sense. It's tough for magazines to make meatspace reader conncetions, as they are national. But local newspapers, they're a perfect place to build local communities.
In "Made to Stick", they profile a newspaper called "The Daily Record" in Dunn, North Carolina. Their penetration into their local area is 112%. Quote from the owner:
"The fact is, a local newspaper can never get enough local names. I'd happily hire two more typesetters and add two more pages in every edition of each paper if we had the names to fill them up."
Look at the front page
http://www.mydailyrecord.com
All local stories (and a pay wall -- perhaps the future of Berkshire owned papers)
"The fact is, a local newspaper can never get enough local names. I'd happily hire two more typesetters and add two more pages in every edition of each paper if we had the names to fill them up."
Look at the front page
http://www.mydailyrecord.com
All local stories (and a pay wall -- perhaps the future of Berkshire owned papers)
Berkshire bought into the Washington Post Company because of Kaplan, not the newspaper division.
Here's a length how-the-sausage-is-made article about the Washington Post and their struggle with being a national vs local paper. I think the tl;dr is that they're trying to refocus on the Washington, DC area but IMHO as a DC resident, I don't think they are yet succeeding.
http://www.vanityfair.com/business/2012/04/washington-post-w...
http://www.vanityfair.com/business/2012/04/washington-post-w...
I think in a way he's talking about newspapers getting back to their real roots as being genuine 'NEWS' papers. That's instead of the trashy gossip magazines that so many of them have turned in to.
No, I don't think that's it. Well, ok, yes I'm sure he would agree in that papers shouldn't print trash, but I think his point was that the Omaha World-Herald should stop pretending it can cover news out of Washington without a Washington bureau. Local papers are wasting money buying wire stories on national news that is not especially valuable to its readers.
In general trashy gossip magazines sell, that is why there are so many of them. There is a feedback mechanism there perhaps...
But that is in general. It seems Buffet here is a focusing on specific areas with a population that will be very likely to be interested in a local newspaper. Small, well established towns, with a strong sense of community.
The problem is see with that is that local communities that used to be established and strong can be destroyed pretty quickly according to how the local employment landscape changes (say a GM plant closes).
But that is in general. It seems Buffet here is a focusing on specific areas with a population that will be very likely to be interested in a local newspaper. Small, well established towns, with a strong sense of community.
The problem is see with that is that local communities that used to be established and strong can be destroyed pretty quickly according to how the local employment landscape changes (say a GM plant closes).
I think he feels newspapers should return to their original function of writing their own (local) news and doing their own investigations. NOT 'copy/paste' all the Reuters-news. We've got the web for that kind of news.
The problem is that the cost of generating and distributing that local news is not sustainable in the face of internet technologies.
Witness this: I'm at a graduation celebration in Wisconsin this weekend, and all the parents attending throughout the day are very involved in student athletics. One of the kids was running in a track competition out of town with the rest of the school. The results were texted immediately throughout this small town. Another parent was tweeting the play by play of the track meet.
These are tech savvy 40 year olds, completely bypassing the print world. What can print offer them? Maybe a pic or two? They've got those instantly via FB. If this crowd is doing it, it's over for print papers.
And since online papers either need a paywall or higher revenue for ads, they just can't compete.
Witness this: I'm at a graduation celebration in Wisconsin this weekend, and all the parents attending throughout the day are very involved in student athletics. One of the kids was running in a track competition out of town with the rest of the school. The results were texted immediately throughout this small town. Another parent was tweeting the play by play of the track meet.
These are tech savvy 40 year olds, completely bypassing the print world. What can print offer them? Maybe a pic or two? They've got those instantly via FB. If this crowd is doing it, it's over for print papers.
And since online papers either need a paywall or higher revenue for ads, they just can't compete.
You were witnessing the people who are directly connected to the event, either through a member of the team or through the school. What about the other 500, 5,000, or 20,000 people in the town that didn't care enough to have instant notification, but still want the information even if it's a day later? That's where you make money.
What about the other 500, 5,000, or 20,000 people in the town that didn't care enough to have instant notification, but still want the information even if it's a day later?
How many events in that class tend to happen? Anybody who cares about a high school track meet is either there, or connected via Twitter/FB/whatever with the people who are. Larger scale events are bipolar: they're either not of immediate interest (new highway construction announced), ignored entirely by most people (the President is in town), or people want to know what's happening now (chemical spill, bomb threat, school shooting...)
The one thing that can be said about local print newspapers is that they aren't the best vehicle for disseminating any of the above news topics except possibly the big-but-not-of-immediate-interest kind.
Finally, the ultimate fate of the newspaper cannot possibly be understood by anyone who, as in Buffett's case, admits he doesn't understand tech.
How many events in that class tend to happen? Anybody who cares about a high school track meet is either there, or connected via Twitter/FB/whatever with the people who are. Larger scale events are bipolar: they're either not of immediate interest (new highway construction announced), ignored entirely by most people (the President is in town), or people want to know what's happening now (chemical spill, bomb threat, school shooting...)
The one thing that can be said about local print newspapers is that they aren't the best vehicle for disseminating any of the above news topics except possibly the big-but-not-of-immediate-interest kind.
Finally, the ultimate fate of the newspaper cannot possibly be understood by anyone who, as in Buffett's case, admits he doesn't understand tech.
Are they willing to pay? It appears (based on subscription numbers) that the number of people willing to pay are decreasing.
A lot of the people I work with rely upon FB to serve as their "news." And I in turn use HN as a kind of news service. I rely upon FB, HN, twitter, and RSS for the majority of my news intake. The problem will arise when all that's left are either blog posts that have variable reliability and wire services that have variable depth.
A lot of the people I work with rely upon FB to serve as their "news." And I in turn use HN as a kind of news service. I rely upon FB, HN, twitter, and RSS for the majority of my news intake. The problem will arise when all that's left are either blog posts that have variable reliability and wire services that have variable depth.
Most local news is trashy gossip.
Not sure why you're getting downvoted here. Isn't this the same effect Buffett is talking about in the letter when he describes the local paper's advantage in coverage of "local sports?" People will pay to read about their kid's soccer goal; people will pay to peruse the list of people who got picked up for DUIs last week and look for anyone they know. Am I misunderstanding Buffett's position here?
That was my point. Everyday the first page my mother reads in her local paper are the obituaries. Next stop is the community pages to see who filed for marriage certificates and divorces, followed by the high school sports and maybe the front news section if she has time.
I get phone calls from her because so and so that was in my high school class had a baby or was picked up by the cops. It's never to discus the latest city council meeting.
I get phone calls from her because so and so that was in my high school class had a baby or was picked up by the cops. It's never to discus the latest city council meeting.
Interesting strategy. Focus on the only advantage local papers have -- the deep local connection -- and build the strategy around that. Might be a leaner newspaper with a smaller readership... but that will happen anyways.
Coupling this 'deep local' focus with a better social media strategy could help them survive. If you become THE source for all local news + provide an easy way for things to be shared / discussed via FB / Twitter, etc you can bring your competitive advantage to the digital realm.
Coupling this 'deep local' focus with a better social media strategy could help them survive. If you become THE source for all local news + provide an easy way for things to be shared / discussed via FB / Twitter, etc you can bring your competitive advantage to the digital realm.
I think local-centric newspapers could generally gain a lot from developing a community of customers, be it via FB/Twitter or their own website.
The question I have is - with low readership numbers how do you support a news room that can provide in depth local coverage?
By focusing your reporters just on the more in-depth stuff and running rewritten press releases for everything else, essentially.
Clay Shirky does not agree with Buffet's reasoning:
http://www.shirky.com/weblog/2012/05/warren-buffetts-newspap...
http://www.shirky.com/weblog/2012/05/warren-buffetts-newspap...
To give a little more context - this letter was sent after an announcement that Berkshire Hathaway was purchasing all of the newspapers owned by Media General.
http://www.mediageneral.com/press/2012/may17_12.html
http://www.mediageneral.com/press/2012/may17_12.html
The only newspapers I read anymore are local newspapers that are free to read. I still feel like online resources are a terrible way of finding out whats happening around you. I read news online, but I read about shows and events in local papers.
I'm curious your thoughts on Patch. Personally, any local news I read I get from twitter of facebook via Patch
It seems to me that Patch beats a local paper any day. The argument that making a paper hyper local somehow saves it from having to compete with the Internet just seems off to me.
I just took a quick look at Patch and it looked like very superficial robo-generated news from public sources (police blotter, HS sports schedule, stock photography). It doesn't look very readable. Here's an article that puts words around a calendar
http://chelmsford.patch.com/articles/softball-team-to-face-n...
This article is probably just auto-generated for town (it's about the view of Venus we are getting right now).
http://chelmsford.patch.com/articles/chelmsford-look-up-venu...
There are some articles better than these, but not much -- perhaps it's better for other towns.
Here's what a hyperlocal newspaper looks like:
http://www.mydailyrecord.com
Real names and faces of people the residents know. The articles aren't Pulitzer prize winning, but they're not just autogenerated.
You can't compete with auto-generated on price, but it doesn't seem hard to write better articles.
http://chelmsford.patch.com/articles/softball-team-to-face-n...
This article is probably just auto-generated for town (it's about the view of Venus we are getting right now).
http://chelmsford.patch.com/articles/chelmsford-look-up-venu...
There are some articles better than these, but not much -- perhaps it's better for other towns.
Here's what a hyperlocal newspaper looks like:
http://www.mydailyrecord.com
Real names and faces of people the residents know. The articles aren't Pulitzer prize winning, but they're not just autogenerated.
You can't compete with auto-generated on price, but it doesn't seem hard to write better articles.
patch isn't entirely auto-generated, there are reporters and editors working for them
I'm sure -- I clicked around randomly and my impression was that the articles were generic and auto-generated. Sadly, it might be able to compete with what passes for local news some places, but my local paper is much better.
The key to local news is local names and faces -- stock photography and localized generic news isn't going to cut it.
The key to local news is local names and faces -- stock photography and localized generic news isn't going to cut it.
"I have some strong political views, but Berkshire owns the paper - I don't."
Why can't all CEOs think this way?
Why can't all CEOs think this way?
Buffett is notoriously liberal in both his political views and the way he runs Berkshire Hathaway. He's given alot of leeway to his direct reports (CEOs of the companies they own), not because he's some prescient slacker with a time machine, but because he invests and owns companies that
a) he can understand clearly the business model (i.e., few-to-no pure technology plays, no internet/social)
b) are profitable but maybe not growing gangbusters as time goes on (or because the particular industry is slow-growth)
It's a sound strategy. It won't get you big scores like investing in facebook (wokka-wokka!), but it just feels right and lends itself to safer returns. Messing with the flow like a corporate raider (a la Carl Icahn) is just not in Berkshire DNA.
a) he can understand clearly the business model (i.e., few-to-no pure technology plays, no internet/social)
b) are profitable but maybe not growing gangbusters as time goes on (or because the particular industry is slow-growth)
It's a sound strategy. It won't get you big scores like investing in facebook (wokka-wokka!), but it just feels right and lends itself to safer returns. Messing with the flow like a corporate raider (a la Carl Icahn) is just not in Berkshire DNA.
Above all, Buffett invests in companies that have a solid management team in place. Otherwise his hands-off approach would never work.
There has been a strange trajectory of print and online media. You had print businesses that dominated the news market (now suffering). Suddenly the Internet came around and people's main source of news was via the web (now booming). Large print and online establishments do not personalized and local content.
People now want quality and relevant content. Therefore local print newspapers may be a lucrative place to be. Utilise the benefits of online, with the relevant content of local. Build a community.
Buffett is a smart investor. If he sees some value in newspapers then there has to be something there.
People now want quality and relevant content. Therefore local print newspapers may be a lucrative place to be. Utilise the benefits of online, with the relevant content of local. Build a community.
Buffett is a smart investor. If he sees some value in newspapers then there has to be something there.
I want local news. I want to pay a reasonable rate (was $12 / month for 5 day delivery, now $18 / month). I don't care for an online version that looks just like the printed paper. I would sign up for a reduced (like $6 / month) version delivered to my iPad (or similar) that just had the local stuff (no AP, stocks outside upstate NY, no national sports, etc) because I do care about what's going on locally. I get the national stuff for free online lots of places, I can't get the local stuff easily.
Buffett seems to agree with my take, it'll be interesting to see where Birkshire takes their papers wrt the internet.