Warren Buffett (Trades, Portfolio) has no problem diagnosing problems in his own industry. The chairman of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial), which owns newspapers across the U.S., told Yahoo Finance he thinks the industry as a whole is dying. While this is not a controversial opinion, the reason why he thinks the printed publication is done may surprise you.
The conventional explanation is that proliferation of free news sources through the internet is what is killing newspapers. This is, of course, partly true. But what Buffett adds is the realization that advertising is not just a compliment to news - advertising is news.
Ads are news
Ask any old-school journalist why people buy their paper and they will say it is to read the editorials. Buffett said that is not so. For the Oracle of Omaha, the reason why newspapers were so important for so long is they provided readers information in the form of advertisements:
“It was survival of the fattest. Whichever paper was the fattest won, because it had the largest number of ads in it, and ads are news to people - they want to know which supermarket is having a bargain on Pepsi this weekend. It upsets the people in the newsroom to talk that way, but the ads were the most important editorial content from the standpoint of the reader.
If you were looking for a job, you had basically one place to look, and that was the classifieds section. If you were looking for an apartment to rent, you had dozens and dozens of pages to look through. That’s all disappeared.”
Companies like Alphabet's Google (GOOG, Financial) claim an ever-increasing amount of advertising revenue precisely because they can direct users to what they really need - where to find jobs, where to rent housing and where to shop for the best bargains.
Speed is everything
Of course, the decline in advertising revenue is not the only thing killing papers. In the age of social media and instant dissemination of information, waiting for tomorrow’s paper to come out is simply not a viable strategy for staying informed:
“News is what you don’t know but you want to know - you know what happened in national sports the moment it happens, and you can go watch a video of it and so on. You know what’s happening in politics, in the stock market. I used to look at the stock market pages the next morning! Before I delivered the papers, I checked them out. The world has changed hugely, and it did it gradually. It went from monopoly, to franchise, to competitive, to toast.”
Importantly, what this means is newspapers with strong brand value, such as the New York Times, Washington Post and Wall Street Journal, can still survive by pivoting toward digital content, as Buffett acknowledged. However, their standing will be greatly diminished in relative terms.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Roger Lowenstein: Beware of Capitalizing Hope
- Howard Marks: Investors Are Taking Too Many Risks
- Amazon: Monopoly in the 21st Century, Part 3
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