Uncovering the Buffett equation for newspaper survivability

 

Buffett newspapers chart

 

Here’s how to tell if your local newspaper will survive the internet apocalypse:

  • Does it have a circulation of 30,000 or less?
  • Is it in a town with a population of less than 75,000?
  • Does paid weekday circulation top 25% of the total population?
  • Does it have a ratio of online readers to print subscribers of less than 5?

If you answered “Yes” to all these questions you can sleep soundly knowing that, even if your newspaper hasn’t already been purchased by the second-richest man in America, it has a fighting chance. Here’s why.

Warren Buffett has been doing the contrary thing—buying unloved bits of the American economy—for so long and so successfully that many pundits now regard his knack for making money as some kind of black magic. Such was the case when the Oracle of Omaha tip-toed into the hard-luck newspaper business in 2011, plunging in head-first last year and continuing to scoop up papers in 2013. And while it’s true that most Buffett investments don’t lend themselves to massive extrapolation (you try dangling Goldman Sachs by its necktie over the ledge and see what happens), newspapers offer a rare case study: there were 1,382 daily newspapers in the U.S. in 2011, according to Editor & Publisher, and while each paper has its quirks, collectively they look a helluva lot like one another.

Buffett even spelled out the logic behind his purchases of both the Media General chain of 63 newspapers—mostly small dailies and weeklies—last May and of his hometown daily the Omaha World-Herald in 2011 and publicly said he’s in the market for more newspapers (He purchased the Greensboro News & Record on Jan. 31 and the Tulsa World on Feb. 25). “In towns where there is a strong sense of community, there is no more important institution than the local paper,” Buffett told reporters after the $142 million Media General sale.

One Berkshire newspaper executive who talked to Ebyline on background put it this way: “We run a very profitable newspaper business. We can do that better with under 35,000 circulation. [We have] who you call our core subscribers, [so] the ad revenue on the community side is more stable than in the top 50 markets.”

How to construct your Buffett newspaper equation

Ebyline analyzed public data on the newspapers that Berkshire purchased and the communities they cover and came up with some hard evidence that suggests it’s better to be ubiquitous in Opelika than expendable in New York City. We used self-reported circulation data from Alliance for Audited Media, web traffic data from Compete.com and U.S. Census data for population and household income. We also compared the Buffett purchases to the ten largest non-national dailies and to the industry averages for reference.

Buffett Newspapers Table

 What we found:

Buy small. Berkshire’s newspapers have an average circulation of 37,129 and that’s with the inclusion of the larger Omaha World Herald, The Buffalo News, Richmond Times-Dispatch, and Winston-Salem Journal (and now Tulsa World). The median circulation is a paltry 19,483. Why should news hounds care? The bulk of the daily newspaper industry is made up of just such small rags: the median circulation for U.S. dailies is only around 26,000, according to AAC’s most recent data, and more than 75% of the titles have less than 25,000 readers.

Keep it local. Not only are Berkshire newspapers small, but they’re in smallish communities where people actually buy them. The median population of the towns and cities Buffett’s papers cover was 47,392 in 2011, according to U.S. Census data. Take the weekday circulation and divide by population and you have a (very) rough approximation of a newspaper’s ubiquity in the community. For Berkshire’s newspapers the average readership was a whopping 46% of the local population.

Ignore the web. Well, don’t, but look for newspapers that haven’t tried too hard to give away their journalism for free. We looked at the Buffett newspapers’ ratio of online unique visitors to print subscribers as an indication of investment in online news: the higher the number the more important online reach is relative to legacy print readers. Big-city papers that fancy themselves as digital pioneers sport high ratios: the L.A. Times’ is 13, the Chicago Tribune’s is 9.6. The Buffett newspapers seem to have no illusions: their average online-offline ratio is a meager 3.8. That doesn’t mean Buffett and his managers think the web is dead. But paywalls and their associated circulation revenue are just now starting to offset advertising declines at U.S. newspapers, a trend that is likely to grow. As investors know, skipping bad opportunities is as important as recognizing good ones and any newspaper that took a wary stance on the web when there wasn’t a clear business model is in a better position to take advantage now that there is one.

Anytown, USA is a great place to be. In addition to being published mainly in small cities and towns, Buffett’s newspaper purchases may debunk the myth that running a successful newspaper today is all about location: conventional wisdom says a publisher wants wealthy readers in fast-growing communities which translates into rising real estate values, tax receipts and, of course, advertising. But the Media General newspapers that Buffett likes are concentrated in the rural Southeast and Great Plains. On average these communities earn 23% less than the national average, nor are they growing income or population faster than the nation as a whole. In effect, Buffett’s newspapers are located in very average, almost quintessential, American places.

Don’t sweat falling circulation so much. Berkshire’s newspapers are losing circulation like everyone else’s. Some are shrinking faster, others are holding steady or even growing, but as a whole they lost 3.5% of their readers last year, not much better than the industry as a whole and a lot worse than the top ten (non-national) dailies, which collectively gained 1% as of September.

Caveat Central: Our calculations were based on the Berkshire papers we could get data on—some are so small they don’t submit circulation data, register their web traffic or even show up much in the Census. We excluded them. While Compete.com is handy, online traffic figures are notoriously volatile: we averaged 12 months’ worth of data to compensate. We took print circulation figures from AAM (formerly Audit Bureau of Circulation) at face value. To calculate market penetration we divided print circ by the population of the city in which the paper publishes—among other things this very rough way of crunching the numbers ignores the differences between circulation area and municipal boundaries and, in the case of one small Buffett-owned paper, resulted in over 100% penetration.

Infographic by Nadine L. Dabby.

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