Los Angeles Times

Buffett loves newspapers, yet nearly crushed one

- MICHAEL HILTZIK

It’s not easy to get a fix on Warren Buffett’s feelings about the newspaper industry.

He often has expressed a visceral love for newspapers, especially regional publicatio­ns, and has acquired not a few over the years. When he bought his hometown Omaha World-Herald in 2011, saving it from a financial crisis, he said he was “delighted ... that the editorial independen­ce that Nebraskans and Iowans have come to expect from the World-Herald will continue.”

Buffett’s Berkshire Hathaway holding company owns 31 dailies in 10 states, as well as 47 weeklies. But he’s skeptical about their traditiona­l business model: In April, at the time of Berkshire’s annual meeting, he told Yahoo News that newspapers are “toast,” except perhaps for the New York Times, Washington Post and Wall Street Journal.

Last year, he outsourced management of the Omaha paper and a few others to Lee Enterprise­s, a newspaper conglomera­te with a record of cutting staff; the deal pays Lee $5 million a year plus a 33% share of operating earnings over $34 million, rising to a 50% share in 2020.

“That’s insane incentive for them to cut our newspaper in terms of both people and product and to gouge our subscriber­s,” Todd Cooper, head of the OWH Guild, which unionized the newsroom last year, told me. He’s right.

Since early 2018 the World-Herald newsroom has lost 50 staff members to layoffs and attrition, Cooper said. That process started even before the Lee deal, but in recent contract talks Lee has told the Guild that it wants to pare staff by 10 more people, which would bring the newsroom to about 80, to cover all of Nebraska and part of Iowa.

Lee has disclosed that it expects to earn $10 million in the first year of the deal, which implies that the Berkshire Hathaway papers are generating operating earnings of about $49 million while staff is being slashed. Lee and Berkshire Hathaway didn’t respond to my request for comment.

Most of this cutting to the bone sadly has become routine in the business, except for a handful of newspapers that are owned by billionair­es, local or otherwise, including the Washington Post (Amazon founder Jeff Bezos) and The Times (Los Angeles biotech

entreprene­ur Dr. Patrick Soon-Shiong).

Buffett of course is a local Omaha billionair­e, but I may have a special insight into his feeling about the economics of newspapers. The insight dates from 1977, when he took steps that seemed designed to put my first daily newspaper employer, the Buffalo (N.Y.) Courier-Express, out of business.

At the time he simultaneo­usly spoke up for the journalist­ic value of two newspapers competing in the local market, he also took steps that a federal judge concluded would reduce the Buffalo newspaper population to one. When journalist­ic and economic values conflicted, the judge reckoned, the bottom line won out. Here’s the back story. In the 1970s, Buffalo was one of a dwindling number of cities with two newspapers. It may have been unique, however, in that the afternoon paper, the Buffalo Evening News, was the stronger of the two — possibly because in a resolutely blue-collar town, readers went to work early in the day and home with the leisure to catch up on the news late in the day.

The News and the Courier-Express, both familyowne­d, maintained an informal agreement in which the News voluntaril­y published only six days a week. The Courier-Express’ exclusive ownership of the Sunday market was crucial to its continued economic survival.

The Evening News was fat, staid and rather boring. As a runner-up, the CourierExp­ress was thin in pages and light in ads, but brash and provocativ­e in content. A local figure had been quoted as saying that it didn’t make a “thump” when it hit your porch, but you could hear it ticking.

The Courier-Express dated its history to 1828; among its owners and editors had been Mark Twain (1869-71).

When I arrived in 1974 its newsroom comprised a cadre of young, collegeedu­cated whippersna­ppers hired by its intense, demanding executive editor, Doug Turner, learning their craft before moving on to bigger cities and bigger papers, and a group of older experience­d reporters with roots in the city’s workingcla­ss, ethnic population — two diverse teams that regarded each other with combined comradeshi­p and skepticism when not sharing rounds at Flynn’s Golden Dollar, the bar next door where we’d repair together after a shift ended.

Buffalo was down on its heels thanks to its long reliance on steelmaker­s and auto assembly plants. Every Friday seemed to bring another announceme­nt of a plant closing.

Yet evidence of its onetime economic glory as the western terminal of the Erie Canal was ubiquitous — a beautiful concert hall with a full-time profession­al symphony, a city park designed by Frederick Law Olmsted and mansions along Delaware Avenue, including the Wilcox mansion where Vice President Theodore Roosevelt was sworn in as president in 1901 following the assassinat­ion of William McKinley at the city’s PanAmerica­n Exposition. Buffalo chicken wings indeed were invented here, at the Anchor Bar up Main Street.

The Courier-Express staff wondered if someday the Friday plant-closing announceme­nts would include the newspaper itself. Our fears became concrete only in February 1977, however, when word came that the Butler family had sold the News to Warren Buffett. The deal closed in April, and soon after that the News announced that it would start publishing a Sunday edition for the first time in 50 years.

To the Courier-Express newsroom, this looked like a dagger aimed at the newspaper’s future. The News proposed to sell its Sunday paper for 30 cents, undercutti­ng the Sunday Courier’s 50-cent price. And for five weeks, Sunday News would be delivered to subscriber­s effectivel­y for free.

Buffett, it transpired, viewed a monopoly franchise as the key to the success of the News. He denied intending to put the Courier-Express out of business, but as a federal judge was to observe, he was well aware of “the comparativ­e weakness of the Courier…. Not lost upon him was the fact that the economic value of the Evening News to its owner, if it were located in a single newspaper community, would be greatly enhanced, as much as three times over.”

A friend of Buffett’s recalled for the Wall Street Journal that Buffett “likens owning a monopoly or market dominant newspaper to owning an unregulate­d toll bridge.” Buffett denied the exact quote, but agreed with its sentiment.

The Conners family, which owned the CourierExp­ress, mounted an aggressive defense by hiring Frederick Furth, a renowned antitrust lawyer from San Francisco with a history of going after big corporate game. The newsroom did its part by running a series of puff pieces about local judges who might find the case on their dockets.

One article, which described a jurist who was known as a martinet on the bench but a sweetheart in his family circle, was given an unfortunat­e but irresistib­le headline I remember vividly as: “Judge loses firmness when he doffs his robe.”

The antitrust case came before federal judge Charles E. Brieant of New York, who handed the Courier-Express a victory in the pretrial stage.

Brieant had noticed that Buffett seemed to have acquired the News as strictly a business propositio­n. He “never visited the plant of the Buffalo Evening News, and never met with or spoke to any of its editorial or financial personnel who were shortly to become his employees” before laying out $33 million in cash for the property, the judge commented.

Brieant found that the News had a perfectly valid right to publish on Sundays. Its scheme to deliver the paper free, however, was predatory. The CourierExp­ress, he said, was likely to show at trial that the News had an “intent to monopolize,” given “the Evening News’ present market dominance [and] the relative weakness of the Courier.”

The free giveaway would enable the News to offer advertiser­s a guaranteed audience that vastly outstrippe­d the Courier-Express’ circulatio­n — and this during the all-important holiday advertisin­g season.

The Courier-Express was dependent on Sunday for almost two-thirds of its annual revenue. Brieant observed that the promotiona­l plan has already “stampeded” some of the Courier-Express’ advertiser­s into canceling their contracts and moving to the News.

“There are only two newspapers now,” he wrote. “If the plan works as I find it is intended to work, there will be but one left.” While the public interest might favor two newspapers each publishing seven days a week, “this Court’s function is limited to an attempt ... to see that the Evening News fights according to the Marquis of Queensberr­y.” The gist of his ruling was to cut the five-week free giveaway to two weeks, max.

Brieant’s ruling felt like a life-giving transfusio­n. Turner bounded out of his office to deliver to the staff a dramatic reading of its most salient phrases.

The ruling was effective in stemming the News’ actions during that first Christmas period, but it was not the last word. A threejudge appellate panel overturned Brieant’s order in April 1979, restoring Buffett’s reputation for fair play in the process: “We find simply no evidence that Mr. Buffett acquired the News with the idea of putting the Courier out of business as distinguis­hed from providing vigorous competitio­n, including the invasion of what had been the Courier’s exclusive Sunday market.”

A few months after that, the Courier-Express was sold to the Cowles family, owner of the Minneapoli­s Star and Tribune. Their interest was not in the newspaper, but its cable system. The Cowles showed little staying power in the Buffalo newspaper market. They folded the Courier-Express on Sept. 19, 1982.

By then I had moved to The Times, but the demise of my first daily newspaper still stung. And so did the recognitio­n that, although the Courier-Express was in the red when I left in 1978, the writing of its end appeared on the wall the day that Warren Buffett bought the News.

Or possibly even earlier. Buffett is correct in acknowledg­ing that the traditiona­l newspaper business model is a dead duck in the long run, as readers transition to digital news websites.

Traditiona­l newspaper readers, however, are very difficult to steer online. The question is how long the long run is, and how news organizati­ons can keep advertiser­s uninterest­ed in addressing a readership that skews older with every passing day.

Buffett is aware that the future of the Omaha WorldHeral­d is not in paper and ink. “His ‘toast’ comment was hearkening back to yesteryear,” when advertiser­s clamored to place their ads in newspapers as the only game in town, the Omaha Guild’s Cooper told me.

Buffett has signaled that he doesn’t have any ideas for shoring up the newspaper business other than through charity. In 2011, he promised to hold on to the Buffalo News even though “on an economic basis you should sell this business.” At the Berkshire Hathaway annual meeting last year, he all but threw up his hands at the challenge.

“The significan­ce to society, I think, actually is enormous,” he said. “And I hope that we find something. I hope others find something, because we’ll copy it. But so far, we have not succeeded in that.”

The risk that Lee will continue hollowing out the World-Herald— with Buffett’s approval, tacit or otherwise — is great. Lee has said that a digital transforma­tion is central to its business plan, but cutting staff and shrinking content isn’t exactly the key to luring readers online.

Cooper says his colleagues are hoping they can prevail on the billionair­e to step in and save the newspaper from further damage. “We’re hopeful that he’ll deliver for us again,” he says. “This community will not be as strong without the World-Herald.”

 ?? Johannes Eisele AFP/Getty Images ?? BILLIONAIR­E WARREN BUFFETT owns 31 daily newspapers in 10 states — as well as 47 weeklies — through his holding company Berkshire Hathaway.
Johannes Eisele AFP/Getty Images BILLIONAIR­E WARREN BUFFETT owns 31 daily newspapers in 10 states — as well as 47 weeklies — through his holding company Berkshire Hathaway.
 ??  ??
 ?? J. Countess Getty Images ?? BILLIONAIR­E Warren Buffett, second from left, told Yahoo News in April that newspapers are “toast.”
J. Countess Getty Images BILLIONAIR­E Warren Buffett, second from left, told Yahoo News in April that newspapers are “toast.”
 ?? Buffalo Courier-Express ?? THE COURIER-EXPRESS in Buffalo, N.Y., bade farewell in 1982 after Buffett took over its competitor.
Buffalo Courier-Express THE COURIER-EXPRESS in Buffalo, N.Y., bade farewell in 1982 after Buffett took over its competitor.

Newspapers in English

Newspapers from United States