Warren Buffett is investing in newspapers. Should you?

May 21, 2013

In our digital world of social media, blogs and the like, is the newspaper industry a dinosaur? 

Only 11 newspaper businesses are publicly owned. Is it foolish to invest in them? Legendary investor Warren Buffett doesn't think so. He's acquired 28 papers in the past couple of years.

A veteran of 32 years at The Seattle Times, financial commentator Greg Heberlein, can't help but believe Buffett is on the right track.

Conventional wisdom would say newspapers are a lousy investment.

The common belief is that young people no longer are subscribing to printed newspapers. Roughly seven out of 10 regular readers of print journalism are aged 45 or older.

The stock market has risen 40 precent in the past three years. But newspaper stocks have risen much less, and mostly because of their broadcast and other subsidiaries.

Into this difficult environment comes the most successful investor of our age, Warren Buffett. Buffett has been buying newspapers like a madman. Yet, even he sees the decline. Print advertising has plunged. Help-wanted ads are down 90 percent in 12 years.

But Buffett remains hopeful because newspapers have almost a monopoly on one facet of the business: quality local news coverage.

Readers generally don’t buy papers for national and international news, sports, weather and the like. The leading reason is information about their community. Buffett says skimpy local coverage will lead to skimpy readership.

Newspapers have offered their printed content for free on the Internet. Buffett says that's a good way to encourage readers to drop their print subscriptions. And declining circulation is a good way to separate your business from advertising. So readers who don't subscribe to a newspaper increasingly are being asked to pay to access the paper’s online content. The overall term for that is "paywall".

Is there any evidence that the paywall strategy works? 

One shining example is The New York Times, which  started charging two years ago. More than a half million now pay for online use, not far off its regular daily readership, and the readers are younger and more diverse.

So newspaper viability depends on a new model that encompasses paid Internet access. Naturally, users accustomed to getting something for free are enraged when a price is put on the product. The Seattle Times witnessed that with its recent decision to charge non-subscribers for Internet access to its news.  

If Buffett is correct, newspaper businesses have a future (online, if not in print). And he puts his money where his mouth is:  He has spent a third of a billion dollars in 15 months to expand his newspaper ownership.

If you'd like to own a piece of a local paper, you'll have to do so by investing in their parent companies. The Seattle Times is controlled by a private company, but you can buy stock in The McClatchy Company, which owns 49.5 percent of the paper.

McClatchy also owns several other newspapers in Washington, including The News Tribune, The Olympian, and The Bellingham Herald.

The E. W. Scripps Company owns The Kitsap Sun.

The Hearst Corp. owns seattlepi.com.