Warren Buffett – Media Nation

With Alden on the prowl again, it’s time to stop hedge funds from destroying newspapers

Previously published at GBH News. It’s rather late in the game to ask whether hedge funds can be stopped from buying up every last one of our local newspapers. After all, about half of us are already stuck with a paper that is owned by, or is in debt to, the likes of Alden Global Capital (Tribune Publishing and MediaNews Group), Apollo Global Management (Gannett) and Chatham Asset Management (McClatchy).

Still, with Alden having now set its sights on Lee Enterprises, a chain that owns 77 daily newspapers in 26 states, we need to take steps aimed at preventing what is already a debacle from devolving into a catastrophe.

So what can be done? Steven Waldman, the co-founder of Report for America, which places young journalists in newsrooms, has some ideas. At the top of his list: redefining antitrust law.

“In general, antitrust law for the past three or four decades has focused on whether mergers would hurt consumers by raising prices or reducing competition,” Waldman wrote recently for the Washington Monthly. “But before that, antitrust regulators looked at mergers more broadly, including whether they would hurt communities. And that’s what needs to happen here.”

Waldman would also provide tax incentives for nonprofit organizations seeking to buy newspapers as well as tax credits to make it easier for news organizations to hire or retain journalists. That latter provision is part of the Build Back Better legislation, whose uncertain fate rests in the hands of Sens. Joe Manchin and Kyrsten Sinema.

“This will strengthen local news organizations of all shapes and sizes, making them less vulnerable to vultures,” Waldman argued. “The legislation could be a powerful antidote to the sickness spreading within local communities.” Trouble is, the tax credits would benefit the Aldens and the Gannetts just as much as they would the independently owned news organizations that are struggling for survival. Still, it seems like a step worth trying.

The problem with hedge funds owning newspapers is that such funds exist solely for the purpose of enriching their investors. Newspapers, of course, aren’t exactly lucrative. But they still have advertising and circulation revenues, even if they are much smaller than they were, say, 20 or 30 years ago. Cut expenses to the bone by laying off reporters and selling real estate, and you can squeeze out profits for the enrichment of the owners.

Alden is notorious for being the most avaricious of the bunch. Which is why shock waves ripped throughout the journalistic community last week when Rick Edmonds of the Poynter Institute reported that Alden — just months after feasting on Tribune’s nine major-market dailies — was making a bid for Lee, whose papers include the St. Louis Post-Dispatch, The Buffalo News and the Arizona Daily Star. (Julie Reynolds, an investigative reporter who has been dogging Alden for years, recently spoke about the hedge fund with Ellen Clegg and me as part of our podcast, “What Works: The Future of Local News,” at Northeastern University.)

Lee’s papers also include the Omaha World-Herald, and therein lies a sad story. The World-Herald was at one time the flagship of hometown boy Warren Buffett’s newspaper chain, which he began assembling in 2012. But despite Buffett’s self-proclaimed love for newspapers, he failed to invest in their future, cutting them repeatedly and eventually selling out to Lee. Now they face the possibility of a much worse fate.

Or not. Several days after Alden offered to buy Lee in a deal valued at $141 million, the Lee board of directors adopted a poison pill provison. As reported by Benjamin Mullin in The Wall Street Journal, Alden — which currently holds about 6% of Lee stock — would be forbidden for the next year from increasing its share above 10%. If nothing else, the move provides some time for other buyers to emerge. Perhaps the chain will be broken up, with some of Lee’s papers being acquired by local owners.

As Waldman suggests, there is nothing inevitable about local news being destroyed at the hands of venture capital. About two and a half years ago, I wrote about The Salt Lake Tribune, acquired from Alden by local interests and converted into a nonprofit news organization. Now, according to Lauren Gustus, the Tribune’s executive editor, the paper is adding staff and resources. “We celebrate 150 years this year and we are healthy,” she wrote in a message to readers recently. “We are sustainable in 2021, and we have no plans to return to a previously precarious position.”

Alden’s acquisition of Tribune Publishing (not The Salt Lake Tribune; I realize there are a lot of Tribunes to keep track of here) was an avoidable tragedy, made possible by a board that placed greed above the public interest. Since closing the deal, the hedge fund has been hacking away at Tribune newspapers that were already much diminished, including the Chicago Tribune, New York’s Daily News and the Hartford Courant.

Yet some good may come out of it, too: Stewart Bainum, a hotel magnate who had competed with Alden for Tribune, is starting a well-funded nonprofit news site, The Baltimore Banner, that will compete with Tribune’s Baltimore Sun. Maybe that will lead to similar efforts in other Tribune cities.

Meanwhile, Lee Enterprises’ newspapers are safe, at least for now. What will happen a year from now is anybody’s guess. But as long as the vulture can be kept outside the cave, there is hope for the millions of readers who depend on a Lee newspaper to stay informed about what’s happening in their community.

Alden’s latest move may be the final act in Warren Buffett’s newspaper misadventure

Warren Buffett. Photo (cc) 2011 by Fortune Live Media.

The final act is about to be consummated in Warren Buffett’s disappointing dalliance with the newspaper business. Despite the legendary investor’s self-professed love for newspapers, he ran the newspapers he acquired starting in 2012 as a hopeless cause rather than investing in them as his fellow billionaires Jeff Bezos did with The Washington Post and John Henry did with The Boston Globe.

Buffett eventually sold his papers — including his hometown Omaha World-Herald — to Lee Enterprises. And on Monday we learned that the predatory hedge fund Alden Global Capital is now attempting to purchase Lee’s 90 daily newspapers, which are located in 26 states. The death watch has begun.

I wrote about Buffett’s track record as a newspaper owner in my book “The Return of the Moguls.” Here’s an excerpt.

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When Buffett’s Berkshire Hathaway investment company purchased 63 newspapers from the Media General chain in 2012 for $142 million, the news was greeted with the hope that the legendary octogenarian might be just the person to show the way forward. Buffett bolstered his new holdings by extending loans to those papers totaling $445 million. It was a generous gesture with which Aaron Kushner and his investors, who also wanted the papers, could not compete. A year earlier Buffett had bought his hometown paper, the Omaha World-Herald, along with six other papers for $200 million. He already owned The Buffalo News. And in those pre-Bezos days, he held a substantial number of shares in The Washington Post Co. “Does Warren E. Buffett want to be a media mogul?” asked The New York Times.

Certainly Buffett had the right pedigree. Not only was he a brilliant financial thinker, but he had long loved newspapers and had been a close adviser to the Graham family at The Washington Post for many years. He even had a hand in winning a Pulitzer Prize: in 1973, when he was the owner of the Omaha Sun, he helped his reporters investigate a local charity by finding documents, providing financial analysis, and even assisting with the writing. Katharine Graham praised Buffett fulsomely in her autobiography, saying that he became a trusted confidant after he invested in the Washington Post Co. “By the spring of 1974,” she wrote, “Warren was sending me a constant flow of helpful memos with advice, and occasionally alerting me to problems of which I was unaware.”

Yet Buffett, astute financier that he is, expressed skepticism about prospects for the newspaper business after it entered its long decline. In 2009, for instance, he said he had no interest in purchasing papers, because their financial outlook was so grim. “For most newspapers in the United States, we would not buy them at any price,” he said. “They have the possibility of going to just unending losses.” And though he later reversed himself, his acquisition strategy gravitated toward papers of the type that still do reasonably well: those in medium-sized markets where the local paper is the principal source of regional and community news and where competition from the internet is less a factor than it is in large cities. Buffett’s papers carry little debt and are profitable. In the spring of 2016, though, he admitted that the picture was continuing to darken for the newspaper business and that he was no closer to finding a way out than anyone else.

“We haven’t cracked the code yet,” he told USA Today. “Circulation continues to decline at a significant pace, advertising at an even faster pace. The easy cutting has taken place. There’s no indication that anyone besides the national papers has found a way.” He added that even though all of his papers were making money (at that time he was up to 32 dailies and 47 weeklies), that might not be the case in future years. “If you have a problem in five years, you have a problem now,” he said. Buffett doubled down on those remarks in early 2017, telling CNBC that The New York Times, The Wall Street Journal, and possibly The Washington Post were the only newspapers he believed had an “assured future,” explaining, “They have developed an online presence that people will pay for.”

Less than two months later, the hammer came down at BH Media, the company Buffett had set up to manage his newspapers. BH Media announced the termination of 289 positions throughout the chain, including the elimination of 108 vacant jobs. The BH Media president and chief executive officer, Terry Kroeger, told the Omaha World-Herald that Buffett had been informed of the reductions but that “his opinion was not sought or offered,” in keeping with Buffett’s hands-off investment philosophy. Kroeger blamed the papers’ declining revenue on changes in retail advertising, and especially on the move to online shopping — an irony given how the most successful of the new breed of newspaper owners, Jeff Bezos, made his money. Buffett’s World-Herald did not suffer any cuts at that time. But then, in May, BH Media reduced the size of the Omaha paper and eliminated three jobs, according to a memo to the staff from the executive editor, Melissa Matczak.

For a self-confessed newspaper fan whose net worth was roughly the same as that of Bezos (more than $60 billion apiece in mid-2016), Buffett’s role in helping to figure out the future of journalism might be considered disappointingly modest. Perhaps it would be too much to expect someone in his mid-80s to dedicate himself to figuring out the future of the newspapers he had acquired. But he was ideally positioned to bring in the sorts of minds who might apply themselves to the task of saving smaller papers in much the same way that Bezos and Henry were attempting to reinvent their much larger properties. Surely Buffett understands as much as anyone that readers and advertisers will put up with an ever-diminishing paper for only so long before an irreversible downward spiral sets in.

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A downbeat media roundup: Buffett disappoints, startups falter and publications die

Previously published at WGBHNews.org.

Has there been a more disappointing newspaper owner than Warren Buffett? When Buffett bought 63 papers from the Media General chain in 2012 for $142 million, it looked like the billionaire investor might play a significant role in reinventing local journalism. A year earlier Buffett had bought his hometown paper, the Omaha World-Herald, along with six other papers for $200 million. He already owned The Buffalo News.

And Buffett liked newspapers — so much so that he even had a hand in winning a Pulitzer Prize: In 1973, when he was the owner of the Omaha Sun, he helped his reporters investigate a local charity by finding documents, providing financial analysis, and assisting with the writing, according to a 2014 account in The Wall Street Journal. He was also a trusted adviser to the Graham family back when they controlled The Washington Post and he was a shareholder. “By the spring of 1974,” Katharine Graham wrote in her memoir, “Personal Story,” “Warren was sending me a constant flow of helpful memos with advice, and occasionally alerting me to problems of which I was unaware.”

Yet Buffett has been talking down the newspaper business for years — and last week he was at it again. “They’re going to disappear,” he told Yahoo Finance editor-in-chief Andy Serwer, citing the ongoing decline of advertising. He did allow that three national papers, The New York Times, The Washington Post, and The Wall Street Journal, might survive. But everyone else was “toast.”

Certainly they’re going to be toast with owners like Buffett. As I wrote in my book “The Return of the Moguls,” Buffett has allowed his managers to cut hundreds of jobs from his newspapers in recent years, even as his fellow multibillionaire Jeff Bezos has overseen growth and profits at the Post.

Perhaps it would be too much to expect someone in his 80s to dedicate himself to figuring out the future of the newspapers he had acquired. But Buffett was ideally positioned to bring in the sorts of minds who might apply themselves to the task of saving smaller papers. Surely Buffett understands as much as anyone that readers and advertisers will put up with an ever-diminishing paper for only so long before an irreversible downward spiral sets in.

Buffett is by no means the worst owner a newspaper could have — not with hedge funds and corporate chains slashing and burning their way through the mediascape. But anyone who hoped he would establish himself as an innovative force in recalibrating the economics of journalism has to be disappointed.

Two high-profile startups misfire

The meltdown of two high-profile digital startups raises questions about not just what went wrong, but whether there were any warning signs we should have paid more attention to.

The more disheartening of the two is The Correspondent, a Dutch website that recently concluded a successful fundraising campaign to launch what we all thought was going to be a U.S. edition. The project, funded through a membership model, is free of advertising and is based on the idea of journalists and readers engaging in an ongoing conversation. Among the early enthusiasts was Jay Rosen, a journalism professor at New York University. And me: I wrote about the project two years ago, made a donation to the site last fall, and urged others to do the same.

Recently, though, we learned that there wasn’t going to be a separate U.S. edition after all. Instead, there would be an English-language edition, based in Amsterdam, and the New York office would be closed now that the fundraising campaign had concluded. The founders took to Twitter to explain that we had misunderstood them. Had we somehow gotten it wrong?

No, according to Zainab Shah, a former BuzzFeed journalist who was The Correspondent’s first U.S. hire. In a devastating piece last Friday by Laura Hazard Owen at Nieman Lab, Shah said she took the job after being told she would head up what would in fact be a U.S. edition headquartered in New York, and that she recently quit after the founders made clear that it wasn’t going to happen.

“They’re really good at the PR thing, and it really feels like gaslighting,” Shah said. “They were like, ‘Well, we never promised a U.S. newsroom.’ I was like: Wait, did I just imagine all this?”

I should note that the founders continue to defend themselves and that Shah’s experience is just one data point. Still, this is bad news for those of us who hoped that The Correspondent represented a new way of doing journalism — “optimized for trust,” to use Rosen’s phrase.

Also running off the rails last week was The Markup, intended as a source of data-driven journalism about the largest technology companies. Months before its scheduled launch, co-founder and editor-in-chief Julia Angwin, formerly of The Wall Street Journal, was fired by chief executive Sue Gardner, whom Angwin had helped recruit, and replaced by another co-founder, Jeff Larson. Five of the seven editorial employees quit in support of Angwin, and Craig Newmark, the Craigslist billionaire who provided much of the funding, is said to be involved in getting the project back on track.

What exactly went wrong is too convoluted to get into here. For that, I recommend Mathew Ingram’s detailed overview at the Columbia Journalism Review. (Although I salute Angwin if it proves true that her sins included refusing to take a Myers-Briggs personality test.)

The larger issue with both The Correspondent and The Markup is whether there are any lessons in these two very different situations. I wish I could say there was — but at least in the case of The Correspondent we could see trouble brewing from some distance. Last fall, for instance, the site was involved in a nasty public dispute with Sarah Kendzior, a contributor to the Dutch-language site. The facts remain murky, though it was clear that something was amiss.

And then, as I’ve noted, The Correspondent’s founders not only reneged on their promise to launch a U.S. edition in the United States, but they claimed they had never said any such thing. That was gently disputed by none other than Rosen himself at his blog, Press Think, back in March.

“Through 2017 and much of 2018 we shared a default assumption that The Correspondent would be based in New York,” he wrote. “I call it a ‘default’ because we never sat down to decide it, and there was no real cost study or strategic analysis behind it. Rather, we had opened a campaign office in New York (with borrowed office space) and it seemed like that would evolve into The Correspondent’s newsroom.”

My only takeaway is that startups can be problematic. I’ll be watching The Correspondent closely and hoping its English-language edition proves to be worthwhile — although it will be a long time before I make another donation.

As for The Markup, I can only trust that Newmark, having already stepped in, will do the right thing. I assume that means bringing back Angwin in some top role, even if Gardner is not completely wrong about her alleged shortcomings as a manager.

The end of the road

New England lost two venerable publications in recent weeks.

Last week The Improper Bostonian, a free glossy magazine covering lifestyles, entertainment, and the arts, announced that its current issue would be its last after 28 years. “It was ultimately a family decision, that was really the bottom line,” owner and publisher Wendy Semonian Eppich told Folio, which covers the magazine business. “It was heavily based on finances, but it goes bigger than finances and that is critical and that is the truth.”

Several weeks earlier The Portland Phoenix, the last of the Phoenix newspapers, was shut down by its current owner, according to the Bangor Daily News. The Phoenix traces its roots to the Boston After Dark, founded by the late Stephen Mindich in 1966. At one time the papers included editions in Boston, Providence, Worcester, and Portland. I was on staff at The Boston Phoenix for many years, and I wrote the cover story for the Portland paper’s debut in 1999 — a profile of Maine’s then-senators, Olympia Snowe and Susan Collins, both moderate Republican women.

The fortunes of free publications with free websites have diminished to the vanishing point as advertising revenues continue to crater. We’re lucky that we still have DigBoston, a for-profit alternative weekly allied with the Boston Institute for Nonprofit Journalism.

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Warren Buffett still thinks newspapers are doomed

Warren Buffett in a 2010 White House photo

The self-made billionaire Warren Buffett has been a disappointment ever since he started buying newspapers. According to Bloomberg News, he believes that all except a few national papers such as The New York Times and The Washington Post are doomed — echoing remarks he’s been making for several years. Here’s what I wrote about Buffett in “The Return of the Moguls”:

For a self-confessed newspaper fan whose net worth was roughly the same as that of [Jeff] Bezos (more than $60 billion apiece in mid-2016), Buffett’s role in helping to figure out the future of journalism might be considered disappointingly modest. Perhaps it would be too much to expect someone in his mid-eighties to dedicate himself to figuring out the future of the newspapers he had acquired. But he was ideally positioned to bring in the sorts of minds who might apply themselves to the task of saving smaller papers in much the same way that Bezos and [John] Henry were attempting to reinvent their much larger properties. Surely Buffett understands as much as anyone that readers and advertisers will put up with an ever-diminishing paper for only so long before an irreversible downward spiral sets in.

Buffett isn’t the worst newspaper owner out there by any means. But as someone who has taken a great interest in newspapers over the years (among other things, he was a close adviser to former Post publisher Katharine Graham), it seems to me that he could have done more.

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BBJ scores big on two local media stories

The Boston Business Journal has come up aces during the past week with two meaty stories on local media news.

• A shaky future at the Globe. The first, published last Friday, found that confidential financial documents put together by the New York Times Co. suggest The Boston Globe was in slightly worse shape than outside observers might have imagined when the paper and several affiliated properties were sold to Red Sox principal owner John Henry for $70 million in early August. The BBJ’s Craig Douglas writes (sub. req.):

In essence, Henry is buying into a borderline breakeven enterprise already teed up for $35 million in cost cuts over a two-year period before he even walks through the door.

How bad is it? According to the documents cited by Douglas, advertising revenue at the New England Media Group (NEMG) — mainly the Globe, the Telegram & Gazette of Worcester and Boston.com — is expected to be 31 percent below the 2009 level next year. And paid print circulation revenue continues to slip despite price increases at the Globe and the T&G.

You may have heard people say at the time of the sale that Boston.com was worth more than the Globe itself. Well, I don’t think you’ve heard me say it. Print advertising remains far more valuable than online, and that holds true at NEMG as well. Douglas writes:

The Globe is by far the biggest revenue generator of the group, accounting for 69 percent, or about $255 million, of its forecasted revenue this year. The Telegram & Gazette in Worcester is next in line at $42.5 million in forecasted revenue this year, while Boston.com is on track to book about $40 million.

Print products account for about 88 percent of NEMG’s total annual revenue. That heavy reliance on print-related advertising and circulation revenue has proven particularly problematic of late, as both categories have lost ground since 2009 and are forecasted to see continued deterioration for the foreseeable future.

Douglas’ story is protected behind a paywall, but if you can find a print edition, you should. Suffice it to say that John Henry has his work cut out for him. The picture Douglas paints is not catastrophic. But it does show that the Globe is not quite as far along the road toward figuring out the digital future as some of us might have hoped.

• Tough times ahead for local papers. The other big media splash, which I linked to last night, is Jon Chesto’s analysis of the sale of Rupert Murdoch’s Dow Jones Local Newspaper Group (formerly Ottaway Newspapers) to an investment firm affiliated with GateHouse Media. The papers sold include three prominent Greater Boston dailies: The Standard-Times of New Bedford, the Cape Cod Times and the Portsmouth Herald, on the New Hampshire seacoast.

Chesto’s article is part of the BBJ’s free offerings, so by all means read the whole thing. It’s a real eye-opener, as he explains as best anyone can at this early stage what the sale and simultaneous bankruptcy of GateHouse will mean for local papers and the communities they serve. Unfortunately, indications are the news will be very bad indeed.

Fairport, N.Y.-based GateHouse, which publishes about 100 local papers in Eastern Massachusetts (including The Patriot Ledger of Quincy, The Enterprise of Brockton and The MetroWest Daily News of Framingham), will somehow be combined with the entity that holds the former Ottaway papers into a new company with the uninspired name of New Media (that may change). (Update: Chesto is a former business editor of The Patriot Ledger, which no doubt helped him write his piece with a real air of authority. And thanks to Roy Harris for reminding me of that.)

The deal with Murdoch — at $82 million, quite a bit more than I had anticipated — was done through Newcastle Investment Corp., a real estate investment trust that is part of Fortress Investment Group, which in turn is GateHouse’s principal backer.

The powers-that-be are already talking about slashing the Ottaway papers, which are among the best local dailies in the region. Chesto writes:

The papers are described as “under-managed by News Corp.” with “expense reductions of only 6% since 2010.” Translation: We can take more out of the expenses than News Corp. did. GateHouse has been an aggressive cost cutter in recent years, most notably with efforts to consolidate most of its page design and layout functions. That work was centralized in two locations, including an office in Framingham. But it will soon be downsized further, into one location in Austin, Texas.

Yes, Murdoch, the “genocidal tyrant,” is likely to prove a better steward of local journalism than the people he’s selling to.

Post-bankruptcy, with $1.2 billion in debt off their backs, the executives now running GateHouse are going to be empowered. According to a presentation put together for investors, Chesto writes, New Media may spend $1 billion to buy up local media companies over the next three years.

Chesto doesn’t say so, but if I were working for the Eagle-Tribune papers north of Boston (The Eagle-Tribune of North Andover, The Daily News of Newburyport, The Salem News and the Gloucester Daily Times), I’d be polishing that résumé right now. On the other hand, those papers have already been cut so much under the Alabama-based CNHI chain that it’s not like a new owner could do a whole lot worse.

At a time when there are reasons to be hopeful about the newspaper business thanks to the interest of people like John Henry, Jeff Bezos and Warren Buffett, the GateHouse deal shows that there are still plenty of reasons to be worried about the future.

Warren Buffett on the Goldman Sachs case

Interesting to see that Warren Buffett’s take on Goldman Sachs is essentially the same as mine. Goldman is being investigated on charges that it did not disclose to investors that hedge-fund manager John Paulson helped put together an investment vehicle that he then bet against.

Buffett’s view, writes Andrew Ross Sorkin in the New York Times, is that such information is irrelevant as long as investors knew what they were buying. Buffett put it this way:

For the life of me, I don’t see whether it makes any difference whether it was John Paulson on the other side of the deal, or whether it was Goldman Sachs on the other side of the deal, or whether it was Berkshire Hathaway on the other side of the deal….

It’s very strange to say, at the end of the transaction, that if the other guy is smarter than you, that you have been defrauded. It seems to me that that’s what they are saying.

The scandal that nearly brought down the entire financial system wasn’t what was illegal — it was what was legal.

Now if only I shared Buffett’s investing acumen.