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

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. Unfortunately, it hasn’t worked out that way.

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.

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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.