Did Warren Buffett Break His Promise?

A little more than six months ago, Warren Buffett set out to save the American newspaper industry. Paying $142 million to acquire 63 struggling newspapers from Media General (NYSE: MEG  ) , the Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) chairman made a number of promises to his new employees ... and to his new readers.

He promised, for example, to "rethink the [newspaper] industry's initial response to the Internet," and to "blend ... digital and print [to] attract both the audience and the revenue we need."

While acknowledging that "times are certainly far tougher today than they used to be for newspapers," Buffett assured his journalists that under Berkshire's aegis, they would "operate from a position of financial strength" and be part of a company boasting "capital and liquidity second to none."

Perhaps most importantly, Buffett promised his papers that in his opinion, they had "earned the time, money, and respect that subscribers allot them." He promised them: "You will determine your paper's destiny; outsiders will never dictate it."

Then, just a few months later, Buffett shut one of the papers down.

Oops. They killed the "Messenger."
In November, just a few months after acquiring it as part of the Media General acquisitions, Berkshire's World Media Enterprises (the subsidiary set up to run Buffett's news emprie) announced it was shutting down the Manassas News & Messenger, and laying off all 33 employees. Effective Dec. 30, the Messenger will be no more.

The Messenger, which publishes five days a week in the suburbs of Washington, D.C. and boasts a circulation of some 10,000 readers, didn't do anything wrong in particular. To the contrary, in a letter announcing the closing, the Messenger noted that its 33 staffers had "worked very hard as we took several approaches to make this newspaper successful." It continued: "Despite those efforts, business conditions drove us to this decision. We do not see a long-term viable way to maintain a daily news operation here."

Nevertheless, according to WME, "an exhaustive review of The News and Messenger" failed to reveal any "scenario that would result in a likelihood of profitable operations there." (In related news, WME's parent company recently confirmed in SEC filings that it has reduced its stake in newspaper operator Lee Enterprises (NYSE: LEE  ) as well.) Notwithstanding Buffett's assurances of last summer, it seems Berkshire is no longer committed to letting its papers "determine their destiny." "Outsiders" are indeed dictating at least one newspaper's fate. And they've decided to kill the Messenger.

So what really happened here? Did Warren Buffett fail? Or did he break his promise and kill the Messenger out of sheer profit motivations?

Readers complain
Responses  from Messenger subscribers are what you'd expect, ranging from distressed ("I get national/international news on TV or Internet but where am I supposed to get local news now?") to bitter ("The world of the 'community' newspaper is dead"). From heartfelt ("Goodbye, News and Messenger, you'll be missed by many") to sarcastic ("So you all got Bained by your homeboy Warren Buffet?") to wry ("How are the homeless going to stay warm without this paper?")

Mostly though, readers seem resigned to the Messenger's demise. It was inevitable. This was a paper not even Warren Buffett could save.

Buffett responds
For his part, Buffett seems noncommittal. Asked about the closure recently at a party thrown by friend and Fortune writer Carol Loomis, Buffett hedged. He said he plans to discuss his newspaper-running philosophy at some length in Berkshire's upcoming shareholder letter (due out in February). But for now, all Buffett's saying is that he intends to keep on buying newspapers and hopes to eventually own "a lot more" than the 60-odd papers he now controls. As for the Messenger, Buffett dismissed that one as an isolated, "troubled paper."

Foolish takeaway
Tempting as it is to cast this news as a "even Warren Buffett can't save the newspaper industry!" story, the upshot appears to be more optimistic.

In a world where free Google (Nasdaq: GOOG  ) News has replaced paid subscriptions to actual news-papers for many readers, and where Craigslist has made classified ads -- and classified ad revenues -- as obsolete as the quill and ink, Buffett gambled on his ability to save 63 Media General castoffs ... and he's still trying to make a go of 62 of 'em. He's got a success rate -- or at least a not-yet-failed rate -- of 98.4%.

How many other investors can say we've done as well?

Warren Buffett's long track record of success has made him one of the best investors of all time. With Buffett at the helm, Berkshire Hathaway has grown book value per share at a compounded annual rate of 19.8% for nearly 50 years! Despite an incredible historical track record, investors have to understand the key issues to watch moving forward. To help investors, The Fool's resident Berkshire Hathaway expert, Joe Magyer, has created this premium research report on the company. Inside you'll receive ongoing updates as key news hits, as well as reasons to both buy and sell the stock. Claim a copy by clicking here now.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 05, 2012, at 6:33 AM, st0815 wrote:

    Measuring success by value not yet lost, is a dubious approach.

    Given that he bought that paper as part of a bundle, it can make some sense to shut down some which are not considered viable.

    The main problem is still how the business is supposed to be profitable in the longer term. It's not Google linking to newspaper's websites which is the problem, but the inability of newspapers to capitalize sufficiently on those clicks.

    The recent failure of "the daily" adds to that. If you can't get subscribers on the iPad, you can't get subscribers on your websites and you can't get subscribers for the paper version ... well what do you do then?

    There are likely simply too many players in the market and the newspapers are not likely to gain back those who rather read their comics online and get their opinion-pieces from blogs. There are genuine new sites, too.

    That means they won't be able to make money until more of the players are eliminated, and some of these may well be owned by BRK.

  • Report this Comment On December 05, 2012, at 6:59 AM, ortho1g wrote:

    waiting for the wealth tax appraiser lock and loaded

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