2012: Why buy the Omaha World-Herald?

CAROL LOOMIS: This question comes from Kevin Getnowski (PH) of Yutan, Nebraska. And to it, I’ve added one question at the end, which came from another shareholder writing about the same subject.

“You’ve described the newspaper business in the past as chopping down trees, buying expensive printing presses, and having a fleet of delivery trucks, all to get pieces of paper to people to read about what happened yesterday.

“You constantly mention the importance of future intrinsic value in evaluating a business or company. With all of the new options available in today’s social media and the speculation of the demise of the newspaper media, why buy the Omaha World-Herald?”

“Was there some” — this is a question from the other one — “Was there some self-indulgence in this?”

WARREN BUFFETT: No, I would say this about newspapers. It’s really fascinating, because everything she read is true, and it’s even worse than that. (Laughter)

The newspapers have three problems, two of which are very difficult to overcome, and one, if they don’t — the third — if they don’t overcome it, they’re going to have even worse problems, but maybe can be overcome.

Newspapers — you know, news is what you don’t know that you want to know. I mean, everybody in this room has a whole bunch of things that they want to keep informed on.

And if you go back 50 years, the newspaper contained dozens and dozens and dozens of areas of interest to people where it was the primary source. If you wanted to rent an apartment, you could learn more about renting apartments by looking at a newspaper than going anyplace else.

If you wanted a job, you could learn more about that job. If you wanted to know where bananas were selling the cheapest this weekend, you could find it out. If you wanted to know how — whether Stan Musial, you know, went two for four, or three for four, last night, you went to the newspapers.

If you wanted to look at what your stocks were selling at, you went to the newspapers.

Now, all of those things, which are of interest to many, many people, have now found other means — they’ve found other venues — where that information is available on a more timely, often cost-free, basis.

So newspapers have to be primary about something of interest to a significant percentage of the people that live within their distribution area.

And the — there were so many areas where they were primary 30 or 40 years ago that you could buy a newspaper and only use a small portion of it and it still was valuable to you.

But now you don’t use a newspaper to look for stock prices. You get them instantly off the computer. You don’t look for the newspapers for apartments to rent, in many cases, or jobs to find, or the price of bananas, or what happened in the NFL yesterday.

So they’ve lost primacy in all of these areas that were important.

They still are primary in a great many areas. The World-Herald tells me, every day, a lot of things that I want to know that I can’t find someplace else.

They don’t tell me as many things as they did 20 or 30 or 40 years ago that I want to know, but they still tell me some things that I can’t find out elsewhere.

Most of those items — overwhelmingly — those items are going to be local. You know, they’re not going to tell me a lot about Afghanistan or something of the sort that I want to know but I don’t know. I’m going to get that through other medium.

But they do tell me a lot of things about my city, about local sports, about my neighbors, about a lot of things that I want to know. And as long as they stay primary in that arena, they’ve got an item of interest to me.

Now, the problem they have, they are expensive to distribute, as the questioner mentioned. And then the second problem is that, throughout this country, we had 1700 daily newspapers. We have about 1400 now.

The — in a great many cases, they are going up on the web and giving free the same thing that they’re charging for in delivery. Now, I don’t know of any business plan that has sustained itself for a long time, maybe you can think of — maybe Charlie can think of one — but that has charged significantly in one version and offers the same version free to people, that had a business model that would work over time.

And lately, in the last year even, many newspapers have experimented with, and to some extent succeeded, in those experiments, in getting paid for what they were giving away on the net that otherwise they were trying to charge for in terms of delivery.

I think there is a future for newspapers that exist in an area where there’s a sense of community, where people actually care about their schools, and they care about what’s going on in the given geographic area. I think there’s a market for that.

It’s not as bullet proof, at all, as the old method when you had 50 different reasons to subscribe to the newspaper.

But I think if you’re in a community where most people have a sense of community, and you don’t give away the product, and you cover that local area in telling people about things that are of concern to them, and doing that better than other people, whether it be high school sports, you know.

I’ve always used the example of obituaries. I mean, people still get their obituaries from the newspaper. It’s very hard to go to the internet and get obituaries.

But I’m interested in Omaha and knowing who’s getting married, or dying, or having children, or getting divorced, or whatever it may be.

When I lived in White Plains, New York, I really wasn’t that interested in it. I did not feel a sense of community there.

So we have bought — and we own a paper in Buffalo where there’s a strong sense of community, and we make reasonable money in Buffalo. It’s declined, and we have to have a internet presence there where people have to pay to come on. We have to develop that.

But I think that the economics, based on the prices we paid — and we may buy more newspapers — I think the economics will work out OK. It’s nothing like the old days, but it still fulfills an important function.

It’s not going to come back and tell you what your — and tell you on Wednesday what stock prices closed at on Tuesday and have you rush to the paper to find out.

It’s not going to tell you what happened in basketball last night when you’ve gone to ESPN.com and found out about it. But it will tell you a whole lot about what’s going on, if you’re interested in your local institutions. And we own papers in towns where people have strong local interest.

Charlie?

CHARLIE MUNGER: Well, we had a similar situation years ago when World Book’s encyclopedia business was about 80 percent destroyed by Bill Gates. (Laughter)

He gave away a free computer with every bit of software.

WARREN BUFFETT: He charged $5, I think, Charlie —

CHARLIE MUNGER: And well, whatever it was. But we are still selling encyclopedias and we still make a reasonable profit but not nearly as much as we used to.

WARREN BUFFETT: Right.

CHARLIE MUNGER: Some of these newspapers, we hope, will be the same kind of investments. They’re not going to be our great lollapaloozas.

WARREN BUFFETT: The prices were — well, we actually may be doing more in newspapers, and we will be going where there’s a strong sense of community.

But if you live in Grand Island, Nebraska, where we have a paper, or North Platte, and your children live there and your parents probably live there, your church is there, you are going to be quite interested in a lot of things that are going on in North Platte, and in the state of Nebraska, that you won’t find readily on television or the internet.

And you’ll be willing to pay something for it, and advertisers will find it a good way to talk to you, but it won’t be like the old days.