Investor Buffett to ‘rule’ 63 newspapers

To hear the Sage of Omaha tell it, newspapers may not be dead after all.

Billionaire superinvestor Warren Buffett on Thursday placed another bet on the industry as his company, Berkshire Hathaway, announced the purchase of 63 newspapers from Richmond-based Media General for $142 million. The company will add daily and weekly newspapers in Alabama, Virginia, North Carolina and South Carolina to its existing papers at the Omaha World-Herald Co.

Among the larger newspapers included in the transfer are the Richmond Times-Dispatch and North Carolina’s Winston-Salem Journal. Small-town community papers in the package include the Goochland Gazette in Virginia.

In a separate deal, Mr. Buffett’s company will provide about $445 million in loans and a credit line to Media General, getting in return warrants that could give Berkshire Hathaway a 20 percent interest in the company. Media General’s stock jumped by a third in trading Thursday, closing up $1.04 to $4.18.

Traditional newspapers have been hammered in the new online-dominated media market, and Mr. Buffett has warned in the past about the industry’s woes. A huge challenge has been the migration of advertising dollars - from classifieds to car ads - once claimed by local newspapers to online rivals.

But the Omaha-based investor also has made his fortune in large part on a number of contrarian bets in undervalued industries and has spoken often of his abiding affection for newsprint. Among Berkshire Hathaway’s current media holdings is a minority stake in The Washington Post Co., where Mr. Buffett once served on the board of directors.

“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper,” Mr. Buffett, who is chairman of Berkshire Hathaway, said in a statement.

Media General is holding on to its Tampa, Fla.-based newspapers for now, but is looking eventually to sell those as well. This signifies that Media General, which also owns television stations and other media properties, is trying to get out of the newspaper business just as Mr. Buffett is moving in.

Media General CEO Marshall N. Morton said the deal marks a “monumental change” in direction for his company, which will focus on its online presence and broadcast television properties.

“They are leaving the newspaper business,” said Mark Fratrik, a local media analyst for BIA/Kelsey. “The newspaper business has declined in its importance to Media General. They own lots of television stations.”

Terry Mattingly, director of the Washington Journalism Center, said the Buffett investment makes sense. Mr. Mattingly said he counsels his students that it is safer to join smaller, community newspapers such as the ones Mr. Buffett is buying, because they have a brighter future than larger newspapers.

He says that while many larger newspapers are declining - because they have more online competition - smaller papers in what he calls “Wal-Mart country” still can carve out a niche for themselves as local news providers.

“People in those parts of the country may not be using Amazon.com to the same degree that people do in urban areas, where the Internet is more a part of your life,” he explained. “People in small towns, in small cities are less likely to be dominated by the Internet.”

“So the advertising base of small-town, small-city newspapers faces less competition from specialty websites and other forms of online advertising,” he added. “They basically have more control, especially over auto ads.”

Mr. Buffett seems to agree. So does Mr. Fratrik.

Mr. Buffett “believes that in medium and small markets, newspapers still have an important role, and I think that is true,” Mr. Fratrik said.

But other media analysts wonder whether Mr. Buffett for once is investing with his heart instead of his head. Laura Martin, senior media analyst at Needham & Co., suggested Mr. Buffett may have a soft spot for newspapers.

“It may be that some of his motivations are not perfectly economic,” she said. “He’s the smartest investor of all time. But this is a non-consensus investment that he’s making right now.”

The all-cash deal is expected to close by the end of next month. A new Berkshire Hathaway unit called BH Media Group will be created to oversee the company’s media properties.

Despite Mr. Buffett’s enthusiasm, Ms. Martin said most of Wall Street has lost confidence in the newspaper industry.

“I think Wall Street generally thinks that newspapers are giving way to blogs and Twitter and will have a less relevant position in the media marketplace in the future even than they do now,” she said.

Then again, most of Wall Street does not include Warren Buffett. Mr. Fratrik said newspapers aren’t going anywhere.

“I think it’s an interesting move,” Mr. Fratrik said. “I do believe newspapers will be around. They are not the media player they once were, but they still do have a presence. Even if Warren Buffett didn’t invest in them, I think newspapers would still be around.”

Mr. Fratrik and other analysts contend that the newspaper industry’s future will be determined by how well existing franchises adapt to the economics of the digital world.

“In many of these situations, the newspapers can be effective and competitive going forward in the new media marketplace,” he said.

He suggested this transition is already happening. “Newspapers got out a little ahead of radio and television stations moving to online,” Mr. Fratrik said.