Free News Unsustainable, Says Warren Buffett

Koreantoast writes "Warren Buffett, whose Berkshire Hathaway recently purchased 63 newspapers and plans to purchase more over the next few years, noted during an interview that the current free content model is unsustainable and will likely continue pushing toward more electronic subscription models. This coincides with moves by other newspaper companies like Gannett and the New York Times, which are also erecting paywall systems. Buffett notes that newspapers focusing on local content will have a unique product, which would succeed even if they lose subscribers, because their services are irreplaceable. Is this the beginning of the end of 'free content' for local news?"

Comments

The End of Free?

[Mikkeles]

Maybe, but if it's good local news (well researched and useful to me), I'm willing to pay reasonably for it.

Re:The End of Free?

[dintech]

One of the oldest local newspapers in London, the Evening Standard used to be 50 pence and is now free. It's online content isn't behind a paywall either. They still seem to be doing ok so it can work out in some cases.

Re:The End of Free?

[sortius_nod]

As someone who has worked for a newspaper/online news org, I've seen the profit/loss statements, & subscriptions/sales don't even rate on it.

Newspapers make the lion's share of their revenue purely from advertising contracts. Some may see this as an outdated business model due to the prices charged for advertising space (upwards of AU$100k per full page), but it's is how they've made money in the past. The main hurdle with going online is that no one is going to pay you the same rates for banner ads. Paywalling has its own problems too: Murdoch paywalls are easily bypassed, others drive consumers away due to no free content.

I really don't see any answer other than accepting the fact there's not massive amounts of money in news media these days.

Personally, I tend to read independent online publications such as New Matilda, Conversation AU, & Independent Australia, (yes, I'm an Aussie) which rely on donations & small amounts of advertising revenue. The level of journalism is actually higher than that of news sites subsidised by their print or TV media.

Re:The End of Free?

[pepty]

And if it's bad local news, someone else is willing to pay for you to see it. The San Diego Union Tribune was recently bought by a real estate developer. Mostly because it was so cheap he could turn a profit just by selling the land the paper owned, but he also said pretty bluntly that he did it so he could use the paper as a megaphone to promote his own local real estate development plans and political views.

Re:The End of Free?

[flyneye]

Having worked for " Americas Only Rock and Roll Magazine" and others till I settled into a real life, I can say I've certainly seen the tumultuous life that publications go through. But I welcome this internet age and the change it brings. Honestly, Thomas Jefferson was right about "newspapers" , their net value to man and their caveats.( don't bother me, google it) I see many evolutions happening to various media as do you. Television, movies, music and print. The outcome, for those of you remaining in denial, is that we are evolving to a more sustainable, accurate and useful version of production and consumption by eliminating useless middlemen. Business models are upset, investors panic and shy away, courtrooms fill with useless complaints, but in the end, you are either a dinosaur prepared for the new environment or you are polishing your chops as a fossil.

          It is with that last thought that I giggle a little,(whoops peed a little) o.k. a lot, when I experience the schatten freude of hearing about the "mighty" money man Buffet making a loud mistake. Karma happens more places than Slashdot.

hardly

[Anonymous Coward]

Why would anyone pay to be lied to

Re:hardly

[reallocate]

...when so many people are happy to do it for free.

Re:hardly

[bitt3n]

Why would anyone pay to be lied to

clearly your hookers are less sarcastic than mine

He doesn't get it

[Vintermann]

I'd wager a lot of the price of media companies now reflects their control, not their profitability. Sure, making money by selling news is great, but the power to set society's agenda, and frame events for the history books, is infinitely more valuable.

If you think of that as the raison d' etre of the big media companies, it becomes obvious why they offer "news" free on the internet. Also, that Buffet will pay a premium for these shares...

Re:He doesn't get it

[daem0n1x]

In my country there are a lot of newspapers, like everywhere else. Almost all of them lose money. I can give you two examples on both extremes:

There's a piece of toilet paper called "Correio da Manhã" (Morning Mail) which is a huge commercial success. 1 quarter is ass-kissing the government, the other is filled with sensationalist news about murders and robberies, the other is about sports, and the last is celebrity gossip + tits n'ass. It appeals to the uneducated masses and exploits the lowest feelings of the human being.

There's a paper called "Público" (Public) which is in the other extreme. Has deeper coverage of the subjects and appeals to an educated audience. It loses money ever since it was founded, it was never shut down, and that scenario is not even in the horizon.

Both are property of huge, extremely rich corporate groups. The former is not very sophisticated, the second is, because its audience is clever and demanding. Both are used to brainwash people and make them believe the doctrines of the One Thought. You could wonder why a corporation would maintain a newspaper that loses money. They don't care. They'll pay what it takes to control the minds. And to control educated minds you have to spend a huge lot of money.

Buffet should be smarter than this...

[mspohr]

Guy buys a lot of newspapers and now is discovering that he can't make money with them?
He doesn't think they have a viable business model?

Re:Buffet should be smarter than this...

[Mashiki]

Well he hasn't made money for a bit to be honest, and has made some seriously bad blue-chip gambles that fell flat on their face too. Which has a lot of people wondering if he's simply hit the senile point and he's out of touch with the markets. I remember reading hmm was it zerohedge or somewhere else, that he hasn't made money in over 3 years on any investments he's done.

Re:Buffet should be smarter than this...

[PolygamousRanchKid]

No, he thinks that they are under-valued and have the potential of making money in the future . . . if the free news model disappears, and the pay-walled model becomes the norm and profitable.

If that actually will come to be in the future . . . is quite debatable.

So anyway, he bought them because he thinks he can give them a better business model.

Re:Buffet should be smarter than this...

[LordLucless]

No. It's more like "Guy thinks he can forsee a sea-change in the way an industry works, buys up some of the industry, and then makes announcements about how the industry will change, possible encouraging the very change he's speculating on by virtue of his reputation."

Re:Buffet should be smarter than this...

[osu-neko]

Well he hasn't made money for a bit to be honest, and has made some seriously bad blue-chip gambles that fell flat on their face too. Which has a lot of people wondering if he's simply hit the senile point and he's out of touch with the markets. I remember reading hmm was it zerohedge or somewhere else, that he hasn't made money in over 3 years on any investments he's done.

If your time-horizon is three years, you're not even playing the same game as Mr. Buffet. And you're far less likely to make money at whatever it is you are doing...

Re:Buffet should be smarter than this...

[dnaumov]

If your time-horizon is three years, you're not even playing the same game as Mr. Buffet. And you're far less likely to make money at whatever it is you are doing...

Right. I play in currencies, which unlike stocks is by far riskier and has a much nastier bite, requiring you to understand not only companies, but government policy and how it will effect your trading. But make less money? No, hardly that. The riskier the game, the higher the payoff. And it doesn't get riskier than the currency market.

Except its not. Higher risk does not automatically guarantee higher payoff.

Re:Buffet should be smarter than this...

[Attila Dimedici]

Or he thinks that their value in shaping opinion will increase his profit in other areas enough to make up for his losses in owning them, but he needs to make people think that he is expecting to make a profit from the news business (rather than planning to use the news business to make a profit elsewhere).

Online or offline?

[war4peace]

I'd venture to differentiate between online news and offline news. A paper magazine, sure, I'd pay for it more than the paper it's written on if I consider it a collectible. But online... I'm more interested in the hard data itself rather than the way it's written, and with all the portals publishing user-generated content (and some of those are REALLY good), I am not afraid of lacking any news sources any time soon.
So what if I won't get informed about Justin Bieber's latest deeds right now? Some blog would republish the news in some way or another, if it's important enough, and Google's your friend. And of course, there's always Slashdot. As a matter of fact, I'm regularly visiting just Slashdot, Wikipedia, Wimp, Failblog and a couple local news sites (which are both awesome). Everything else can go to hell, as far as I'm concerned, and if any of the above go to hell themselves, well, I'll look for the next best thing.

At least there's the BBC...

[SeanDS]

...which is funded by the British licence fee. As long as the current BBC-hating government don't cripple the corporation beyond repair.

Grassroots reform

[Tommy Bologna]

Local news coverage is abysmal in most American towns. Subscription support would at least allow them to hire a handful of professional reporters, and might even breathe life back into the field of journalism. God knows we need better journalists at all levels. Rebooting the minor leagues might eventually benefit us by trickling up to the national level too -- but let's not get ahead of ourselves. I would be ecstatic if Philadelphia had some quality reporting instead of the wasteland of fluffy features and regurgitated national news service stories.

So why is news different?

[MindlessAutomata]

"Free" is increasingly becoming the new thing; free-to-play models are starting to rise and succeed in video games, free steaming tv shows and other video are becoming increasingly popular, and naturally there are companies that operate in a way someone-like Google does. How many android/iPhone apps are free? And then we see various music services cropping up that allow free streaming music..

Why would the news be different from this trend? It's harder and harder to prevent the dissemination and replication of information
(pirating etc) and companies are finding creative new ways to still make money even in light of that. And the news is subject to the same problem; a paywall is not a big deal if one person has a subscription and can pass the text of the article around elsewhere.

All it takes is for one competitor to shit in the pot and go free or next-to-free to ruin the market for everyone else; I don't see pay-for news being a viable or stable strategy in the long-term.

And yet he posits this notion on a free site...

[mark-t]

Anyone else see the irony here?

People Care Less About Local News Than They Say

[reallocate]

Buffett's right, of course. No business can survive without making a profit. I am skeptical, however, that local news is going to save the day. Why? Because people are not as interested as they say they are in local news. My local daily paper publishes a weekly section targeting my suburb. I don't see much news in it, but I do see a lot stories about clubs, schools, kids, and churches, I once had the chance to ask the editor why they went with that rather than hard news about town government, politics, etc. The answer: We print the stories that sell newspapers. The local news market is not a hard news market. It's a feel-good gossip market.

When a newspaper shrinks and fires newsroom staff, news production in that market drops and is not replaced by online sources. We are all more ignorant as the result, and it's an ignorance that's spreading.

What's wrong with Warren Buffett?

[PCM2]

What's wrong with Warren Buffett? He's made a lot of money for himself, true, but he's made a lot of money for other people besides. And as for his own wealth, he's in the process of donating it all to charity, to the tune of billions going toward important causes that governments are too broke or shortsighted to fund. He was instrumental in convincing Bill Gates to do the same. If you're going to demonize some successful, wealthy American, I can think of a lot of better targets.

Re:What's wrong with Warren Buffett?

[greg1104]

When rich people give away excess money to charities, that does not absolve them of guilt for the actions that made them wealthy in the first place. Just because Bill Gates gives away a bunch of money, that doesn't excuse he got that money using illegal monopoly tactics. You can't get credit for giving away money that you stole from taxpayers in the first place.

In recent years in particular, Buffett's wealth has been acquired using insider information from his cronies in the White House, actions that would have resulted in jail time for a less connected investor. Here's the way the circle works:

• Buffett and Goldman Sachs contribute buckets of money to the democratic party and the Obama campaign.
• When Goldman was in risk of going under, Buffett invests $5B in them to keep them going. It was a no risk bet because Buffett's buddies let him know before the general public that GS was getting a bailout. Notes on that at Trade With The Ultimate Insider.
• Buffett publicly thanks the US government for bringing stability to the markets, by which he really means money in his company's pockets.
• All the borrowed money plus $1.6B divident profit flows back to Buffett within 3 years.

There's endless stories on this theme, including major trades around the US auto industry bailout too. I believe the most recent is the Keystone XL mess. Peter Schweizer's "Throw Them All Out" book has a whole section devoted to Warren Buffett's tricks where he abuses his political ties for profit. Here's a video segment from Schweizer summarizing that. Buffett's money is just as dirty as if he'd robbed you with a gun; don't like the kindly old man disguise fool you.

ummmm

[Have Brain Will Rent]

Shouldn't that be "Free and Accurate News Unsustainable"?

Ultimately we're tired of over paying for AP crap

[Karmashock]

The vast majority of "news" is reprocessed news hey pulled off the news wire. If the newspapers do investigative reporting and generate unique content that people actually want to see they won't have a problem. If they have interesting or knowledgable people that contribute or comment on the news they can probably build a business model on that. If all they're doing is reading internet news and then republishing it as their own then that isn't going to work.

Is free news really not sustainable? I don't know if even that is true. Companies especially local businesses are DESPERATE for relevant advertising options. Absolutely desperate. Radio, newspapers, park benches... anything. And that has always been a big part of newspaper revenue. When newspapers started they were little more then glorified classified ads. Maybe one or two pages of local news followed by forty pages of classifieds.

And yet crag's list exists. Why is that? How could Crag's list have a viable business in cities with major newspapers? Because they offered a better classified ad. And that sort of thing is evident throughout the newspaper business. They're generally bad at the internet. Even their ipad apps are bad. Seen the new york times app? Horrible. When most people bring up a news paper app they want it to be the actual newspaper and not what is basically a webpage configured roughly into the shape of a newspaper. It would be really easy to do this. Hell, you could literally scan the pages vertabim jewelry ads and all into the system. A lot of people would prefer it that way... especially those willing to pay for an online new york times subscription.

Anyway, Buffet just bought 63 news papers across the country. So we'll see how he does but I'm predicting epic failure. This is sort of like the time Bill Gates tried to reform American public schools and found so many useless dicks in the system that he figured it would be more practical to cure Malaria in Africa.

Have fun with the newspapers Warren... at the very least then you can say it was entertaining.

Omaha World-Herald

[Enderandrew]

Buffet bailed out his local paper first. I worked there. It was "employee" owned in that you could buy stock, but the stock had to stay with the company and usually when the company got rid of people, the executives kept just awarding more and more stock to themselves. They kept paying themselves huge bonuses and talked publicly about record profits, but they maintained the profits by layoffs and pay cuts followed by more layoffs and pay cuts.

The publisher/CEO told me that the thought the internet wouldn't affect the newspaper industry at all. It was the same as radio and TV before it.

He also bragged about how proud he was of the newspaper's legacy of enacting change in the community via propaganda. When Nebraska was being considered for the first legal casinos outside of reservations, Atlantic City and Vegas, the World-Herald ran front page stories daily about how gambling was evil and would immediately destroy any metropolitan area it was in. So the casinos built right across the river in Iowa. Iowa has been rolling in tax revenue since then, while all the money comes from Omaha. The casinos haven't destroyed our city, but we missed out on all the tax revenue thanks to the paper. I also spoke to a reporter whose assignment was literally to slander someone running for city council in Lincoln, Nebraska as much as possible. He owned a sex toy company, which was against the morals of the paper, and they felt it was their duty to bury the guy. Oddly enough, the paper didn't have morals when it came to abusing employees and laying them off.

The company was run exceedingly poorly. Oddly enough, most of the suggestions I made to improve the company were implemented about two years later when the newspaper was somewhat forced to embrace the digital era.

Google News has said they'd share revenue with newspapers who feed them stories. And I specifically frequent news sites that have good writers and good view points. You can run a successful newspaper, though the physical product may eventually die out. It is a shame that Buffet is bailing out poorly run companies, because the same corrupt executives who lined their pockets as they laid everyone off just got rewarded for their behavior so it can continue some more.

In other news....

[JustNiz]

Free News Unsustainable, Says Warren Buffett

Billionaires Unsustainable, says Free News...

Free news has sustained TV stations

[Skapare]

TV news broadcasts work on the free news model, already, and it works. Ask CNN, Fox, and MSNBC. Ask your local TV stations if they will be an alternative news source to the paywalled locked local newspapers when Buffet comes buying.

The killer is the loss of advertising revenue

[knorthern knight]

> For centuries we have been paying for news by buying
> newspapers - paying for news sites is pretty much the same thing

Fact... your subscription comes *NOWHERE NEAR* the full cost of a newspaper (buying paper, paying reporters, editors, printers, delivery trucks, janitors, secretaries, etc, etc). The vast majority of newspaper revenue has been from advertising. Newspaper ad revenue in the USA has fallen from $49.4 billion in 2005 to $23.9 billion in 2011 http://newsosaur.blogspot.ca/2012/03/newspaper-sales-slid-to-1984-level-in.html The last time it was that low was in 1984. That's *WITHOUT ADJUSTING FOR INFLATION*.

Just like Facebook, subscribers were never the real customers. Advertisers were the real customers, and subscribers' eyeballs were the product that newspapers sold to advertisers. In "the good ole days" newspapers had a virtual monopoly on advertising. They were able to charge extortionate rates for advertising. This allowed them pay for correpondents in Baghdad, London, Moscow, Washington, and at state/provincial legislatures, and at city halls, and still turn a big fat profit. Department stores, auto dealers, and home sellers were effectively paying an "advertising tax" to sell their products.

Where there's a tax, someone will look for tax loopholes ("advertising tax avoidance").
* "Auto Trader Magazine" was established in 1977. See...
http://www.manta.com/c/mmj727f/auto-trader-magazine It had one major advantage over newspaper classifieds... it did not have the overhead of paying for the salaries/accomadations/airline-tickets of reporters all over the planet. It was an advertising "pure play", that had a lot less overhead than a newspaper, and could make a profit while charging much lower ad rates. It ate newspapers' breakfast, lunch, and supper as far as used-car ads were concerned.

* Right now, where I live, there are 2 or 3 free weekly employment "papers" (to use the term loosely) that can be picked up at newspaper boxes around the city. They're 1/2 tabloid size. One reason they can use the free model is that they don't have to pay for reporters, etc

* Back in the mid-1980's, "The Real Estate Weekly" came out in Toronto. It was a free 1/2 tabloid put out by the local MLS (Multiple Listing Service), a co-operative venture of local real estate firms. It had a lot more leeway that Auto Trader or the employment weeklies. Auto Trader and the employment weeklies are put out by for-profit corporations. "The Real Estate Weekly" could break even, or even lose a bit of money. But as long as it cost the the member real estate firms less than running ads in local papers, the real estate firms came out ahead.

* Major national chains began printing their own advertising flyers and having newspapers insert them ("advertising inserts"). This cost less than having the newspapers print them. Next step was, with falling newspaper circulation, it became obvious that the newspaper deliveries covered only part of the target market. The only way to cover all of a market was to either...
- have a private firm deliver the flyers door-to-door (suitable for single-dwelling units)
- or send the flyers as 3rd-class "junkmail" to all units in rental and condominium buildings

Notice something about the 4 examples above? There is no mention whatsoever of the internet or the World Wide Web. Even in a pre-web world, newspapers were losing classified ad revenues for used cars, employment, real estate, and retail advertising to non-newspaper competitors. The competitors have now expanded to websites, but the first losses were occuring before the web existed.

To summarize newspapers main problem... their business model requires selling advertising at rates way in excess of cost, and using that margin to pay journalists. That works only as long as you have a monopoly/cartel situation. Once newspapers lost