Free News Unsustainable, Says Warren Buffett 198
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?"
What's wrong with Warren Buffett? (Score:5, Informative)
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:hardly (Score:3, Informative)
...when so many people are happy to do it for free.
Omaha World-Herald (Score:5, Informative)
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.
Re:The End of Free? (Score:5, Informative)
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.
The killer is the loss of advertising revenue (Score:5, Informative)
> 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 [blogspot.ca] 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 [manta.com] 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