The Washington Post: Why Jeff Bezos and Not Warren Buffett?
Among the many questions about the sale of the Washington Post to Jeff Bezos, here are a couple I haven’t seen discussed much, except in a post at Fortune on Tuesday: Why didn’t Warren Buffett buy the paper? And what does it mean that he passed it over?
Once the Graham family decided to sell, it’s unthinkable that the legendary investor didn’t get a chance to put in a bid. After all, he served on the board of the Washington Post Company for more than two decades, and the huge conglomerate he runs, Berkshire Hathaway, has been the largest outside shareholder in the Post Company since the nineteen-seventies. (The value of Berkshire’s stake in the company rose to about a billion dollars after the news of the sale, from which Berkshire reportedly stands to make about fifty million dollars.) And in recent years, Berkshire has bought a bunch of newspapers, including Buffett’s local one, the Omaha World-Herald. In his annual letter to Berkshire’s shareholders this year, Buffett wrote, “I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, a widget company.”
[We] believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities—while it may improve profits in the short term—seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.
So why didn’t Buffett buy the Post? One issue may have been the price. In informing Berkshire’s stockholders that he intended to keep buying papers, he stipulated “at appropriate prices—and that means at very low multiples of earnings.” The price Bezos paid—two hundred and fifty million dollars in cash, minus a fifty-million-dollar contribution from the Post toward the future pension costs of its employees—didn’t meet Buffett’s standard, and that’s putting it mildly. In the past twelve months, the Post Company’s newspaper division, which includes some local titles, has posted an operating loss of close to seventy million dollars. Now, most of these losses came in the form of non-cash adjustments, which were related to early-retirement and pension charges. But even if you exclude that stuff, the newspaper division lost about a million dollars over the past year, which means its earnings multiple was negative—hardly a buy signal for a value investor like Buffett.
On the other hand, a million bucks a year isn’t a gaping loss. And under the terms of the sale, the buyer has been largely protected from future retiree costs, which is a crushing issue for almost all newspapers. If Buffett really believed the Post could turn itself around and make some decent profits going forward, he might well have been willing to bear the short-term costs. Evidently, he didn’t believe this—and for good reasons that Bezos will quickly have to address.
The problem with the Post is that it’s neither fish nor fowl—or, rather, it’s both. First and foremost, it’s a metropolitan newspaper with a near monopoly on the market in D.C. and its environs. I don’t know what the figure is these days, but years ago it used to have a market share of more than ninety per cent, which translated into a very lucrative business of selling advertising space for things like real estate, job openings, and retail. But the Post was (and is) also a paper with ambitions of challenging the Times and the Wall Street Journal on the national stage, which means it has to spend a lot of money on national and international reporting.
As long as its local advertising franchise held up, its two roles were complimentary. The ads paid for the news budget and allowed the paper to keep its cover price low. (For years, it was twenty-five cents on weekdays.) But as the ads moved online and the paper shrank, those two missions started to come into conflict with each other. With ad revenues shrinking, the paper was forced to cut back on staffing and raise its price. That hit circulation, which reduced the prices the paper could charge for the remaining ads. The Grahams were in a bind. They didn’t want to give up on the Post’s larger ambitions by taking an axe to the editorial budget, but they were unwilling to see the paper drag down its parent company’s earnings and stock price. Failing to see a way out of the downward spiral, they eventually decided to sell.
Assuming he means to run the Post as a business rather than a philanthropic or vanity project, Bezos will have to make a choice. One option will be to double-down on the fast-growing economy of D.C. and its environs, and make the Post a comprehensive multimedia portal for the region, with localized print editions and Web pages, detailed local listings, and extensive coverage of things like crime, restaurants, and sports. Buffett is right: there’s still a market for this sort of product, especially when it’s delivered across various media platforms at an affordable price. But it’s a relatively modest market that is unlikely to sustain overseas news coverage, lengthy investigative projects, and other costly journalistic pursuits.
The other option is riskier but more ambitious: rekindling the spirit of Ben Bradlee and challenging the Times as the affluent, thinking person’s newspaper. Such a strategy would involve beefing up—and livening up—the paper’s coverage of politics, which once set the standard but in recent years has been challenged by the Times and by other news organizations, like Politico and Roll Call. It would mean expanding the paper’s lifestyle and cultural coverage, which is relatively weak, and using the Web in innovative ways to attract readers outside the D.C. area, especially younger ones. If Bezos is intent on making the paper pay for itself, it would also involve charging the readers of the Post more, both online and offline. (Even today, after a series of price rises, the weekday print edition of the Post costs just $1.25—half the price of the Times.) Most of all, such a strategy would involve rebranding the Post as a cool multimedia product rather than a gray pile of dead wood.
Even if Bezos did all these things, and added a few tricks of his own, there would be no guarantee of success. (The Times has already tried most of these tactics, and it’s still struggling financially.) But it would be interesting to watch.
Above: Warren Buffett talks with the Post’s Don Graham and Google’s Eric Schmidt in 2005. Photograph by Douglas C. Pizac/A.P.