Charlie and 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.

from Warren Buffett – Letter To Shareholders 2012 on Rap Genius

Meaning

Buffet seems to conflate his belief that people still really, really like local news with the notion that the current newspaper companies will be best positioned to create and distribute local content profitably. Obviously AOL’s Patch effort hasn’t worked out, but its not obvious why a similar idea, executed better, couldn’t replace newspapers as the primary source of local news.

Henry Blodget wrote about Business Insider’s economics, including a line like, “digital revenues can’t profitably support print cost structures but they can profitably support digital cost structures”.

So the question is whether newspapers can change their cost structures quickly enough, but it seems likely the revenue side of the transition from print to digital is easier than the cost side.

The fact that Buffet acknowledges that he doesn’t even know what the newspaper business model of the future will look like is even more striking given all his claims that he wants to see “consistent earnings power” and doesn’t do “turnarounds or new ventures”.

(All this before the question of how much of a generational difference is there in local news consumption, both in terms of quantity and method. For people under 35, local news will take up a smaller percentage of ‘news mind share’ and given Buffet’s hypothesis that people read local news to read about their neighbors, isn’t Facebook more of a competitor here than anything else?)

Buffet’s best argument for why this all could work out is that he’s buying these papers at such low prices that even if they don’t have a profitable future, he could earn his investment back over the next few years as they bleed out. (Also, he has owned the Buffalo News for several decades so likely is one of the most knowledgable people about the returns to capital in the industry so he has that going for him as well.)

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