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In May, Berkshire Hathaway (NYSE:BRKA) struck a deal to acquire 63 newspapers, and now Chairman and CEO Warren Buffett says he may buy more publications as the industry rethinks the prevailing model of offering free content online.
In a letter to editors and publishers of Berkshire’s daily newspapers, Buffett said offering free content is “an unsustainable model,” noting that some papers have already begun to make progress in “moving to something that makes more sense” — that is, finding a way to charge readers rather than depending wholly upon advertising.
“We want your best thinking as we work out the blend of digital and print that will attract both the audience and the revenue we need,” said Buffett, who on May 17 announced a $142 million deal for Media General Inc. (NYSE:MEG) publications, including the Richmond Times-Dispatch of Virginia.
Buffett is betting mostly on papers with a community focus. Though circulation may slip, he said, papers only fail when there are dailies competing in the same town, in which case a publication forfeits its positions as the primary source of locally important information, or when the market doesn’t have a sense of identity.
“We don’t face those problems,” Buffett wrote in the letter dated May 23 and posted on the website of Berkshire’s Omaha World-Herald, which is in the Nebraska town where Buffett’s company is based. “Berkshire will probably purchase more papers in the next few years. We will favor towns and cities with a strong sense of community.”
Berkshire is the single largest shareholder in Washington Post Co. (NYSE:WPO), and purchased the World-Herald last year. In its deal with Media General, Berkshire gave the company a $400 million term loan with a 10.5 percent interest rate, and received warrants for about 4.6 million Class A shares.
The newspaper industry has recently begun embracing digital subscription plans, a change Buffett thinks will help keep papers afloat. The New York Times (NYSE:NYT) Media Group began charging readers to access its articles online last year, and as of March, had attracted about 454,000 paying subscribers. For $15 a month, a subscriber can have unlimited access to the website and to the New York Times smartphone app. For $20 per month, the subscriber has unlimited access to the site and the tablet app. Douglas Arthur, an analyst at Evercore Partners, estimates the so-called paywall will bring in $125 million next year for Times Co.
Gannett Co. (NYSE:GCI), which owns 82 daily newspapers, also plans to begin charging readers to access online content, except for flagship USA Today.
T0 ensure that papers are able to use the subscription model, Buffett said editors should focus on making them “indispensable” to local communities. “Our future depends on remaining the primary source of information in certain subjects of great importance to our readers,” Buffett wrote. “Technological change has caused us to lose primacy in various key areas, including national news, national sports, stock quotations and employment opportunities. So be it. Our job is to reign supreme in matters of local importance.”
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