May 31, 2012The richest man in the world — arguably the smartest and most successful investor — just committed to spending $163 million to buy 63 daily and weekly newspapers. Additionally, he loaned the company who sold him the newspapers — Media General — an additional $400 million. So why would Mr. Buffett invest in an industry that so many have already written off for dead? If the future of "media" is now only digital as so many seem to believe, should we suspect that Mr. Buffett is not quite playing with a full deck?
Well, let me ask you. Would you want to bet against this guy? No, I didn't think so.
So, it is well known that Mr. Buffett is an ultra-conservative investor. He likes to invest in industries that he understands and which have strong competitive advantages. In fact, if he had his druthers, he would only buy companies with dominant or near monopoly positions in the marketplace. His recent purchase of railroad Burlington Northern comes to mind, as do some of his large holdings in IBM, Intel and DirecTV.
So what exactly does Mr. Buffett see in newspapers? While he concedes that newspapers are no longer, as he puts it, "the only megaphone in town," they continue "to deliver news and advertising information that people can't find elsewhere." He goes on to say that "there are still a lot of things that newspapers can do better than any other media."
"They can not only be sustained, but are important," he states.
Of course I agree with Mr. Buffett. How could I not? But there are so many examples that I can offer that support Buffett's confidence that people still need, want and read newspapers in a big way. In the course of a month at our newspapers we are usually inundated with requests for publicity — literally hundreds of requests sometimes. Folks go to the trouble of sending us all those press releases because they know how well-read the papers are. If it were not so, they simply would not go to all the trouble to reach out to us. And it is not something that they even have to think about — "OK, we need a publicity chairman to contact the newspapers." It is still the default. And the leap from linking something that is a known quantity — that local newspapers are still incredibly well-read — to realizing that the advertising in those newspapers must also be exceedingly well-read and used is a short one.
Another competitive that Mr. Buffett is well aware of is the simple fact that local newspapers, now more than ever, are one of the few remaining media that can effectively deliver a broad audience. For example, if you want to reach 90 – 95 percent of every single-family household in Johns Creek at once, it's easy; one ad in the Johns Creek Herald does it — fast. Cable can't do it; there are hundreds and hundreds of cable channels. Same thing goes with network TV and DirecTV because they compete with all those cable channels. You can Facebook until the cows come home and never ever reach a significant percentage of households in any specific geographic area. Same thing with Twitter, Pinterest or all the Google ad words you can buy. They cannot reach a large geographically targeted audience effectively. Newspapers still can.
And we all recognize the following companies or their products because they invest a large percentage of their marketing budgets in building and supporting "brand awareness" — Nike, Coke, John Deere and products (all belonging to Proctor and Gamble) Tide, Pampers, Kleenex, Cascade and Scope to name just a few. The Internet and "digital" cannot build "brand," but newspapers and "print" can and do.
Every day, the Internet offers more and more choices for consumers — millions of new Web pages created every day, 365 days a year. Another way to say that is that every day, the probability that your Internet ad or site will be seen diminishes. But there are only a couple newspapers out there and the probability of your advertising being seen and read is great.
I recently reviewed our readership surveys from 2004 to the most recent one in 2011. Same questions and same scientifically valid sample. Readership, use, utility, interest and "effectiveness" of both news and advertising remained constant — virtually unchanged despite the rise (some would say "fragmentation") of the Internet — including social media. Frankly, I was somewhat surprised, but pleased nonetheless.
Maybe Buffett is right again. He says that newspapers "tell me everyday things that I can't find elsewhere...Most of those items, overwhelmingly, are local. They do tell me a lot about my city, about local sports, my neighbors, about things I want to know."
Who am I to argue with the world's smartest investor?