Newspapers can seem like a terrible investment. Circulation and advertising revenues have crashed as the Internet has surged. Staffs have been cut, slimming the volume and depth of coverage. On Wednesday, for example, The New York Times said it was cutting about 100 newsroom jobs, as well positions from its editorial and business operations. And small gains from online ads and other business-side experiments are still nowhere near to making up the revenues lost from print ads and classifieds.
Despite the doom and gloom, some of the savviest investors in the world are buying in. Billionaire Warren Buffett bought 28 regional newspapers for $344 million over 18 months in 2011, 2012 and 2013; his BH Media Group now owns 69 titles. Amazon founder Jeff Bezos bought The Washington Post in 2013 for $250 million. And former hedge fund manager and Red Sox owner John Henry bought The Boston Globe last year for $70 million.
Why? One reason is that they see value. The beat-up papers were relatively cheap to buy and, with their newfound financial stability and some tweaks, could still make a modest profit. The investors, especially Henry, have also expressed a sense of civic duty. They want to protect venerable producers of quality journalism and, some might say, earn the prestige of saving an important local institution. Call it a profit hedge.
But it's not just about meager returns or charity. Buffett, Bezos and Henry are investing in innovation in the hopes of actual growth. People may not yet be paying much for news now, but they are reading it in record numbers on their computers and, increasingly, their smartphones and tablets. It's in that demand that they see the long-term potential for digitally driven profit.
Indeed, the investments that Buffett, Bezos and Henry are making today provide clues as to what newspapers could look like in 25 years. If the men succeed, their efforts today point to a newspaper industry in 2039 that will be highly targeted and geared toward a nearly all-digital audience.
"There's a glimmer of a hope for a growth story. That's what everyone's looking for," said Dean Starkman, a media critic and former Columbia Journalism Review writer.
"We know there's high demand—there's a market for this," Starkman added. "The question is who's going to be able to figure out the model where the costs of producing high quality journalism and high quality information in the public interest don't exceed the revenue that you can generate from it."
Newspapers, while small compared to Berkshire Hathaway's usual acquisitions, fit the rubric for Buffett, who is worth an estimated $68 billion and is perhaps the nation's most famous value investor.
Buffett was once bearish on the business, saying in 2009 that he would not buy most of the newspapers in the U.S. "at any price." But he ultimately saw value in dozens of relatively small papers that could be purchased on the cheap, including the Tulsa World, the Winston-Salem Journal and the Greensboro News & Record.
"At our cost, … I believe these papers will meet or exceed our economic test for acquisitions. Results to date support that belief," Buffett wrote in a 2013 shareholder letter.
Buffett even said he'd buy more. "At appropriate prices—and that means at a very low multiple of current earnings—we will purchase more papers of the type we like," Buffett wrote in 2013. (Terry Kroeger, CEO of Buffett's BH Media Group newspaper unit, declined to comment for this story.)
Henry, a local hero after bringing three baseball championships to long-suffering Boston fans, bought the Globe for a mere $70 million from The New York Times Company. The Times paid $1.1 billion for it in 1993. Henry is worth an estimated $1.4 billion, according to Forbes
"The belief [is] that he and the right team could get it to a place that the business model was sustainable and viable long-term," Globe CEO Mike Sheehan said in an interview.
Bezos paid more than Buffett and Henry. But the Post's value had declined substantially; it was estimated to be worth $2 billion a decade ago. Bezos is also worth an estimated $30 billion, according to Forbes. (A spokesman for Bezos at Amazon did not respond to requests for comment.)
"We're not in free fall. You're doing more than bailing water. You can sort of imagine a strategy and manage it. That's one thing that creates these preconditions [for buying newspapers]," said Tom Rosenstiel, executive director of the educational nonprofit American Press Institute.
The U.S. newspaper business may be stabilizing after years of decline. Thanks to more use of paywalls, circulation revenue for papers recorded a second-consecutive year of growth in 2013, rising 3.7 percent to $10.87 billion, according to the Newspaper Association of America. Total revenue for the U.S. newspaper media business was $37.6 billion in 2013, a slight decline from $38.6 billion in 2012. While income from print advertising declined, revenues increased from digital ads, direct marketing and other newly developing sources.
"This trend reflects an industry evolving its business model in a significant way, taking advantage of developments in technology, consumer behavior and advertiser interest, to grow audience and diversify its revenue stream," NAA said in announcing the numbers.
Reverence for the institution of journalism was apparent for all three investors.
"I see The Boston Globe and all that it represents as another great Boston institution that is worth fighting for," Henry wrote. "Some people have expressed puzzlement about this investment because they expect that the purchase of a business is based on the pursuit of profit. But this investment isn't about profit at all. It's about sustainability. Any great paper, the Globe included, must generate enough revenue to support its vital mission."
Henry considered leading a philanthropic effort to buy and care for the paper, according to a Boston Magazine profile, but ultimately decided against following the likes of nonprofits ProPublica, started by mortgage magnates Herbert and Marion Sandler, and First Look Media, recently launched by eBay founder Pierre Omidyar.
Buffett has also hinted at the exceptional nature of his newspaper investments.
"Our newspaper purchases are of smaller size, measured by dollar cost, than the businesses we normally consider buying. Nor will they move the needle in terms of Berkshire's economic value, though I expect their contribution will likely be commensurate with our investment," Buffett wrote in a letter to editors of his newspapers in 2012. "But the papers are every bit as important to me—and, for that matter, to society as other businesses we have purchased for many billions of dollars."
Bezos has also made it clear he sees the civic value. "Newspapers, and in particular The Washington Post, are important components of free societies," Bezos told employees in September 2013, shortly after announcing plans to buy the paper. "For me, it's an exciting opportunity to participate in something that's a pillar of a free society."
As media critic Starkman puts it: "This is not a strictly dollars-and-cents affair."
Value and civic duty aside, the big investors are treating their newspapers as places of innovation that could shape the future of the medium.
"This is a tough nut to crack," Bezos told Post employees. "But there are so many good degrees of freedom. There are so many variables, so many knobs that can be turned and things we can experiment with that I'm very optimistic that we'll find something that readers love and engage with that you can charge for."
One hint at the future of the Post—and potentially across the industry—is Bezos' emphasis on translating the traditional "bundle" of print newspaper sections into a digital, hand-held format.
"I'm less optimistic about the desktop Web than I am about tablets. … We can figure out that bundle. I'm also very optimistic that the reach of the Internet will give us a bigger paying audience," Bezos told employees.
Another indicator of the Post's future is a new national content sharing arrangement. The program allows for nearly 100 partner publications, including The Dallas Morning News, The Minneapolis Star Tribune and The Pittsburgh Post-Gazette, to offer the Post's digital products free. In return, the Washington-based paper gets much wider exposure for its stories and presumably new customers to track and market to.
Bezos has made it clear he was willing to invest to innovate. "I concluded that I could provide a financial runway," Bezos said of his rationale to buy the Post. "You can be profitable and shrink, but that's a survival strategy that ultimately leads to irrelevance at best and at worst leads to extension."
Instead, Bezos said, he wants to grow revenue. So far, the Post has added about 60 editorial staffers in an attempt to achieve that.
"He was persuaded that the time was maybe right, the price was right, and if you brought the same notion of being a data-driven technology company that was engaged in content production, that you would sort out a business," said media expert Rosenstiel.
Buffett's goals appear more modest. His BH Media Group is focused on bringing small and mid-sized papers fully into the digital age with a focus on local news that readers must pay for.
"I 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," Buffett wrote in 2013. He added in the same letter that his papers "should be profitable for a long time."
Buffett's thesis on people paying for local news will likely still be a driving force for the industry in 25 years.
"Newspapers continue to reign supreme, however, in the delivery of local news," Buffett wrote. "Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents."
The "Oracle of Omaha" also said the industry won't get there by cutting costs.
"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," Buffett wrote last year. "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."
Henry's play with the Globe is similarly focused on targeted, regional news.
He has worked aggressively to expand niche coverage, adding weekly sections or stand-alone websites for real estate, politics, sports, the tech scene and Catholicism.
"It's deliberately and boldly taking new steps of doing that which we know is important to readers and doing it in a better way with more investment," Sheehan said. He said the response from advertisers has been positive but Henry don't expect instant profits on such investments.
Henry sees that as a model for others. "My every intention is to push the kind of boldness and investment that will make the Globe a laboratory for major newspapers across the country," he wrote when acquiring the newspaper in October 2013.
Henry, like Buffett and Bezos, believes that improving the newspaper business will take investment, not continued cuts.
"Over the last 10 or 15 years, newspaper readers have been treated to steady cuts in quality. They have been pecked to death by ducks," Sheehan said of why circulation has declined. "You've got start investing. … That's how we're going to build it back."
Sheehan declined to specify how much investment has been made.
While in decline, no one is predicting the printed paper's immediate demise. "Obviously there are benefits to doing print very well, and it's our intention to have the print cycle elongated as long as possible," Sheehan said. In the meantime, he hopes to transition readers "to an exceptional digital experience which they are willing to pay for."
Print aside, Henry's investments may shape what news will become. "Obviously in 25 years, journalism will be delivered in a digital way," Sheehan said. "It will be a different experience, but I think it will still capture that rich connection that readers have with quality journalism."
Rosenstiel summed up how wealthy investors view the industry.
"Investors … see more value than the market in existing properties,"he said. "[They] think 'if these were run better, with some investment and improvement in quality and serve their markets better, then these are good businesses.'"