Warren Buffett's surprise move to buy the Omaha World-Herald Co. could serve as a blueprint for similar transactions in the future, media industry watchers and analysts say.
The deal — in which an extraordinarily wealthy individual swooped in to purchase his hometown newspaper — is similar in some ways to two other recent or pending newspaper acquisitions:
In late November, Platinum Equity sold the San Diego Union-Tribune for $110 million to a local businessman and developer. Currently, the Chicago Sun-Times is in talks with an ownership group that includes two Chicago businessmen.
As Ken Doctor, a media analyst for Outsell Inc., put it in a Friday blog post: "So what do we make of the three recently announced sales? In each case, there's a strong, willful buyer, bucking conventional business sense to bull ahead into 2012."
What the pending World-Herald sale to Berkshire Hathaway has that those other examples lack is the "white knight" flavor of Buffett and his motivations to preserve a free press and the company's long-standing Omaha ownership, Doctor said.
"It seems like Buffett more than Berkshire Hathaway is coming forward because he sees the local value of newspapers, even if they aren't great profit machines," Doctor said. "We will see more of it. How much? That depends on how many properties come open on the market."
The employee-owned newspaper's sale — which is subject to a Dec. 20 World-Herald shareholder vote — would solve a long-term financial problem: how to pay off older shareholders as fewer young employees purchased stock in the company.
In an interview with The World-Herald on Wednesday, the day the $200 million transaction was announced, Buffett said the purchase of The World-Herald differed from typical investments made by Berkshire.
"We would normally not be doing a deal of this size in any field unless it was a bolt on to some business we already had," he said. "But this is special."
It's special, he said, because it's Omaha's paper, and if there's a community he understands, this is it.
"Unquestionably the fact that I know this community has a great future is a factor," Buffett said. "If there's any place a newspaper will do well, it will be in a state and a city that is growing. Retailers are coming here. The city will expand over time. And it will always have a strong sense of community.
"That is key to a newspaper."
In the newspaper industry there are approximately 1,500 daily publications, Doctor said. And a good chunk of those are corporately owned.
Gannett owns 82 daily papers, Lee Enterprises owns 52 and McClatchy owns 30. Together, the top 10 newspaper companies, Doctor said, hold about 300 papers, and the majority of newspaper companies overall are owned by corporate entities versus being privately or family owned.
"For the time being, nobody's out there buying newspapers, except for Mr. Buffett," said Ed Atorino, an analyst for Benchmark Co. "But, yes, this would be the model for wealthy individuals in smaller communities to buy up their local newspapers.
"It's admirable, I have to give (Buffett) credit."
Nicholas Lemann, dean of the Columbia University Graduate School of Journalism in New York City, said Wall Street no longer sees the newspaper industry as an area of tremendous financial possibility, which will likely prompt more local owners to step up.
Lemann said newspapers are of cultural, social and political importance and eventually could be operated in a way similar to museums, symphony orchestras and local universities.
"Wealthy people in the community would support them," Lemann said, "because you're not going to find purely financially driven decisions anymore."
Alan Mutter, a former newspaper executive who now writes the media industry blog Reflections of a Newsosaur and is a faculty member at the University of California, Berkeley's Graduate School of Journalism, said Buffett's move reminds him of the early days of publishing, when papers were owned by wealthy individuals with the intention of providing "stewardship" to the community by distributing critical information.
After World War II, the industry's makeup changed. Corporations began gobbling up print properties more for their shareholder value and earnings potential than for their civic importance, Mutter said.
But in recent years, newspapers have been a less attractive investment. In 2005, the industry posted annual revenues of about $49.5 billion. In 2011, the entire industry won't make $24 billion, Mutter said.
Lee Enterprises, the owner of the Lincoln Journal Star, announced Friday that it will file for Chapter 11 bankruptcy reorganization on or about Dec. 12 after efforts to work out an out-of-court refinancing deal with its lenders failed.
Like the financially troubled Journal Register Co., Tribune Co. and Freedom Communications Inc., Lee borrowed heavily to make acquisitions before print advertising revenue was hit by both the recession and increased competition from the Internet.
"Internet broadband use in homes started to soar at exactly the same time the newspapers' ad revenues started to decline," said media analyst John Morton of Morton Research Inc.
Now, Mutter said, "The prices people are paying (for newspapers) are teeny, tiny fractions of what they would have paid seven to 10 years ago. Because of problems in the industry since 2005, the market of newspaper buyers has dried up. There have been very few transactions."
One recent transaction — Colorado billionaire Philip Anschutz's September purchase of Oklahoma City's the Oklahoman — wasn't even centered solely on the newspaper. In addition to his purchase of the Oklahoma Publishing Co., Anschutz also received multiple real estate and manufacturing properties, and an upscale resort in Colorado Springs, Colo.
For the industry, Buffett's purchase of the Omaha World-Herald Co. and its properties is an "encouraging sign," said Caroline Little, president and chief executive officer of the Newspaper Association of America.
Little declined to comment on the transaction specifically, but said if similar deals were to happen, they could give newspapers some financial wiggle room to invest in innovations and discover new revenue streams, such as charging for exclusive digital content — models that already have been implemented by many newspapers, including The World-Herald.
Atorino bluntly disagreed, saying the industry should not be encouraged by Buffett's purchase.
"This is not a big deal," he said. "I don't think (Buffett) is making an investment to say the newspaper business is in good shape. I think he's saving the local paper."
Doctor said Berkshire's investment will buy The World-Herald time in a struggling industry. However, he said, if newspapers don't continue to adapt to digital trends and revamp their business models, they will continue to encounter financial barriers.
"You need a cushion, and I assume that Berkshire is providing a cushion as (The World-Herald) moves ahead with transition plans," Doctor said. "It's not an easy transition. And it will probably take a minimum of between three and five years.
"You need a capital cushion — if you can get one."
World-Herald staff writer Henry J. Cordes contributed to this report, which includes material from the Associated Press.
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